The Financial Considerations of Headless Commerce  

Initial Concerns

Like any project a strong business case is key.  A compelling business case covers the background and the strategic context of a project while providing a well-structured argument for the project’s implementation. Many people who sponsor and/or champion these projects within a business can often be overwhelmingly optimistic about the project and what it can achieve, this can render them blind to the risks, and the real factor to be evaluated from a financial point of view is always the risk.

Financial risks are evaluated against the benefits, and a good business case will collect as many as possible, particularly those which they can attach a number to. Alongside this the benefits will be compared against costs, of this solution, other solutions, and the option of simply doing nothing. Evaluating these requires an economic analysis and investment appraisal of the project.

There are many different methods of undertaking an appraisal, but generally speaking it estimates the payback of the project and uses some statistical models, maybe you use an internal rate of return or an accounting rate of return. The primary factor would be future flow of cash coming into the business, maybe over some years, and then you would discount that cash flow, and ensure that it still stacks in your favour when considering headless.

Another consideration is maturity of the organisation which can impact its financial costs, when companies aspire to grow their revenue, it’s a balance between growing the business, the organisation, infrastructure, and technical foundation against their financial costs. There is potential for a more mature organisation to gain efficiencies while a less mature organisation may incur additional costs outside of their technical implementation. So, it’s important to evaluate your current organisational context against the change of management cost of adopting the next level of digital maturity before you look to a headless future for your business.

The financial considerations of a composable solution

A headless shift is fundamentally about architecture but examining that from a financial perspective can be more challenging than a traditional shift onto a monolithic platform; you have the commercial approach to consider, how will you secure your inputs for the project? Will you procure each individual piece of software you need or are you going to build some in-house? Are you going to compose a solution or pick some pre composed sets of software? And where do any/all of these come from? All of this sets some additional financial context to consider when going over your investment appraisal.

How does a composable solution specifically impact your revenue forecast? Now that front and back-end are separated the business’s ability to be nimble is significant. You can make changes faster, you don’t have to worry about reverse engineering frontend changes into backend changes, but does that translate into a better forecast for you? We would say it does as it allows those focused on the experience to change and test at a rate that was not previously possible ultimately impacting conversion through build measure and learn.

Another benefit is that your dependency on developers to make changes can go away.  You can empower the business with tooling that not only allows for the changes but also incorporates the test and feedback mechanisms. In summary the right people can make more changes based on what they’re experts on, consumer engagement and revenue growth.

Time to market is essential, how do you manage the risk of migrating to a best of breed approach? Our experience has taught us that a big bang (All at once) approach comes with high risk with no guarantees of the reward, so the art is to determine what capabilities are essential to solve the current problems of the business.

Lastly, operational costs (infrastructure maintenance and monitoring) should be compared across the board. They can differ in a headless solution where for example you can outsource the backend without outsourcing the entire solution. It’s often crucial to pinpoint where your savings will be in an operational context from areas like operations, license(s), recruiting and staffing costs.

Affordability

Efficiencies of scale! A large positive input of headless is that once you’ve done it in one part of the organisation, broadly speaking, it’s replicable across other parts of the business and so full implementation becomes easier over time.

However, when putting together a full list of costs compared to a traditional monolithic approach there’s potential for it to be more expensive. This expense is generally offset by the ROI you gain further down the line; growing your revenues incrementally without making further changes to your organisation means you’re no longer constrained by technical debt or an ability to innovate quickly.

A key consideration and benefit of a headless approach is that you can shift your software over at a measured pace which can help you introduce new costs gradually alongside a team shift and technology shift, this lets you test the waters slowly while allowing you to realise benefit as you progress through the entire project.

To augment the risk reduction of this gradual approach you could ensure you plan the project in such a way that you can avoid potentially having to renew technology you’re not going to be using once your solution is complete which can reduce what would otherwise be sunk costs for the business.

So, the real affordability comes into play when you can implement the project in bitesize instead of the large capital expenditure required by a more traditional project and technology shift wherein it would be all up-front cost without realising any benefit until the whole is complete. A headless approach allows you to measure each step of the way while earning incremental returns.  Therefore, while there implementing a composable strategy does come at a cost, a lot of the risk is controlled, and returns are normally seen faster.

Perhaps the most important aspect to consider, while simple, is that a headless shift is not an overnight process, the journey takes time.

But by the end of it headless is likely a better solution for the long term provided it’s correlated correctly to your business growth plan and aligns with the correct use cases for empowering your business. You’re also not locked into a single solution and your ability to change components more easily as you reach natural limits of specific technologies.

Overall, there’s generally more controlled financial risk while maintaining a positive cost-benefit ratio and less up-front expenditure.

Want to learn more about what a headless shift would look like for your business? Speak to one of our experts!