In eCommerce, focusing solely on TCO isn’t enough. Explore how strategic cost management promotes lasting value and enhances customer experiences, empowering businesses to thrive.
When it comes to digital commerce, understanding costs isn’t just about comparing the bottom line. While total cost of ownership (TCO) provides a valuable snapshot of expenses, a broader and more nuanced approach to cost management allows companies to maximize flexibility, scalability and operational success. As eCommerce continues to transform at breakneck speed, businesses need to go beyond TCO alone to create strategic, long-term value. Here, we’ll explore why effective cost management matters just as much — if not more — than TCO.
What TCO covers — and where it falls short
TCO (total cost of ownership) is a metric many companies use to gauge the overall expense of a system. In the context of digital commerce, TCO covers everything from licensing and infrastructure costs to ongoing operational expenses. Think of it as the bird’s-eye view of costs, capturing the initial investment required to set up a platform, costs for continuous operation and any further expenses associated with maintaining or upgrading the technology.
TCO analysis is valuable for understanding these concrete costs, particularly in the early stages of platform selection. However, it doesn’t capture the full picture. It may overlook indirect costs, such as the value lost from downtimes or “soft” costs like productivity leakage due to inflexible systems. In fact, many companies end up spending 50% or more of their IT budget on non-value adding “keep the lights on” activities. This masks the true cost, including the opportunity cost when operating on systems that are not designed for ongoing change and cost optimization. Additionally, focusing solely on TCO can obscure the more dynamic, strategic aspects of cost management, such as the ability to scale resources up or down based on performance.
Cost management, on the other hand, offers a framework for continuous improvement and optimization. Effective cost management helps businesses improve efficiency, enhance profitability and ensure sustainable growth by making informed financial decisions and minimizing waste.
Why prioritize cost management over TCO alone?
While TCO provides an overview, cost management takes a holistic approach that enables companies to refine their investments at every stage of the digital journey. Cost management considers not just how much companies spend but how they spend — and how spending can be adjusted to drive optimal business outcomes. This mindset is especially relevant in a composable commerce ecosystem, where modularity allows for more granular control over costs and resources.
In fact, cost management is particularly impactful in the following areas:
Flexibility and scalability: Composable commerce allows businesses to choose best-in-class components and swap them out as needed without affecting the overall system. This modular approach not only supports fast-paced innovation but also means companies can manage their costs more precisely. For example, a company that sees a seasonal surge in traffic can temporarily increase infrastructure capacity, then scale it back once demand normalizes. This ability to scale dynamically helps prevent unnecessary expenses and maintains profitability over time.
Minimizing technical debt: With composable commerce, technical debt — the cost of maintaining and updating legacy systems — is significantly reduced. By keeping the architecture modular and independent, businesses avoid the “spaghetti code” dilemma, where every change in one area leads to unintended consequences elsewhere. Managing costs this way translates into real savings, as companies can keep technical debt in check and dedicate more resources to value-adding innovations.
Reducing indirect costs: Indirect costs, including downtime, productivity leakage and hidden vendor fees, can often go unnoticed when focusing solely on TCO. Composable commerce’s cloud-native infrastructure minimizes these costs by allowing companies to choose and switch between best-of-breed solutions as needed. This flexibility means they can negotiate better terms with vendors, knowing they’re not locked into any one provider and can adjust their tech stack whenever a more favorable option arises.
A real-world example: Interflora Group’s cost management strategy
Interflora Group’s approach to cost management in composable commerce provides a great example of the benefits of looking beyond TCO alone. As a leading floral and gifting company in Europe, Interflora Group shifted from a decentralized model to a unified, digital-first business. The goal was to improve operational efficiency, reduce costs and create synergy across markets — all without risking business continuity, particularly during peak seasons like Valentine's Day or Mother’s Day.
Rather than focusing solely on TCO, Interflora Group concentrated on creating business value through careful cost management at every stage of its digital transformation. Here’s how the company did it:
Gradual transformation via the strangler pattern: By adopting the strangler pattern, Interflora Group was able to incrementally update its technology and processes, replacing outdated systems one piece at a time. This approach allowed it to manage costs more effectively by distributing investment and minimizing disruption. Additionally, employees could gradually adapt to the new platform, easing any fears of change and reducing potential productivity losses.
Improving commercial velocity and data quality: Interflora Group leveraged composable commerce to increase the speed at which new features could be rolled out. Faster releases allowed them to quickly address operational bottlenecks and respond to customer demands. The company’s Chief Product & Digital Officer, Nicolas Pastorino, noted that, “Composable commerce puts speed in the value creation equation.” This improvement in commercial velocity also meant better data quality, enabling more accurate business insights and empowering Interflora to make data-driven decisions more confidently.
Aligning costs with performance: Rather than a flat fee or GMV-based license model, Interflora Group chose a license model based on cost-per-order. This approach aligns technology costs directly with their commercial success, effectively allowing the company to pay only for the platform’s output, rather than arbitrary metrics like user volume.
Benchmarking for long-term efficiency: To ensure their technology investments stayed in line with broader business objectives, Interflora Group kept its technology costs around 2% of revenue — a figure they benchmarked against industry standards. The company expects to reduce these costs even further once the transformation is completed, resulting in a sustainable balance of cost and performance.
A balanced perspective on TCO and cost management
Both TCO and cost management have their place in strategic decision-making. While TCO gives an essential snapshot of expected expenditures, a cost management approach reveals where businesses can optimize spend to achieve agility, scalability and, ultimately, better ROI. When working with modular platforms, companies that prioritize cost management gain the flexibility to adapt quickly, adopt new technologies seamlessly and avoid unexpected expenses from rigid, monolithic systems.
Getting started with composable commerce and cost management
For businesses eager to transition to composable commerce, starting with a cost management mindset can provide long-term advantages. Begin by assessing the company’s digital commerce maturity, particularly focusing on areas where modular, flexible solutions could replace traditional systems. Consider running a pilot project to demonstrate value and prove that the investment is justified. This allows stakeholders to see firsthand the benefits of composable commerce while keeping upfront costs manageable.
Another critical step is to empower your team. Providing employees with access to new technologies and encouraging them to innovate within the composable framework will help build a culture of continuous improvement.
Adopting a cost management mindset for success
In a digital world that’s constantly evolving, businesses must look beyond TCO when selecting and managing their eCommerce solutions. Composable commerce offers the flexibility to scale, innovate and manage costs more effectively — even more so when approached with a thoughtful cost management strategy.
Interflora Group’s story shows the power of combining composable commerce with proactive cost management. By continuously monitoring, adjusting and aligning costs with performance, businesses can achieve an efficient, scalable and flexible digital commerce ecosystem. Moving beyond TCO alone, cost management ensures businesses are ready to meet the demands of a fast-paced market and unlock new opportunities for growth.
Want to know even more about TCO and cost management? Then download our white paper Unlocking Value: A Framework for Composable Commerce TCO.