Overview

Total Cost of Ownership

Total Cost of Ownership

The Total Cost of Ownership (or TCO) for your shop is the total cost of building, maintaining and hosting your shop. The calculation has several variables that depend from case to case, so it's impossible to have a perfectly accurate estimate, but we'll take the following scenario: you want to build a Magento 2 shop with a PWA frontend and a few key functions for your business that has an online annual turnover of €10M.

You have the option of hiring in-house developers, hiring a web development company to build and maintain your shop or choose a Software-as-a-Service solution.

In-house Development

The in-house development team requires various roles (project manager, UX designer, frontend developer, backend developer, QA and DevOps) which need to be managed by multiple people. In addition, keeping the team engaged and recruiting new developers whenever personnel changes occur is especially challenging.

Assuming a team size of 4 full-time employees, depending on where your team is located, can cost anywhere between €35k/yr and €80k/yr per developer, so this would total €140k to €320k yearly, or €230k/yr on average. A downside is that due to the small team size, time to launch of the 1.0 version can take 6-9 months and afterwards the team will need to receive a constant backlog of work; every few years, a new major version will be built, which will again keep the team busy.

With an in-house team, all costs are constant, so we can assume the following calculation

Development Team€230,000/yr
Hosting€12,000/yr
TCO€242,000/yr (2.42%)

Agency

The benefit of hiring an external agency is that it doesn't need to be constant in size, so you can have 7 full-time developers in the build phase and partial time from various roles adding up to only the equivalent of 1 full-time developer afterwards. The recruiting and engagement of the team are no longer your responsibility, but your control is also limited.

The build cost of a solution varies a lot depending on the location of the team, the complexity of the work and therefore the seniority of the roles needed as well as how the development agency decides to allocate the team. For a team with the experience needed to develop a PWA Magento 2 shop with cloud deployment, a blended rate between €400/day and €1,200/day, is expected, depending on team location. Assuming a 500 man-day project (project management, UX, frontend PWA development, backend Magento 2 development, QA and cloud deployment) would be reasonable, and it would result in a €200k - €600k initial cost. The lifetime of a solution, as in the time from launch until a complete rebuild is needed can be anywhere from3 to 10 years, so assuming a 7 years lifetime, this would add up to €29k/yr - €86k/yr cost.

After launch, a maintenance cost of 20 man-days/month would be typical for security patches and version upgrades, tuning of the hosting setup and small features; larger feature development would come at an additional cost. Hosting setup would probably favor stability without intervention over cost, compared to in-house or SaaS offerings, so its monthly costs are expected to be slightly higher.

Offshore TeamLocal Team
Solution Development€28,571/yr€85,714/yr
Maintenance€96,000/yr€288,000/yr
Hosting€18,000/yr
TCO€143,000/yr (1.43%)€392,000/yr (3.92%)

Zento Software-as-a-Service

Unlike with the in-house or external development teams where you have considerable investments and own the code, but also the responsibility of maintaining it, with Zento you pay a subscription fee to use the solution as long as it is the right fit for you, but you have the freedom to move to another solution if your business needs change.

For a €10M/yr annual turn-over, as assumed in this scenario, the costs would be:

Setup€29,000 one time€4,142.857/yr
Subscription€5,990/mo€71,880/yr
Hosting€1,100/mo€13,200/yr
TCO€89,223/yr (0.89%)

Conclusion

The costs associated with the in-house and external development teams building your custom M2+PWA shop result in a TCO between 1.4% to 3.9% assuming an annual turnover of €10M, however that percentage goes up if the executed turnover is lower. The percentage could theoretically go down with higher turnovers, but usually with higher revenue the business needs also increase resulting in higher maintenance costs too.

Side-by-side comparison for the €10M turnover

In-HouseLocal AgencyOffshore AgencyZento
Development€230k/yr€86k/yr€29k/yr€4k/yr
Maintenance€288k/yr€96k/yr€72k/yr
Hosting€12k/yr€18k/yr€18k/yr€13k/yr
TCO€242k/yr€392k/yr€143k/yr€89k/yr
2.42%3.92%1.43%0.89%
Time To Market9+ months6+ months6+ months1 month

However, when the yearly turnover goes is €5M, many of the costs associated with an inhouse team or external development team remain the same, resulting in the same total cost of ownership as an absolute value, but with a much higher percentage: a TCO of 242k/yr for an inhouse team would represent 4.8% at a €5M turnover, while the agency solution would be between 2.8% and 6.6%.

On Zento, both the setup and the subscription fees would be lower at a €5M turnover, resulting in a €58k/yr TCO which is 1.1% of the anual turnover.

The total cost of ownership, size of up-front investment and long-term financial commitments make up a big part of the business decision, but if you'd like to know more about other factorslike Features or Hosting, continue reading this knowledge base.

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