Manufacturers need to take a deep dive into the details of how a digital commerce strategy can drive down operating costs and increase revenue, Kevin Heisler of GenAlpha Technologies writes.

KevinHeisler-GenAlpha

Kevin Heisler

The financial implications of investing in a B2B ecommerce solution should be assessed in a similar manner to other investments for your business. A return-on-investment (ROI) calculation is generally crucial to an organization getting the necessary internal support to take the plunge in investing in an ecommerce strategy or upgrading current ecommerce capabilities. Far too often, however, businesses do not dive deep enough into the impacts of digitizing a sales channel. An appropriate calculation is not an easy task but a necessary one to make appropriate decisions.

The Basics

An ecommerce strategy includes some basic costs and benefits. The cost of implementing an ecommerce strategy will generally include implementation and other one-time costs and ongoing costs (whether managed internally or hosted and maintained by a third-party provider).  As part of an ROI analysis, these costs are compared with the benefits. The benefits include the assumptions around revenue growth, which is dependent on the specifics of an organization’s strategy, and cost reductions in areas in which the organization may be able to reduce costs through a digitized sales channel.

Benefits are often looked at very generally, but organizations need to consider the many potential impacts to their business to make a sound decision. An ecommerce site is a strategy shift and can be transformational when strategically developed.

The Next Level

While the items mentioned above are rather apparent when going down an ecommerce path, many companies often fail to take a full inventory of potential benefits. This oversight is for good reason. Companies often cannot fully anticipate the impacts on their business, and the impacts can be difficult to quantify. Considerations include the following:

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Revenue Drivers

  • Increased market share—Traditional thought assumes that an ecommerce sales channel will simply drive a shift from other channels (e.g., call centers, email orders, etc.) versus a new sales channel, but this strategy can open significant opportunities. Products will become more discoverable in an ecommerce setting and businesses can impact this through digital marketing, specifically search engine optimization (SEO) capabilities. Brand awareness and brand loyalty will increase as you have a larger platform for potential customers to find you.
  • Incremental revenue from existing customers—An e-store gives you the opportunity to efficiently upsell, cross-sell, run promotions and remarket based on past purchases using ecommerce capabilities. Imagine how a business could benefit from 24/7 access to product listings and digital product catalogs. The ability to do business will no longer be constrained to the hours of the sales or customer service teams.
  • Revenue impact of repurposing customer service personnel—What revenue driving activities could your team be doing if they had more time? A digitized sales channel frees up customer service time and enables a shift to more value-added responsibilities. The customer service team becomes a strategic opportunity versus a team dedicated to putting out customer fires.
  • Site performance factors—If you already have an e-store, upgrading to a better-performing site and easy-to-use site can have a dramatic impact on your business. We all know how slow or hard to navigate ecommerce sites impact our buying experience in our daily lives. These same impacts exist in the B2B world. Buyers are expecting a seamless experience. Site design, accessibility and intuitiveness can impact where a customer shops and buys. Correcting site issues can improve site traffic volume, lower bounce rates and improve overall customer satisfaction.

Cost Reduction Opportunities

  • Reduced returns—An e-store provides the customer with more information on a product before purchasing. For example, customers purchasing parts or components can have access to images, 2D/3D drawings and product specs that can enable a more informed decision and reduce returns and unsatisfied customers.
  • Fewer processing errors—Manual order entry systems are subject to human error. An e-store environment automates the ordering process and can take out the middleman of entering order specifications.  System configurations add controls to the process by specifying orders parameters for specific customers or individual users.
  • Reduced inventory carrying costs—A digital strategy can provide a host of analytics that can be impossible to obtain through traditional sales channels. For example, what products are customers searching for but not buying due to insufficient stock levels? Analyzing shopping patterns allows a business to improve on holding the right type of inventory at the right time and in the right location. While this can improve supply chain efficiencies and lower inventory carrying costs, it can also have a positive impact on revenue.
  • Reduced catalog costs—Most complex businesses require product catalogs. These catalogs can involve costly personnel and printing costs and takes a large amount of effort to update and maintain. Digitized catalogs as part of an ecommerce strategy can make this process more efficient and allow for real-time updates so customers have accurate information in their hands.

The Bottom Line

Companies should incorporate as many impacts that they can reasonably quantify into their ROI calculation. Even if an item cannot be quantified, it should be considered as a qualitative factor in making the decision. Seeking out advice from platform providers or companies that have implemented an ecommerce strategy can be very helpful in making accurate assumptions.

The reality is that customers are choosing how to do business and are increasingly choosing an ecommerce site as the ideal business channel. Manufacturers need to critically think about the investment and find the strategic path to add value to the business.

Kevin Heisler is the vice president of finance at GenAlpha Technologies, a provider of ecommerce, e-catalog and customer portal solutions for manufacturers. He can be reached at [email protected] or via LinkedIn.

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