In this sponsored advertorial, NewStore reveals how TCO and ROI can transform your tech stack and the way you trade.
As a retailer in today’s rapidly evolving landscape, delivering seamless shopping experiences across physical and digital channels is no longer optional - it’s expected.
This shift presents a critical choice: stick with familiar legacy systems or upgrade to modern commerce solutions.
While legacy systems may seem comfortable, they can limit scalability, security, and adaptability. On the other hand, modern commerce solutions, though requiring higher initial investments, offer the flexibility and innovation essential for future-ready retail.
To make this decision, it’s vital to assess Total Cost of Ownership (TCO) and Return on Investment (ROI). These metrics reveal the long-term financial and operational impacts of your choices, allowing you to invest in technology that aligns with growth goals and enhances competitiveness.
Legacy Systems vs. Modern Commerce Solutions: The Real Cost
Legacy systems may appear economical at first but often come with hidden costs. Maintenance, operational inefficiencies, and integration challenges can quickly add up, limiting agility. “Technical debt” — the accumulation of quick fixes and workarounds — increases TCO, complicating updates, and reducing efficiency.
In contrast, modern commerce solutions, although they require higher upfront investments, are designed for omnichannel demands. They provide scalable infrastructure, enhanced security, and seamless integration, enabling swift adaptation to market changes. By reducing technical debt, modern solutions cut down maintenance costs and enhance ROI through efficient operations.
Leveraging TCO and ROI to Inform Commerce System Decisions
Evaluating both TCO and ROI gives you a strategic framework for deciding between legacy and modern solutions. While TCO highlights long-term expenses, ROI sheds light on the revenue and productivity gains achievable through a modernized approach. Together, these metrics offer a balanced view, allowing you to weigh both the costs and profitability of digital transformation.
Operational Efficiency and Cost Savings
Modern commerce solutions streamline operations, reducing costs through automation, real-time analytics, and system integration. These improvements impact various areas, from in-store processes and customer service to order management and supply chain efficiencies. Automation, for instance, can cut staffing and shipping costs, reduce overstocking, and improve energy efficiency, yielding savings across the board.
Research by McKinsey & Company underscores cost optimization as a significant benefit of modern commerce systems, demonstrating the long-term value of these investments. With modern solutions, you’re better positioned to allocate resources effectively, boosting operational efficiency and freeing up capital for growth.
Risk Mitigation and Compliance
The retail environment today is fraught with unique risks, from cybersecurity threats to complex regulatory requirements. Modern commerce solutions address these challenges with built-in encryption, regular audits, and compliance support that protect revenue and brand reputation. Staying current with technology helps defend against cyberattacks, safeguard customer data, and maintain alignment with industry standards.
A composable commerce approach allows for the integration of best-in-class technologies tailored to your needs. This flexibility minimizes technical issues, enhances customer experience, and builds consumer trust. Addressing risk and compliance with modern solutions provides a secure foundation that bolsters customer loyalty and revenue stability.
Enhancing Employee and Customer Experiences
Modern commerce solutions benefit employees and customers alike. Intuitive interfaces simplify workflows, boosting employee productivity and satisfaction. For customers, personalized experiences driven by advanced analytics foster brand loyalty. Integrated systems enable quicker response times, smoother operations, and a cohesive brand experience that sets your business apart.
Investing in modern systems also improves employee morale by easing task burdens, making them more engaged and effective. This, in turn, positively impacts customer satisfaction and loyalty.
How to Calculate TCO and ROI: Actionable Steps
TCO reflects the full cost of owning and operating a commerce system. For an accurate view:
- Start with initial investment costs, including software, hardware, and installation.
- Add in maintenance and operational expenses like updates and system support.
- Account for integration, scalability, and compliance costs to ensure seamless operation across your business functions.
- Don’t overlook hidden costs like technical debt, which can significantly impact long-term TCO if not addressed.
ROI provides insight into the potential profitability of a new system:
- Determine total investment costs, including purchase, implementation, and ongoing maintenance.
- Estimate revenue gains from increased sales, productivity improvements, and cost savings enabled by the new technology.
- Subtract the total costs from the revenue gains to get net profit. Then, calculate ROI by dividing net profit by total investment and multiplying by 100 to get the ROI percentage.
Assessing these metrics can be complex, but tools like a TCO calculator designed specifically for retailers simplify the process by factoring in hidden costs, specific business needs, and KPIs.
Charting a Path to Digital Transformation
In today’s fast-paced retail environment, understanding TCO and ROI is essential for making informed decisions about replacing legacy systems with modern commerce solutions. By carefully evaluating these metrics, you can uncover cost savings, efficiency gains, and revenue growth opportunities inherent in digital transformation.
Get started with our TCO calculator to make informed choices that drive your business forward.