The answer to this question may seem to require a long scientific argument, but as a standard, I will present a simple answer to this difficult business question.
How to implement ecommerce within budget?
Which ecommerce implementation are we talking about?
Time and material billing model
Offers collection and pre-implementation analysis phase
Reestimation of the implementation budget
Likelihood of going over budget
Assumptions about exceeding the budget
What can make the final budget close to the original estimate?
Discrepancies in implementation budget estimates
What to look for when choosing a software house for ecommerce implementation?
When talking to ecommerce agencies from whom you are collecting offers, let them know that you have between 60% and 80% of the assumed maximum budget you plan to spend on the project.
We are talking about open-source ecommerce implementations and dedicated solutions.
For example, if you have 140.000 USD/EUR to implement a store on Magento, inform the ecommerce agency you’re talking to that you have 84.000 USD/EUR at your disposal. If you are willing to take more risk, you can declare you have 112.000 USD/EUR.
By declaring this way, you increase the likelihood that the final budget, after preparing an offer, conducting a pre-implementation analysis, and implementing the online store, will be the 140.000 USD/EUR you assumed at the beginning of the project.
If you would like to understand where these percentages come from in more detail, then I invite you to read on.
We should start the whole story by establishing that we are talking about open-source ecommerce implementations, that is, implementations of platforms such as Sylius, Magento, or Shopware 6 and dedicated solutions.
The second concept I wanted to introduce at the very beginning is Time&Material, a type of billing with an ecommerce agency or software house in which you pay for hours worked.
If a feature requires 12 hours of work to create, you pay for 12 hours by a given ecommerce agency according to a set rate.
For example, the rate is 70 USD/EUR, so your final amount will be 12 hours x 70 USD/EUR = 840 USD/EUR.
Why is this important? The budget estimation you will receive at the offer stage is not the final amount but just an estimate of the amount you will pay for the implementation of the online store.
That is, if a given ecommerce agency estimates that it will implement a store in 200 hours according to an hourly rate of 70 USD/EUR, you have no guarantee that the final amount will be 14.000 USD/EUR.
You only know that it is more or less around that amount. In the end, it may turn out that coding your online store took not 200 but 500 hours. That is, 2.5 times more.
Continuing our story, suppose you approach an ecommerce agency for an offer.
The agency informs you that creating your online store costs X USD/EUR. You agree to this amount and give an “okay” to start work. The agency begins the work with a pre-implementation analysis (Discovery Phase). Experience shows that at this stage, the scope of the project often increases.
You may find that after learning about a particular ecommerce solution’s capabilities, you decide it is worth implementing additional features you did not discuss earlier. On the other hand, some processes may have been overlooked earlier. For example, you might not have thought of a feature that allows you to place orders as a guest. It’s an absurd example, but still.
So, you may decide to add new functionality to your project. As a result, the scope of implementation relative to the original offering increases.
From experience, this increase is usually about 20%. This is an approximate figure, which, of course, can change depending on the circumstances. If your team has a lot of discipline and the coordinator on the agency’s side is a business partner, then you may be able to make out with a 5-10% increase in scope.
After the pre-implementation analysis phase (the discovery phase), the ecommerce agency reevaluates the implementation budget. At that time, it turns out that the original cost, which was discussed at the beginning, has increased to 1.2X.
Suppose the ecommerce agency hadn’t submitted an inadequate offer initially, which had nothing to do with the objectives and was structured to look cheap and win the deal. In that case, it should have increased by about 20% after the discovery phase.
If the increase is four times, the offer was improperly prepared at the beginning, and the agency did not spend too much time and energy developing the offer.
After the pre-implementation analysis is completed, the ecommerce agency starts coding. Once the coding work is completed, the store is ready and launched. Now the question arises – what is the probability that the ecommerce agency will make it within the estimated budget?
The experience of people working on various projects shows that the budget set after the pre-implementation phase is practically always exceeded.
This is because developers are often too optimistic when pricing tasks and there are obstacles in the way that were not foreseen at the pre-implementation analysis stage.
Depending on your risk appetite, you should assume that this budget will be exceeded by 20% to 40%.
If you want to be very safe, you should assume that this budget will be exceeded by more than 65%. Although these are already extreme cases, the probability is very low.
Together with our team, we suggest that you assume about 40%. This will be a safe approach.
Considering that the original budget at the offer stage is X, then that budget increased at the discovery stage by 20%; you already have 1.2X.
You should assume that after the code work is completed, it will increase by another 40%, resulting in a total of 1.68X. Hence, if you say at the very beginning of the discussions that you have 0.6X, then after multiplying this value by 1.68, you will get 0.6×1.68X=1.008X
You already know that the final budget for the implementation of an online store may differ from the estimate from the offer. At this point, the question is how to make the difference between the final budget and the original estimate as small as possible.
The answer is simple. I have pointed out a few points you should pay attention to to make the final budget for implementing an online store as close as possible to the initial estimate from the offer.
Let’s consider where the discrepancies in budget estimates arise.
The first difference occurs at the stage of conducting the pre-implementation analysis. There, some difference appears from the original estimate from the offer.
Then, there is the second difference, which is the difference between what was estimated after the pre-implementation phase and what occurred during the coding of the online store.
Our recommendations for minimizing implementation differences are divided into two stages.
In the first stage, where the first discrepancy (about 20%) occurs, it is important who will manage the pre-implementation analysis on the ecommerce agency side.
I suggest that it should be an ecommerce consultant with extensive experience. Such a person has the authority to discuss what can be left out, what is necessary for implementation, and what is not.
During the fast-discovery stage, new ideas emerge, we review competitor sites more thoroughly, and we would like to implement everything. However, not everything is equally important and has the same impact on the revenue generated later (for example, on the conversion rate generated). You need an advisor to tell you which ideas are good, but we shouldn’t implement them right away because they will increase the implementation budget.
Consider, for example, the implementation of one-step checkout. You want to implement it to increase the conversion rate. However, no studies conducted on a large sample show that one-step checkout generates a higher conversion rate than multi-step checkout. You need someone to initiate, lead, and partner in the discussions.
On the other hand, if you have a Project Manager or Junior Project Manager who is responsible for carrying out the discovery phase, only this coordinator and the developer work with you at this stage of business analysis. If the business person is missing, such a Project Manager will throw anything you suggest into implementation. The genre’s classic is “We want our MVP to include all the functionality of Amazon.”
Ultimately, you will find that your final budget relative to your offering has increased not by 20% but three times. We often meet clients who have already gone through the discovery phase but have found that the difference between this phase and the original offer is so large that they wonder what happened when the budget increased.
If you want to avoid a situation where the budget and estimation for implementing an online store increases several times, you need a business person with experience in ecommerce.
A strong team on the side of the selected ecommerce agency is required already at the pre-implementation analysis stage.
The second stage when discrepancies arise is between the updated estimate and the completion of the implementation. At this point, the coding begins and unexpectedly, we find that the cost, which was supposed to be 100.000 USD, rises to 250.000 USD. Implementation often takes longer than anticipated in the discovery stage. In this context, four aspects are important.
The first is the quality of the pre-implementation analysis. This analysis should describe the scope of work to be done as accurately as possible. If some elements are not precisely described, misunderstandings can arise. The golden rule is that if something is not in the analysis or on the graphic design, then you assume it will be there, and the ecommerce agency assumes it will not. In such a case, the additional cost is borne by the client, who settles with the agency on the Time Material model. Even though the original price may have been lower, the additional costs will still be incurred for elements not precisely defined during the discovery phase.
Let’s take a closer look at what can improve the convergence of estimates with the actual budget.
If the description is vague, programmers may have difficulty accurately estimating the time required to complete the job.
When this happens, it leads to further discrepancies. The less accurately a task or functionality is described, the greater the discrepancies in programmers’ time estimates.
They tend to underestimate the labor intensity. If something is vaguely described, they may estimate that it will take them 16 hours to complete a task, while it may take as much as 32 hours.
From there, another problem arises, as inaccurate pre-implementation analysis inaccurately defines the scope of work.
Without full knowledge, a programmer may make an assumption and start coding, for example, the front end. Once the functionality is coded, the Project Coordinator presents it to the client.
If the client finds he imagined it differently and requests changes, the Project Coordinator will agree to make them. However, the cost of these changes is borne by the client, i.e. you.
Why? Because something was not agreed upon or specified at the beginning. The programmer may have presumed to execute the task in his way, but if it doesn’t meet your requirements, you bear the cost for the improperly executed task at the very beginning, for undoing the changes, and for redoing the task correctly this time.
The less precise the discovery phase, which describes the result and scope of the project, the greater the discrepancies, resulting in a higher budget.
Above all, the discovery phase should provide accurate user stories and acceptance criteria. If you want to see what this should look like, read the post on conducting a business analysis before implementing Magento!
The system architecture should describe what applications are included in the overall ecosystem, what applications the ecommerce system interacts with, how this integration is done, and what is being integrated.
Graphic designs should show at least two break points: mobile and desktop, and all statuses.
It’s not just about getting a product card but also about showing what happens when a product is out of stock and what the design looks like when a product is in sale and has a special price.
The more precise the pre-implementation analysis is, the smaller the gap between the cost estimate of implementing an online store and the actual amount you will pay.
If you conduct a general discovery phase and it is described to yourself in such a way, it may happen that someone will estimate the cost of implementation at 84.000 USD/EUR, and you will pay 411.600 USD/EUR to carry out all the work.
If, on the other hand, the discovery phase is done simply correctly. The result is described in detail, the difference between the estimate and the actual cost will be much, much smaller.
This is why it is worth investing more in the discovery phase. Although it costs more than a general description of the scope, it gives more certainty about the budget and minimizes discrepancies.
You should receive bi-weekly updates on new features and elements to test.
This way, if something goes wrong and mistakes are made in implementing a particular functionality, the sooner these errors are detected, the sooner you can fix them.
If it took 4 months to work on functionality and only after that time will you be shown the final result, and the mistake was made at the beginning of the work, you will lose 4 months and a lot of money.
Therefore, every two weeks, you should receive another increment of functionality and watch the development of the store. The goal is to quickly catch any mistakes and seeing if the store develops as planned.
If you notice in the project schedule that work on integrations is being done very early, this is a good sign.
This shows that your ecommerce agency anticipates that integrations are the most difficult part of the project, where the biggest mistakes can occur.
This is the person who manages the implementation of your online store and quickly reports all risks and problems that arise.
You can simply check this. If you are at the stage of collecting offers, ask which project manager will implement your project.
In addition, ask for a sample report of the week’s risks for a certain implementation project. If the project coordinator doesn’t report any risks, that’s not a good sign.
Project risks are always present. The goal is to spot and discuss project risks as soon as possible. The final implementation budget will be close to estimates if these issues are properly managed.
If not, the final implementation budget can increase significantly, not just by 10% or 20%, but even by several hundred percent.
Finally, one important observation from my observations of the market.
When choosing an e-commerce agency to work with, pay attention to the budget, of course, but also to the likelihood of exceeding that budget.
For example, one agency may offer 134.400 USD/EUR another 145.600 USD/EUR, another 179.200 USD/EUR, and someone may offer implementation for 39.200 USD/EUR.
Everything is fine if the probability of exceeding this estimate is the same in each case. However, you should pay attention to not only the comparison of budgets but also the assessment of the probability of exceeding this budget by a given ecommerce agency.
That is, someone may propose 179.200 USD/EUR, but looking at the processes implemented by this agency, you can say that the probability of exceeding this budget is relatively low.
Someone else may propose 106.400 USD/EUR, but looking at how this agency implements projects, one can conclude that the budget will be exceeded several times.
The final budget may differ from the one proposed in the offer. It is important to choose an e-commerce agency that minimizes this difference and controls the budget.
A simple solution to stay within budget when implementing open source or dedicated ecommerce is to assume that if you want a final budget of X, you should inform the ecommerce agency at the offer collection stage that you have between 0.6X and 0.8X.
This way, if you choose an agency that does a solid business analysis and does a good job at coding, the final budget will be the assumed X.
If you are considering Magento implementation, contact us. We will prepare a solid estimate for you for the implementation of your online store and present our plan of action so that the final implementation budget will be as close as possible to the original estimate.