For online retailers, your software platform is the lifeblood of your business. It’s just like that amazing first hire.
However, just like acquiring an innovative employee early on, your e-commerce platform may not be capable of growing with the business. As painful as switching can be, sticking with the wrong e-commerce platform for too long can stunt your business growth in obvious and hidden ways, so it pays to be proactive.
When I built my last e-commerce business, our custom software platform was a critical part of our success. It allowed us to grow from $1 million annual revenue to a $100 million run rate in under a year. In the process, we acquired eight million Facebook fans, 11 million email subscribers, 56 fulfillment robots, and raised more than $100 million in venture capital.
The revenue hacks we built into our platform were the key to unlocking the monthly revenue growth shown in this chart:
While easy to set up and use, the most popular e-commerce platforms fall short, especially for larger clients. In fact, a report from Internet Retailer revealed that nearly half of all e-retailers are looking for a new e-commerce platform.
When compared to custom and semi-custom platforms used by the majority of high volume stores “in the know,” off-the-shelf installs of all e-commerce platforms are woefully deficient, especially as it relates to optimizing conversion rates, new customer acquisition, and maximizing customer lifetime value.
These deficiencies are the reason for such an alarming rate of frustration. When so many existing stores are looking for a new platform, something is clearly lacking.
While building a fully-custom solution offers the most flexibility, it’s certainly not for the faint of heart. When I started my last company nearly a decade ago, there was simply no other way. We HAD to build our own custom software to reach our goals. Today, building a fully-custom solution is likely a fools-errand for all but the largest, most technologically savvy companies.
So how do you know when it’s time to pull the trigger on re-platforming and building a semi-custom solution?
In my experience, the annual sales volume is the biggest determinant.
Through my conversations with hundreds of e-commerce entrepreneurs, I’ve noticed an interesting trend. As stores approach $1 million in annual revenue, their dissatisfaction with their current e-commerce platform grows exponentially. My team calls this the “million dollar ceiling.” When stores reach this level of success, they must figure out a way around the limitations of off-the-shelf software or they will simply stop growing as fast as they should.
The cause for the “ceiling” is simple: the vast majority of e-commerce platforms are not optimized for customer acquisition, conversion rates, nor customer lifetime value. These are the most important variables, yet most platforms make optimizing these variables far too difficult. Shopify’s convoluted multi-page checkout process that can’t be modified is just one of many glaring examples.
The math is simple — a store making $1 million in annual sales that recognizes a 20 percent increase in conversion rate will drive an incremental $200,000 in annual sales. If you can re-platform to a better solution for less than the incremental profit you make from those sales, you’ll pay back the investment in under a year.
After talking to hundreds of e-commerce entrepreneurs in my role as a growth advisor and venture capitalist, I’ve seen three approaches used to overcoming the “ceiling” with varying degrees of success:
- Augment the deficiencies of an off-the-shelf platform with a patchwork of third-party plug-ins.
- Build a semi-custom solution using a small team of developers.
- Hire a larger in-house development team to build and maintain a fully-custom solution.
Let’s examine each of these options in depth:
Option 1: Plug-ins
Using plug-ins can work quite well for the simplest of stores. If you’re under $1 million in revenue, this is almost always the correct solution. The plug-in option does not scale well at all, however. It’s for this reason over-reliance on them can be quite dangerous.
First, plug-ins for e-commerce platforms are of highly variable quality. The upkeep and maintenance of these plug-ins are likewise hit or miss. Most are built by individuals and small teams in their spare time. Should you trust your store’s success or failure to a random developer’s side project? When your revenue has scaled past a certain point, almost certainly not.
Perhaps more importantly, plug-ins can slow your store dramatically. Even imperceptible slow-downs will impact your conversion rate dramatically. Walmart reported every 100 milliseconds of improvement in page load time grew revenue by 1 percent, and Amazon says every 100 milliseconds of latency costs them 1 percent in sales. Additionally, Google is well-known for punishing slow sites in its search engine rankings.
We’ve found when a store that is doing in excess of $1 million in annual revenue exceeds six or eight plug-ins, it’s a sure sign that it is dangerously reliant on a tangled web of potentially incompatible code. You almost certainly need to pursue another path.
For all but the smallest stores, tying the success or failure of your business to a tangled web of variable-quality plug-ins is a recipe for disaster. Plug-in soup is akin to using duct tape on a rocket ship.
Option 2: A Semi-Custom Solution
For mid-sized e-tailers, building a semi-custom solution is the path we most often recommend. This option to break through the “million dollar ceiling” involves picking an off-the-shelf e-commerce platform and heavily modifying it to suit the store’s unique needs.
Unfortunately, this path is not without its drawbacks. The two most common mistakes we see are choosing the wrong platform as a base and choosing the wrong developer(s) for the job.
While this article is not meant to be a comparison of the various platforms, they all have their unique strengths and weaknesses. For example, while Shopify and Woo Commerce are both insanely easy to get up and running, they are among the hardest to truly customize. They are perfect choices for mom-and-pops selling a small selection of products. Despite their aggressive marketing, they are clearly not designed for high-volume implementations.
In the past, we recommended Shopify with varying success. We even ran a few stores of our own through the platform, but we were ultimately unable to overcome the weaknesses with even the most custom-built approaches.
On the other hand, solutions such as Magento and Solidus are two of the most customizable, but to be successful on these platforms you almost certainly need a team of in-house developers to set up and maintain servers, manage SSL, ensure PCI compliance, etc.
Despite these drawbacks, if you have access to great developer talent and know exactly what you need to build, building your solution on either of these platforms can work quite well.
Likewise, using a random developer not well versed in the nuances of conversion rate and maximizing customer lifetime value is also a recipe for disaster. There’s no shortage of programmers with the technical skills to install and modify today’s platforms. Finding a developer or development team that knows what to build, on the other hand, is quite a bit more challenging.
Simply switching platforms isn’t the recipe for success. You must switch platforms with a purpose, and doing so must alleviate the deficiencies in your current platform that are stifling revenue growth.
Option 3: Build a Fully-Custom Solution
Building a fully-custom solution offers the most flexibility, but it’s certainly not for the faint of heart.
In 2009 when I built Acumen Brands, we had no choice but to build our own software. Our platform gave us a leg up against the competition and allowed us to scale to ~$100 million in annual revenue in three short years.
Today, choosing a fully-custom option should be reserved for stores approaching $100 million in annual revenue or those building an incredibly-custom user experience.
If you choose this route, be prepared to support a development team of six to 20 programmers for multiple years. If you can’t support a $1 million+ annual developer payroll, this option will likely yield sub-standard results.
How Engine Can Help
All e-commerce platforms are flawed. Using them without extremely intelligent, heavy modification will result in lost revenue. Likewise, building a fully-custom solution is likely a fool’s errand.
In my opinion, the best option available today is a semi-custom install built on top of a highly customizable platform. Knowing what to build is the key. Relying on random developers without experience building revenue-optimized stores is a recipe for disaster.
This is why at Engine my team has built an e-commerce platform focused on revenue growth and conversion-rate optimization. The store you can build with us will allow you to leverage all the revenue-driving “secrets” we’ve learned building our own companies over the past 25 years.
If you need help with re-platforming, let’s talk. Set up a call with Engine by clicking here or contacting our sales team via email. Even if you don’t end up working with us, we promise you’ll leave any conversation better than we found you.