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Pay Shopping Carts vs. Free Shopping Carts

September 8, 2007

This my first post on the Merchant-Accounts.ca blog.  I thought I would start by writing about an important issue every business owner must deal with early on in the process of launching an e-commerce website – choosing the right shopping cart for your business.

Pay shopping carts are software you must to pay for to be able to use.  Free ones are free.  It’s a simple assumption then that a business on a budget should choose a free cart, right?  Well, no… of course not.  But I’m surprised how often I see new businesses making that mistake. 

I have previously posted this discussion on the Webhostingtalk forums, and am continually surprised by how many people seem to be looking for and discussing free shopping carts. It’s surprising because a shopping cart (and it’s interface), in conjunction with the website copy is literally what will drive a lead through the purchase process to become a paid customer.  This is obviously a critical issue.  With that knowledge, why do so many people look for a free cart?

I should first clarify that I’m not knocking free carts - osCommerce and other open source carts are well developed, and generally speaking, reliable solutions.  My opinion is that these carts are often better geared towards a business owner that is technically proficient, or at least employs a staff that is technically proficient.  I like open source software.  But I do not believe that a “one size fits all” shopping cart exists.  Just because a cart is free does not make it the best choice for a company on a budget.

The issue here is not whether open source carts are good, it’s whether a setup cost or license fee for a shopping cart is a significant or risky investment vs. it’s lifetime (and in many cases short-term) value to the business.  My thought is simple - for the return on investment, the amount of money spent by even a moderately successful business into it’s shopping cart (in terms of setup or license fees) is negligible vs. the potential gains. 

A shopping cart that does a specifically good job of selling your type of products or services (offering real time downloads, handling subscriptions, etc) is far more valuable to your business than an open source cart with a mediocre plugin to add that functionality because the more specialized cart will generate increased sales due to an improved purchase process.

Even when looking at only a years worth of data (aside from the true lifetime value of the investment), the potential for increased business in comparison to setup cost is often not a significant factor. 

Also consider that the first several months of business are often the most difficult for a new business.  With this in mind, it becomes even more important that the website work.  It must facilitate the sales process in such a way as to make it easy and rewarding for your customers to purchase.  It should be intuitive.  Dare I say… it should even be fun!

Lets create a hypothetical situation and run some numbers.  In this example we will assume our shopping cart will cost $500 to setup.  Through better design and functionality this cart will result in a sales increase of 5% over the course of the year.  5% is a reasonable, if not overly conservative estimate of how a superior purchase process and interface can decrease click-offs and increase sales. 

In our example the merchant will process an average monthly volume of $10,000/month – or a yearly volume of $120,000. This would fall in line with a typical SME business. For the sake of this example we will assume a margin of 20% on the typical sale.

$120,000 /year x .2 (margin) = $24,000 net.

$24,000 x .05 (5% extra sales due to improved cart) = $1,200

So at the end of the year, as a result of the 5% increase in sales, the merchant would net an additional profit of $1,200 that they would not have generated with the free cart. Minus away the $500 setup fee, and they are still $700 further ahead than if they had chosen the free cart.

That is only a rudimentary calculation over the course of the first year, and is not considering the value going forward for the lifecycle of the website. Even though these numbers are just fictitious, it makes it easy to see just how important a choice your shopping cart is.  The only variable is how much of an increase will you see with a properly customized cart?  I strongly believe it is safe to say that a properly developed website could increase sales by at least 5%, or more, when compared to a purchase process that is not as refined or polished. 

If these numbers are in any way realistic the return on investment far exceeds the cost to setup the shopping cart, especially when we look at the long-term value of the shopping cart to the business.  Remember that our example was only for the duration of one year, but a successful e-commerce business will continue to operate year after year, and will continue to see the benefit of the properly implemented shopping cart on an ongoing basis. 

The immediate answer as to why merchants may not be choosing a part cart is obvious:  A small business must be careful with incurring unnecessary costs.  This is perfectly understandable.  However, as seen above, just because a cart is free, it does not make it the best or most logical choice for a business.  The cart is your interface between your company and your customers.  A properly implemented shopping cart will generate more customers than a poorly implemented one.  Thus, a shopping cart is a very good investment for a small business, as long as they can implement it in such as way as to receive the full benefit of their investment.

In this entire discussion, I have glossed over the fact that pay carts almost always have superior support when compared to a free cart.  Most free carts rely on support from other users via the cart messageboard.  This point alone is just as important, and in some cases more important than the entire sales generation side of the debate.   Business owners are usually not programmers.  Uptime = sales being generated.  Downtime = lost sales.  Support is a critically important issue. 

My question:   Do the majority of SME business owners consider these criteria when researching to find a shopping cart solution? Do they consider a good pay cart, (or even custom development), or do they look for a generically good free cart and hope for the best?

Some do of course, but there are many who look for a free solution.  While I can understand the reason for this, I believe it important to consider all the criteria before making a decision that will have a significant, and long-term impact on the business.  

Comments? Questions?



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