Investing in your digital transformation can seem colossal, especially when it can be spread over several years. For this reason, this article offers recommendations on how to estimate the gains generated by digital transformation. Let us prove to you that the investment is worth it!
Understanding ROI
Unsurprisingly, the return on investment (ROI) of a project is calculated with the formula:
(investment gain – investment cost) / investment cost
Thus, you must have in your hands the cost of the total investment, but also the gain from the investment. How do you get these numbers out of your business? Here are a few tips.
How much did this digital transformation cost?
For the cost, it’s pretty simple. Just add up all the expenses caused by digital transformation. These expenses take the form of time required, material resources used, human resources deployed, but also consulting expertise, technology costs, etc.
How much did my investments really bring?
On the other hand, estimating investment gains can be a challenge for many companies since many elements must be taken into consideration. In addition, it is necessary to consider the time required for the calculation given that certain investments take several years before being absorbed.
Therefore, it is appropriate to add up all the financial benefits that resulted from the project, whether profits made or cost reductions. Here are some examples of benefits to observe:
- Increase in turnover and/or profits
- Reduction of expenses
- Reduction in order errors
- Job cuts and salary savings
- Reduced operating costs
Our advice: divide the ROI calculation into several levels
ROI can be seen as a whole, a complete addition, but it is strongly suggested to approach it step by step. Indeed, dividing the ROI calculation into 5 different levels simplifies both understanding and calculations. Here are these levels:
- Reaction and estimated action: This involves measuring satisfaction with the program or new digital tool. This satisfaction brings a benefit for the company which must be taken into consideration.
- Learning: It is advisable to measure the new skills and abilities present in the company following the integration of digital solutions.
- Application and implementation: It is possible to measure changes in specific behaviors and actions linked to the implementation of a technology.
- Business impacts: Make sure to measure changes in business metrics, particularly financial metrics (turnover, etc.).
- Return on investment: It is then possible to compare the costs with the benefits directly linked to the project.
In fact, by going level by level, it is all the easier to ensure that you cover all of the financial benefits observed in businesses following a digital transformation.
Underestimated benefits
In addition to the impacts on turnover, a digital project can also bring you many other less obvious, but very advantageous, benefits.
Employee retention rate
The retention rate is the ability to keep employees. In other words, it measures the percentage of employees who are still working in the company at the end of a given period. For example, for a company that invests in an internal tool such as an intranet, this is a very interesting rate to include in the calculation of return on investment. In fact, it measures the very relevance of the investment! Thus, the employee retention rate is a good example of gain following a digital transformation. Not to mention that the current labor shortage should not be neglected.
Our advice: segment the rate
In general, it is best to segment the rate for groups of individuals such as executives, field employees, high potentials, or any other significant group in the company. Indeed, this reflection allows us to better understand the internal impacts of a digital project. For example, the integration of a CRM will impact the motivation of the sales team while the implementation of a payroll system will directly affect the accounting department. Thus, segmenting the retention rate makes it easier to collect data for calculating ROI and allows you to observe the impacts of digital transformation at a glance.
Customer satisfaction rate
In addition to the impacts on employees, a new digital tool can obviously change customer behavior. Measuring customer satisfaction helps determine whether the digital investment has delivered on its promises. Nothing better to measure this rate than to ask customers for their opinion directly. It is possible to validate this satisfaction using different questions. Here are some suggestions:
- How much out of 10 would you rate your level of satisfaction with our company?
- Using a rating out of 10, would you recommend this product or service to those around you?
Our advice: follow the evolution
Finally, whether it is a satisfaction survey or an NPS survey, it is important to be diligent in taking data. In order to measure the positive impacts of a digital investment on customers, it is necessary to observe the evolution of the results before implementation and following implementation.
Estimate the return on investment before you even start
It goes without saying that embarking on a digital transformation requires making investments in tools and, more broadly, in real business projects. To convince investors and stakeholders, how can we estimate the return on investment? Discover the usefulness of net present value.
Net present value
Net present value (NPV) is a well-known indicator in finance, but also among investors. In fact, it helps to know if a project will be profitable by integrating the value of time, the level of risk of the investment and to a certain extent, alternative investment opportunities. Will the return expectations set by investors be met? Is the anticipated value creation sufficient? Thus, the investment is profitable when the present value of expected revenues is greater than the amount of capital invested, therefore when the net present value is positive. Conversely, if the net present value is negative, it means that the project is not sufficiently profitable. In short, it is an indicator that is important in decision-making regarding the launch of a project.
Want to dig deeper into this calculation? Check out these resources:
Our advice: interpret this value correctly
During a digital transformation, companies are teeming with ideas and solutions to implement. The net present value also allows you to prioritize choices between several projects. Indeed, the project that creates the most value can be selected in a sustained manner rather than by simple intuition.
Measure the return on investment to control it
Once a new digital tool is deployed in a company, it is necessary to measure, over time, the true return on investment. See how calculating the return on objective can facilitate this process.
The return to objective
Return on objective (ROO) is certainly the simplest indicator to measure since it focuses on achieving measurable objectives. Indeed, it makes it possible to define whether a digital project has achieved the objectives set upstream. Taking the time to measure this ROO helps to truly understand the tangible benefits of a new digital solution. More broadly, achieving objectives is a more concrete calculation and therefore easier to disseminate internally than to demonstrate all the added value of a project.
Our advice: establish specific business objectives
Without a doubt, establishing SMART goals helps prepare for an investment in digital transformation. Indeed, before investing in a new tool, you should always take the time to define the related business objectives. Here are some examples :
- Save 30 minutes each time you open a customer file
- Increase calls to targeted potential customers by 20%
- Eliminate 3 unnecessary steps when billing customers
- Reduce order errors when leaving the warehouse by 30%
- Increase online sales by 10%
- etc.
In short, investing in the digital transformation of a company is considerable. However, by taking the time to properly estimate the return on investment using SMART objectives, everything becomes more structured. Also note that it is possible to rely on strategic thinking methods to help you, such as the Design Sprint.
At Libeo, we use the Design Sprint to plan and launch the digital transformation of our clients. By taking the time to understand user needs and business objectives, we prioritize projects over time. This gives our clients a better idea of the necessary investments and gains at each stage of their digital transformation. Contact us to learn more about our approach.
