Magento has had a constant impact on the e-commerce landscape like no other system. Thanks to its diverse marketing functionalities, an open source code base, and an active and unlimited community, the system experienced rapid global expansion in its early years. The system turned out to be a real gold mine, especially for digital agencies, as it was difficult for most SMB distributors to master and constantly produced new construction sites. However, the history of Magento is mixed. Many acquisitions, high operating costs (OPEX) and the jump from Magento 1 to Magento 2 have left their mark.
A great advantage of Magento is its flexibility. This largely comes from the community and open source guidance. Almost everywhere you can find a developer who is familiar with the system and can adapt it. This advantage is expressed in the Magento marketplace and its current approximately 20,000 extensions.
Magento 2 has a headless architecture and open API interfaces. With a headless concept, the frontend is decoupled from the functionalities. This means that frontend technologies (content management systems, web frameworks, etc.) can be integrated regardless of the e-commerce system used. Compared to Shopify, the core can be completely modified. Since everything can be customized, you have a lot of freedom with Magento. However, you need to have the right developers for this; This flexibility comes at a price and without proper knowledge can lead to time-consuming migrations.
Product portfolio
The product portfolio includes Magento Open Source, Magento Commerce (Magento Enterprise Edition or Magento Cloud), Magento Business Intelligence and Magento Order Management. Magento Commerce is a platform-as-a-service offering. Here, the provider assumes all tasks that arise in connection with the operation of the software. However, all applications are operated by the client.
Magento versions 1 and 2 are available. But there is a serious difference between the two. The project costs for pure customization of the business model with Magento 1 Open Source are around $20,000 US for a simple online store, and around $42,000 US for Magento 2 Open Source. Additionally, there are significantly higher infrastructure costs for Magento 2. The differences in project costs are mainly due to the increased complexity.
Product choice has a high impact on capital expenditure (CAPEX) and operating costs (OPEX). With open source publishing, distributors must take care of the infrastructure and operation themselves. There are also differences between the Open Source and Commerce editions in terms of functionality, architecture, support and performance. Magento Commerce is superior in all aspects, but it also requires considerable licensing costs.
In the following analysis we will focus on Magento 2 Commerce:
Reseller Magento 2 TCO Analysis Example
Our example distributor for the TCO (Total Cost Ownership) analysis has chosen the Magento 2 Commerce product. Its annual turnover is 10 million dollars and it has 1,000 products with variants in its inventory. It only sells through one channel, accepts only one currency, has a few extensions and a custom interface. Additionally, the distributor needs two integrations in its IT landscape: a PIM and an ERP. Since Magento currently offers all prices in US dollars, all TCO analysis will be based on the same as well.
Magento Commerce 2 License Costs
The Starter Edition of Magento Commerce is available from $1,999 US per month and the Pro Edition from $3,399 US. To better estimate costs, below you can see a breakdown of license costs for previous versions of Enterprise and Enterprise Cloud:
| Gross Sales Revenue | Magento 2 Enterprise Edition (EE) Cost | Magento 2 Enterprise Cloud Edition (ECE) Cost * |
| $0-$1 million | $ 22,000.00 | $ 40,000.00 |
| $1-$5 million | $ 32,000.00 | $ 55,000.00 |
| $5-$10 million | $ 49,000.00 | $ 80,000.00 |
| $10-$25 million | $ 75,000.00 | $ 120,000.00 |
| $25-$50 million | $ 125,000.00 | $ 190,000.00 |
For our example distributor, we will assume annual licensing costs of US$80,000.
Customization costs (project costs)
The average cost of a Magento 2 project is around $120,000 US. But it can be more expensive. Magento is natively designed for B2C scenarios. Features are provided for B2B, but they only cover basic functionalities. The development of other scenarios outside of B2C requires significantly higher project costs. For a large multi-brand setup, project costs can run into the millions.
An important factor for Magento 2 is performance. Without measures to increase performance, such as high-performance encoding, varnish caching, and horizontal scaling, you will not get a larger store to operate efficiently.
Magento Agencies
Magento is a complex system. In almost all cases, you will have to hire a third-party service provider for an online store. In addition to in-depth knowledge of PHP, it is imperative that developers have several years of experience in Magento frontend and backend. On average, you should plan around 300 to 500 hours of work for a simple online store. To do this, you would be provided with the technical configuration, a template and payment methods. Deep adjustments should be estimated again at 1200 hours. That includes backend integrations, for example, PIM, ERP, content delivery networks or internationalization.
The cost of a Magento agency can range from $10 to $250 per hour. This depends on where you are and what experience you have.
Since prices vary greatly from country to country, it may be worth doing some work in cheaper countries.
Agency costs
- USA, Canada: approximately US$80 to US$150 per hour.
- Europe (Germany): approximately US$70 to US$120 per hour.
- Eastern Europe (Ukraine): approximately $20 to $40 per hour.
Magento project cost estimation depends on many criteria. Here is an attempt to make an evaluation based on the empirical values of some Magento agencies in the USA:
Simple Magento 2 Online Store: $20,000 to $42,000 US
As a general rule, an online store with these prices would have fewer than 6,000 items, an individual template, company branding in the store and in emails, a point-of-sale integration, and a payment interface. Product pages and categories would be configured. Simple tax shipping options would also be set up. The online store would be approved with standard processes. Internal quality control would be carried out and compatibility with different browsers, functionalities and extensions would be tested.
Magento 2 Custom Online Store: $42,000 to $100,000 US
An online store in this range would be expected to have over 6,000 items. In addition to the services for the simple online store, the following components would also be added: custom page layout and one-step checkout, own product landing pages, multilingual websites, multiple pricing rules for different customer groups, address validation, reviews, improved search functionality (e.g. Auto Complete), CMS integration (e.g. via Typo3), social media integrations, data migration, extended shipping options, backend integration into delivery systems accounting and CRM systems and extended SEO services.
Magento 2 enterprise-level online store: $100,000 to $250,000 US or more
In addition to the previous services of the personalized online store, in this case there is also an implementation for mobile commerce, multiple subscriptions, full page cache, own modules, own Marketplace, omnichannel integration, dynamic customer segmentation, automated promotions and marketing, and enterprise-level search functions such as ELASTIC or SOLR.
For our example distributor we will assume project costs of $82,000 US, since they also need some backend integrations and have an individualized frontend.
Additionally, there are usually annual costs for software projects as part of the BAU (Business As Usual). These are mainly IT staff costs and the days that come with maintenance and upkeep. Magento is more expensive here as the software incurs high maintenance costs and every small change in the frontend interface can consume many days of coding work. We put this at 25% of the total project volume. We assume $20,500 US for our demo distributor.
Hosting and support costs
With Magento Open Source you have to take care of the hosting yourself. The cost of this for a mid-level trader can range between $4,000 and $40,000 US per year. With Magento Commerce these costs are included.
In Magento, support only applies to core out-of-the-box functionalities. Third party providers are excluded from this. The reputation of the support is, rightly, not the best. However, you can book a Magento Technical Account Manager or a Magento Enterprise Consulting Group (ECG).
Magento support costs depend on the SLA (Service Level Agreement) model chosen. Support costs are included in the selected contract. If you need a faster response time in case of escalations or if you need direct technical contact, the platinum package can be booked for an additional 20%.
In addition to Magento support costs for core functionality, there are often additional support costs from the agency. For an individualized online store, these are around $500 US per month.
Since our example reseller has opted for Commerce Cloud Edition, hosting costs and support are already included in the subscriptions. Since your online store is not too complex, we will assume a flat monthly fee of $200 from the agency.
Third party costs
Free and paid extensions for Magento 2 can be purchased from the Magento marketplace. Extension selection is currently in the five digits. Generally speaking, an extension can be found for every conceivable case. Some come directly from Magento and have been tested, but this only affects a small proportion. Most of it comes from the community and has fluctuating code quality. Support is also problematic. If suppliers disappear, there is no longer support. For our demo distributor, we assume $250 US per month for extensions.
Our demo reseller has chosen PayPal PLUS as a payment interface. Let's look at the cost structure for this: for annual turnover of $1 million US, we are at 35 cents per order plus 1.79% of sales. Our distributor's average shopping cart is $100 US. This means you have around 835 orders per month. Our example distributor would incur $21,400 annually.
What would be the costs for our example distributor in detail?
- Project cost: $82,000 US
- Lodging costs: 0
- Magento support costs: 0
- Agency support costs: $3,000 US
- Third Party Cost: $2,400 US
- License cost: $80,000 US
- BAU Development: $20,500 US
- Annual cost of payment interface: $21,400 US
In the first year, the cost of our demo dealer would be $209,300 US. That's 20.9% of sales. In the second year it would change to $127,300 dollars. After three years, the distributor would have spent a total of $463,900 US.
Who is Magento for?
Magento 2 is well suited for B2C retailers and brand manufacturers. The numerous functionalities in this area make the system very interesting. With the open source version, entry costs are relatively low, but not free. Therefore, CAPEX are manageable. However, due to high complexity, OPEX are high. Magento 2 Commerce can be disproportionately expensive. But larger enterprise requirements in terms of functionality, performance and scaling can only be purchased at a high price. Magento 2 is also clearly weakened in the frontend and in the web CMS. You can design the frontend flexibly using headless architecture, but that increases TCO and complexity. In many cases, you still need to have your own interface, such as Typo3 or Magnolia.
Magento's recent efforts in the progressive web application (PWA) direction are interesting. Magento currently offers a fairly well-developed SDK based on REACT. With this modern user interface technology, retailers can implement interesting store concepts. For example, single page applications can be created through PWA or push notifications can be sent to customers.
Conclusion
You can do anything with Magento. From a small and economical online store to a business solution. The considerations made and cost blocks shown by our example dealer were made to the best of our knowledge and belief. However, exact costs depend on the project, IT landscape, and agency. An exact calculation cannot be made in advance. There are too many uncertain variables that can only be clarified in the project.
The jump from Magento 1 to 2 has increased the TCO. Migrations are problematic. Due to increasing complexity, customization and extensions, migration projects become very lengthy. Another problem is the development of the long-term technical market.
The step towards the cloud is the right one, but the market is already further away. Software-as-a-service offerings appear to be the cheapest option in the long term, as operating costs are spread across many customers. Magento is currently a PaaS solution. Magento 3 is currently expected to take the step towards an integrated SaaS concept. It's unclear what effects this will have on open source publishing.
