ComputerLink articles by Brian Pitre

Steps to Determining the Cost of an E-commerce Project

As an E-business Solutions provider, the most frequent question I hear is “What will the project cost?” I think the appropriate answer is something close to “how big is big?” or “how small is small?”

Prospective clients rarely provide enough information to even begin to provide the answer to that question. Even if you are armed with the right information it is still a time consuming task to provide an accurate answer. 

There are two key methods of how to budget a project.  The first is the direct method where a budget is initially determined, and from there you can determine what can be done within that budgeted amount. Alternately, you can build a budget from the bottom-up, establishing specific objectives and determining what it would take to meet those objectives. In either case, return-on-investment should be the chief determining factor. 

The following are some of the considerations for determining the cost of an e-commerce initiative: 

Estimate the Market

The beginning point for a bottom-up budget starts with defining the potential market size you are trying to address. Next, figure out how much penetration can be expected due to the marketing effort that has been budgeted. Marketing is often the most overlooked factor in making an e-commerce project successful. Marketing budgets for Internet projects are typically 2x, 5x, or 10x the cost of the infrastructure and Web development portion of the project.

The Brand Strategy

What is your intended brand strategy? Are you taking an existing brick and mortar business and transforming its business to the Web? This is a great strategy as long as it’s properly marketed. If you are building a new dot com business, brand must be built from the ground up, which can be very time consuming and more expensive.

Marketing Communications

Your presentation to the customer takes on high importance in regards to your budgeting process. Some options you will face include determining the level of creative, graphics, and marketing communications you will engage. Will you use a creative director or simply use clip art? Are you intending to use professional writers creating site copy or is there someone within your organization prepared to do that? These issues can significantly change the price of the project.

Transactions

You will need to decide what types of electronic transactions are to be performed. Some of the questions you should ask yourself are whether you plan to deploy the use of classified advertisements or auctions and are you expecting each transaction to be one-of-a-kind or do you expect to interact with the customer repeatedly? Simple low cost e-commerce ordering systems force customers to repeat the process of typing in transaction information redundantly. The alternative is to deploy a system based on user profiles, which allows for management of personal data in a database. The key advantage in this process is that you can make use of previous order history and other pertinent information. 

Some other key questions to decide upon are: Will you be implementing an Online catalog? Is the catalog in an electronic form easily adapted to the Web? How many product sku’s are to be presented and maintained? Will you do Online credit card processing or use an existing merchant terminal? What shipping options or shippers will be offered and do they use zone-shipping methods for calculation? How do you intend to treat the issue of sales tax? These issues can dramatically impact the cost of your project.

Communicate with Customers

Are you intending to include Customer Relationship Management, One-to-One marketing, or intending to cross-sell products? Probably one of the most talked about features of Amazon.com is their recommendation feature where they suggest books from your buying habits.  This form of 1-to-1 marketing is very personalized and requires software and systems to support the process so that you don’t end up attempting to sell diapers to a bachelor. 

Backend and Legacy Systems 

Is your e-commerce venture going to be integrated to any backend system or legacy system? Are you intending to include eProcurement, or supply chain integration as part of the overall implementation? Backend integration can be one of the best places to improve the cost savings in an e-commerce initiative. By designing the systems to be fully automated within an organization, major cost savings can occur and the process is streamlined. 

Platform and Infrastructure 

Operating platforms, systems, and infrastructure – unlike classic Information Systems (IS) projects within companies – are uniquely different on the net. The Internet requires you to consider the “anticipated” audience in terms of concurrent visitors and number of transactions. This can get a little sticky since success can be your greatest enemy. If you are met with success, how scalable is your system and it’s infrastructure? Today’s common belief is that the Unix implementations are more scalable and more costly than NT. Typically, the Unix implementations will be far more scalable and much more able to cope with success and high traffic volumes. 

The Real Issue 

The issues covered so far only are the tip of the iceberg in answering the general question of e-commerce project cost. Many times, clients ask blindly to estimate the cost of their e-commerce project and remark that they have received estimates that range from a few thousand dollars to many hundreds of thousands of dollars and they don’t understand why. It’s my experience that if you have a meeting for an hour or two with a number of e-commerce developers and get a finished project proposal, someone will be unhappy, and most likely it will be you. I like to say that when someone takes a stab in the dark about the cost of a project, one of the parties is going to get upset before it’s all over. If you are the customer and move ahead with what seems to be an attractive price, what’s delivered may fall extremely short of your expectations. 

The best way to approach an e-commerce implementation requires following a process. An initial discovery, design, or planning phase that is fee-based can take time, but is extremely valuable to your success. If you are getting ready to embark on an e-commerce initiative, work with an experienced consultant to help you in determining the right approach and in planning your e-commerce strategy to meet your business objectives.