How to Calculate the ROI of Digital Transformation in B2B Sales
The key question in digital transformation may not be “What is the ROI?” but instead “Do you have a choice?”
Trying to survive using the same old manual processes from decades past will not scale in a world where performance and speed double every two years and today’s buyers expect immediate response times.
The Value of Customer Experience: Digital Transformation puts customer experience at the center of the business. For those who are skeptics and insist on measurement of the value of a positive customer experience here are some of the more interesting metrics we found from the leading business experts:
- Harvard Business Review (HBR) – HBR found that “after controlling for other factors that drive repeat
purchases in the transaction-based business (for example, how often the customer needs the type of goods
and services that the company sells), customers who had the best past experiences spend 140% more
compared to those who had the poorest past experience”.
For subscription based businesses they found “We were also able to use this data to predict future membership length based on the quality of experience. The difference: on average, a member who gives the lowest score will likely only remain a member for a little over a year. Compare that to a member who gives the highest score — they are likely to remain a member for another six years.”
- McKinsey & Company – McKinsey found that the majority of customers’ buying decisions are tied to how they feel about their customer experience. In a recent article they found that 70% of customers at a bank reduced their commitment when they had a bad Customer Experience. That article also revealed that 85% of customers that had a good relationship with the bank increased their commitment.
- McKinsey & Company –Research shows that organizations able to understand and skillfully act on complete customer journeys can reap enormous rewards: increasing customer satisfaction by up to 20 percent and revenue growth by 10 to 15 percent, and lowering the cost to serve by 15 to 20 percent.5 Understanding those decision journeys and the fundamentally different ways that customers behave—from evaluating products to bonding with brands—is becoming the cornerstone for successful businesses.6
The Value of Converting your Business from Analog to Digital: Digital Transformation is about scaling your company so you realize profitable revenue growth as these leading studies show:
- McKinsey & Company - McKinsey found that companies that made their customer experience "Digital First" generated 10 to 20 percentage points more satisfaction than traditional journeys!
- Capgemini Consulting, and the MIT Center for Digital Business - A recent survey of 274 executives found that only seven percent — have successfully used digital technologies to evolve their organization into truly digital businesses. This digitally evolved seven percent were twice as likely to be reporting industry-leading growth, profitability and customer satisfaction than their competitors
- Google Europe and Roland Berger – An assessment of the digital maturity of French companies found that the more digitally mature companies grew revenue at six times the rate of their less mature counterparts.
- Roland Berger and the Bundesverband der Deutschen Industrie (Federation of German Industries, or BDI) - Found that, if Europe harnessed digitization, by 2025, the continent could see its manufacturing industry add gross value of 1.25 trillion euros. The risks of failing to digitize are equally dramatic: from missing out on digital transformation, European industries could suffer potential losses of up to 605 billion euros in the same period.
It’s Time to do the Math on Why Digital Transformation is a No Brainer!
Given that you believe the metrics the key is then how to build a model for your specific business. There are two parts to building an ROI Model:
- PART1 (The Value of Removing Labor Inefficiencies): Shifting to Buyer Self Service is
Immediate ROI vis a vis phone sales:
- Sales Labor Cost Savings
- Increased Sales by removing opportunity cost of Sales time
- PART2 (The Value of Digital Acceleration of Sales): Digitally assisted sales are
larger, have higher conversions and less error prone:
- improve conversions by 20% or more
- increase attach rates
- decrease errors
SUMMARY
Everyone loses when you force customers to call instead of helping them solve their business problems and build solutions on your website.
Annual Benefit: Here is the results of an ROI model for moving just 600 transactions per month to the web:
- Buyer: Loses Time and Increases Risk of Errors. They may be forced to buy elsewhere.
- Company Revenue Loss: Assuming each sales rep carries a $2 Million Quota, the company loses $1.8 Million in Revenue from manual labor inefficiencies and $1.4 Million in potential digital sales acceleration opportunities. The company could have grown the top line by $3.2 Million!
- Company Earnings Loss: Assuming 10% Gross Margins, the company loses $239,000 in earnings from manual labor inefficiencies and $145,000 in potential digital sales acceleration opportunities. The company could have grown EBIT by $384,000!
- Sales Rep Commission Loss: Assuming a 5% commission rate, the sale rep loses $90,000 in commissions from manual labor inefficiencies and $72,000 in commissions from digital sales acceleration opportunities. The sales rep could have earned $162,000 more!
Benefit Per Transaction: Buyer self-service pays for itself with EVERY transaction. It saves both the seller and the buyer time and effort. Even if the buyer can’t get to the finish line at least they have been properly qualified before they are transferred to a rep on the phone - saving time and potential for error. This time savings translates into
- Company: Loses $33.13 from manual labor inefficiencies and $20.12 in digital sales acceleration opportunities with EVERY transaction – The company is bleeding $53.25 on every customer interaction!
- Sales Rep: Loses $13 from time spent in simple administrative task of qualifying the need instead of selling and another $10 in potential sales from increased conversion rates, enhanced order sizes and error rate reduction. The sales rep is poorer by $23 every time you force them to advise and build solutions over the phone!
This model proves that you have to have web-based digital discovery and qualification to be competitive. Web self-service and discovery has set the bar for having a high performance B2B sales motion . This makes both your sales organization and your buyers purchasing process more efficient.
If you want to see the details behind this analysis the assumptions and output are shown below.
ROI MODEL PART1 ( The Value of Removing Labor Inefficiencies )
Input Assumptions: If you build a model in excel here are the inputs. We have provided an example set of inputs below:
| Number of Transactions Shifted to Self Service Monthly *1 | 600 |
| Time Saved per Transaction (Minutes) | 15 |
| Annual Sales Base Salary (Fully Loaded with Overhead) | $65,000.00 |
| Sales Rep Annual Quota | $2,000,000 |
| Gross Margin | 10% |
*1 Note these may or may not convert but the sales rep does not have to take time asking the qualifying questions and developing a bill of material
Outputs: Based on these assumptions the company would realize $238,500 in an earnings boost.
| VALUE OF SALES LABOR SAVINGS | |
| (a) Hours Saved Per Transaction | 0.25 |
| (b) Total Annual Transactions | 7200 |
| (c) Labor Savings (hours/year) | 1800 |
| (d) Value of Labor Savings | $58,500 |
| VALUE OF REVENUE/EARNINGS INCREASE | |
| (e) Revenue Increase | $1,800,000 |
| (f) Earnings Increase | $180,000 |
The Total Increase in Earnings for both the Sales Labor Savings and the Revenue Increase is as follows:
| (g) Total Earnings Increase (Annual) = (d) + (f) | $238,500 |
VALUE OF LABOR SAVINGS FROM A SINGLE TRANSACTION MOVED TO DIGITAL SELF-SERVICE
When you look at this from a single transaction perspective both the company and the sales rep win big! The company savings is underestimated as typically engineers are involved in each transaction to assist the sales rep.
| Savings Per Transaction for the Company | $33.13 |
| Increase in Rep Commission Annually | $13.00 |
Think of all the tire kicking, all the multiple what if quotes all put into the buyers hands freeing sales reps from these repetitive tasks. Every single time you do this over the phone with a sales rep you are losing $33.13 and taking $13 in commission out of the sales reps pocket!
ROI MODEL PART2 – (The Value of Digital Sales Acceleration) The value of going digital goes beyond labor savings and sales opportunity cost.
Input Assumptions: If you build a model in excel here are the inputs. We have provided an example set of inputs below:
| Current Conversion Rate | 25% |
| Increase in Conversion Rate | 20% |
| Increase attach rates | 50% |
| Average Order Size | $1,000 |
| Average Return Rate in Ordering Process | 8% |
| Decrease in Error Rates | 50% |
| Cost of a Return | $10 |
Outputs: Based on these assumptions the company would realize the following:
Value of Increasing Conversion
| (a) Increase in the Number of Annual Orders | 360 |
| (b)Increase in Revenue | $360,000 |
| (c) Increase in Earnings | $36,000 |
Value of Increasing Order Size
| (d) Total Number of Orders | 2160 |
| (e) Increase in the Average Order Size | $500 |
| (f) Increase in Revenue | $1,080,000 |
| (g) Increase in Earnings | $108,000 |
Value of Decreasing Returns
| (h) Decrease in Number of Returns | 86 |
| (i) Increase in Earnings | $864 |
Total Increase in Revenue = (b) + (f) = $1,440,000
Total Increase in Savings = (c) + (g) + (i) $144,864
VALUE OF DIGITAL SALES ACCELERATION FOR A SINGLE TRANSACTION
The savings on a Transaction Basis continues to compound when you look beyond the labor savings
| Savings Per Transaction for the Company | $20.12 |
| Increase in Rep Commission Annually | $10 |
Have I forgotten anything? Please let me know at lswanson@exaltsolutions.com.