Introduction

Switching eCommerce platforms is an important decision that can put your business on a path to greater online revenue. From your site’s load time to the protection of your customer's payment data to your growth potential, your choice of an eCommerce platform affects much more than just your monthly payment.

One of the most fundamental platform decisions companies have to make is whether to leverage a software-as-a-service (SaaS) platform, which means outsourcing hosting and backend management to a company specializing in eCommerce or selecting a platform that requires the retailer to provide on-premise hosting and management.

BigCommerce takes a deep dive with the SaaS Versus On-Premise: The eCommerce Platforming Showdown whitepaper outlining six things you need to consider when making these important business decisions. For the purpose of this article, we'll be focusing on some of the differences in costs.

On-premise eCommerce Platforms

When looking at the cost of an on-premise platform like Magento, the first numbers you’ll see are the licensing fees. Magento’s on-premise options include the Community Edition, which is open-source and free, and the Enterprise Edition, with licensing ranging from $22,000 to $125,000 per year based on annual gross sales revenue. However, it’s important to note that these numbers are only part of the total cost of ownership.

Your total costs include:

  • Licensing: $0 to $22,000 per year and up.
  • Infrastructure: Costs for web/app servers, databases, firewalls, and load balancers.
  • Development: Programming, design, and app integration costs.
  • Managed support: Fees for updates, troubleshooting, bug fixes, patches, and training.
  • Hiring technical staff: One dedicated employee on staff at a cost of $50k-$120k/year depending on your market.

Forrester estimates that 80% of on-premise spending goes toward maintenance, while 20% is used for new projects and initiatives. This doesn’t automatically mean an on-premise solution isn’t right for your company, but it’s a decision to go into with your eyes wide open, recognizing that maintenance will be a major time and budget commitment.

Saas eCommerce Platforms

SaaS platforms offer a couple of major cost savings: 1)they’re managed by companies that have economies of scale working in their favor, and 2) they’re typically priced to grow with your company rather than requiring high up-front expenditures.

With a SaaS platform, your total cost of ownership includes:

  • Value-based fees: $12,000 to 30,000 per year and up based on value metrics (pay more as you grow)
  • Development, design, and app integration costs: Full access to front-end code for your development/design firm and open API for business app integration

Research has shown that SaaS solutions can cost up to 50% less than on-premise solutions over a four-year period. One quick way to find out what these savings would look like for your company is to use BigCommerce’s Total Cost of Ownership Calculator to compare the entire cost of using an on-premise solution vs. a SaaS eCommerce platform.

Conclusion

This is a clear-cut contrast. The lifetime cost of SaaS platforms is significantly lower than on-premise solutions, primarily due to the complexity and cost of building and maintaining an in-house data center. For more information, you can download the complimentary BigCommerce white paper here.

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