Understanding the cost and revenue potential of each major decision is critical to business owners. Successful executives at any organization are constantly looking for ways to scale and grow their business, while concurrently minimizing cost and reducing risk.
Aside from growth, operational issues which regularly demand immediate attention include:
- Inefficient business processes
- Outdated systems, and
- Siloed organizational structures
These roadblocks may go unnoticed internally, but the negative effects that they have on efficiency, productivity, and communication permeate to end customer. Moreover, it is much more difficult (and costly) to change a customer’s negative perception of a business than it is to acquire new customers.
Sustaining a high-quality eCommerce and Content experience makes exceptional economic sense for executives looking to grow their revenue via digital channels. In this blog we will discuss the practical, proven return on investment (ROI) in choosing the right eCommerce and Content system for your business.
Building a Foundation for Success
The first step to building a successful total cost of ownership (TCO) model is understanding the full scope of the factors at play. This means that business leaders and technology leaders must communicate effectively to define the strategic objectives of the new initiative; in this case, choosing an eCommerce and Content platform.
At Broadleaf Commerce, we subscribe to the idea that eCommerce and Digital Transformation is a process, not a product. Just as you shouldn’t expect results by simply signing up for a gym membership, you shouldn’t expect sustained success by simply implementing a modern eCommerce system; you must build a team and keep growing.
Three main ideas must be considered before embarking on your new eCommerce journey:
1. Investment Required
Investing in a replatform, or starting a new eCommerce initiative, can seem costly to many business owners who are used to maintaining the status quo. However, it can ultimately be more costly to do nothing. According to Internet Retailer, “eCommerce represented roughly 41.6% of all retail sales growth in 2016." That number has continued to rise over recent years in the retail space (B2C), and there are signs that point to similar trends in B2B sales. In fact, Forrester estimates show that the “B2B eCommerce market will be worth $1.1 Trillion, compared to the B2C market at $480 Billion, by 2019." As eCommerce continues to become more prevalent in omni-channel strategies, it is vital for business owners to invest in a solid platform to avoid losing market share.
One of the first investments to consider is the upfront license cost of the software used to run your online business. Some providers will charge a baseline fee for the licensing and require a percentage of revenue earned through their system; this is a typical pricing structure of SaaS deployment models.Other providers will charge a higher licensing cost up front, but won’t ask for a revenue share. The key is to understand which model best fits your business, and work with providers who have flexible pricing models. This will allow you to tailor the upfront license cost based on your business growth projections.
The second investment to consider when choosing an eCommerce software is the project cost for the implementation. Many factors go into project cost, including:
- Experience of your internal development team
- Clearly defined objectives for the minimally viable product (MVP)
- Requires open lines of communication between business users and technical project managers
- Complex system integrations and customizations of the eCommerce software
- According to Gartner research, “by 2018, more than 50% of commerce sites will integrate technologies from more than 15 vendors to deliver a digital customer experience."
For many providers, part of the Implementation Cost will include a two-to-four week discovery engagement to assess core architecture, data schema, business needs, etc. The main purpose of this initial engagement is to narrowly focus the team (both business and software provider) on the goals needed to launch the MVP. Once the core requirements have been clearly defined, and the epics and user stories have been prepared, it is much easier to ballpark the time and effort needed to launch the MVP.
The third, and final, investment to be considered in implementing your eCommerce initiative is ongoing operating costs like support, maintenance, and upgrades. During a company’s vendor-evaluation process, it is wise to ask vendors for a 3-5 year pricing model to include these operating costs. Even though many vendors provide licensing on a yearly basis, where you can cancel at any time, re-platform projects aren’t supposed to become a recurring theme in your organization; remember the goal is to create a team that is familiar with the selected technology, and grow the platform using customer data and market insights. Understanding your operating costs over a 3-5 year period, will help you set and assess your quarterly financial objectives for your online business in the short term. Once the initial investment has been fully considered, we can now measure those costs against the inherent future cost savings that come with technological improvements.
2. Cost Savings (Operating Cost of BAU)
Replatform projects, or new eCommerce initiatives, can seem like a daunting task that may not be worth the effort. However, the market has shown over recent years, that it is becoming increasingly costly to do nothing. The question is no longer, “Should I expand into digital revenue channels”, but rather, “When?” and “How?”
Below you will find a few, of the many, cost savings opportunities that come with opening a digital channel for your business.
Order Entry & Fulfillment
- Digital order forms with intuitive promotions/offers and reorder capabilities limit barriers to purchase
- Customer Self Management reduces operational costs in customer service
- Gartner estimates that “at least 80% of organizations that fail to plan their self-service implementations will incur higher customer service costs and will not achieve the savings and benefits expected."
Product Lifecycle Management
- Electronic Catalogs save on printing and mailing costs, and allow for quicker updates to catalog and product information
- Vendor Self Management (B2B) - Vendors can manage their own catalog to then be reviewed by a global admin prior to being posted to digital channels
- Rule-based pricing capabilities that limit manual entry errors
Suggestive Purchasing
- Smart search faceting and Search Engine Optimization (SEO)
- Simplifying the purchase process lowers bounce rates and increases conversions
3. Increased Revenues & Brand Loyalty
The final step to understanding the TCO/ROI of a new eCommerce system is measuring the increased revenue potential. Buy-in from the executive-level typically occurs when we review the substantial growth potential in building a modern eCommerce system. Not only does customer experience and satisfaction increase as a result of modernizing your digital channels, but increased market share is also a natural result of an exceptional online presence. Some companies will in fact leapfrog their competitors due to their sophisticated, modernized eCommerce system.
Here are a few examples of revenue gains that accompany a modern eCommerce and content system.
Customer Experience & Satisfaction
- Mobile, social media and web become buying, selling, and support engines.
- The ability to purchase and search on own terms can be correlated to lower bounce rates and higher conversion rates; increasing revenues gained online.
- Increase in productivity of Customer Service Reps (CSR) - Assisted shopping, price overrides, account credits, etc. can be handled online on behalf of the customer.
- By empowering the CSR, companies increase the likelihood of a positive customer experience. A positive customer experience drives brand loyalty and can be linked to increased revenues.
Targeted Promotions & Offers
- Targeted selling based on past customer behavior, loyalty programs, etc.
- According to Gartner, “organizations that have fully invested in all types of online personalization will outsell companies that have not, by more than 30%."
- Furthermore, personalization and targeted selling functions can lead to increased revenue because of the opportunity for cross-sell and bundling of products.
- Gartner acknowledges that successful personalization tactics are key to “creating increased order value and customer efficiency."
Salesforce Automation
- Assists B2B field reps to close sales quickly, make sense of customer behaviors, and provide tailored service.
- Gartner further explains that “savvy companies deploy a digital commerce site as an enabler for their sales team, motivate the team to learn and use it, and incorporate the team into the processes."
Conclusion
In summation, when creating a solid eCommerce strategy an organization must first identify common objectives shared by business and technology leaders. Once the main criteria for a successful digital channel have been defined, it is vital that the organization build a structure that can grow with the selected technology into the future.
With a team in place that shares similar goals, an eCommerce system must be evaluated and selected based on the common objectives of the business. In order to understand the ROI, the business leaders must compare TCO with the cost savings & potential revenues attributed to modernizing their online business; preferably over a five-year period. Positive ROI is fairly easy to realize for businesses with no online presence, however there is also positive ROI in sunsetting older technology and moving to a more flexible, customizable eCommerce framework.
The key is to partner with a vendor who has great technology, meets the desired evaluation criteria, maintains a fast go-to-market timeline, and will scale with your business. Tailor your eCommerce solution to your business, not the other way around.
