Is Your Business Ready For SAP Customer Experience?
By Valerie Nechay, Itransition
ROI calculation for a new platform is always a challenge, as businesses need to consider numerous aspects, both quantified and unquantified. To model the economic impact of different implementation scenarios, we used a calculator to evaluate the ROI potential of SAP Customer Experience-based solutions for enterprises and midsize businesses.
The results clearly show that large organizations can benefit tremendously from SAP Commerce Cloud, reaching 307% ROI in three years. But will this work for smaller companies? Let’s figure this out.
Disclaimer: All the costs mentioned in this article are estimates, not quotes.
ROI For Enterprises
Big guys first. Let’s imagine that an international enterprise has an annual revenue of $1 billion with 30% of it generated through digital channels, which equals 60,000 orders with an average order value of $5K. Regional account managers and sales reps close most deals, and each market has its own database of documents, operational and order processing data.
In pursuit of connecting operational silos, the company decided to move to SAP Commerce Cloud.
How Much Does It Cost?
The cost of an SAP Commerce Cloud implementation is made up of subscription fees, an initial implementation budget, and ongoing costs.
Let’s imagine that our organization spends $400K to implement SAP Commerce Cloud in cooperation with an SAP consulting partner. This amount covers the integration of third-party apps as well as the customization, testing, and rollout of the application companywide.
Let’s assume that the implementation takes eight months and is carried out by a team of 20 employees, each utilized at 30% and receiving a $100K annual salary, which makes a total of $880K for initial implementation with a 10% risk adjustment included. Of course, the costs may vary depending on the scope of ongoing support as well as changes in scope, customization, and testing.
The total cost also includes the work of the 12-member support team with an average annual salary of $100K as well as the cost of ongoing professional services to maintain the solution.
Total Costs Projected Over 3 Years
- License fee: $1.3M
- Initial implementation: $880K
- Ongoing costs: $3.5M
What’s The Outcome?
As soon as SAP Commerce Cloud is implemented, the organization can see an increase in the average order value by 5%, or $250 per transaction, with 50% of the increase attributed to the migration to SAP. The increased risk-adjusted net revenue from the improvement is estimated at $19M over 3 years.
What’s more, the implemented solution considerably improves margins thanks to order processing spending cuts reached by means of operational silo connection, streamlined processing, and fewer field input mistakes. Processing costs are cut by 70% due to better system integration and increased sales via digital channels. This results in $8.5M over 3 years.
The SAP solution also increases the productivity of the company’s marketing and e-commerce teams by automating database updates once new SKUs and prices are rolled out, thus eliminating time-consuming manual database updates and synchronization with the frontend.
If we assume that the company’s marketing team consists of 24 people with an average annual salary of $75K, a 30% productivity improvement, and the 50% productivity captured by the company results in a risk-adjusted $729K over 3 years.
Total Benefits Projected Over 3 Years
- Improved team productivity: $729K
- Improved margins: $8.5M
- Increased net revenue: $19M
ROI For Mid-Size Businesses
Let’s apply the same methodology to calculate the ROI of an SAP Commerce Cloud implementation for a smaller company.
Let’s take a business with a $43M annual revenue, 85% of which comes through the digital channel, with the team of 24 people responsible for B2B sales, receiving an annual salary of $35,000 each.
How Much Does It Cost?
With the license costs of SAP B2B deployment estimated at $162K, the company’s ongoing maintenance spending can reach $501K over 3 years, while the initial implementation can require $59K.
Total Costs Projected Over 3 Years
- License fee: $162K
- Initial implementation costs: $59K
- Ongoing costs: $501K
What’s The Outcome?
With the increase in the average order value of 5% and 50% of it attributed to the investment in SAP Commerce Cloud, the increased risk-adjusted net revenue from the improvement is estimated at $2.2M over 3 years.
Improved margins through lower processing costs reach a total of $1M over 3 years, while the improved marketing and e-commerce team productivity is expected to bring another $340K.
Total Benefits Projected Over 3 Years
- Improved team productivity: $340K
- Improved margins: $1M
- Increased net revenue: $2.2M
Remarkably, the payback period for such an organization is just under six months, with the ROI reaching 372% within 3 years.
License Fees Don’t Always Matter
Let’s take a look at the same organization from another angle. Imagine they have 1K prospects and existing customers, about 300 monthly online orders, a 1.5% email conversion rate, and the existing marketing systems including CRM, a knowledge base, and websites. At first glance, the company might need SAP Marketing Cloud, but let’s consider the costs first.
While the initial implementation costs for such a configuration reach a relatively moderate $189K, the ongoing maintenance costs are prohibitive at around $1.1M over 3 years. The license fees are surprisingly small, totaling $197K within 3 years, but this doesn’t help when you have to pay more than a million for implementation and maintenance.
What about the benefits? The summary looks good. There is a boost in net revenue from the increased average order value reaching $365K over 3 years. The benefits from cost reduction, brought about by the unification of disparate marketing systems, reached $342K. At the same time, the increased net revenue from the improved conversion rate is only $1K.
As a result, we get a payback period of more than 72 months and a -49% ROI within the first 3 years. This means that not every business needs a mass-market marketing solution like SAP Marketing Cloud and can do much better with tools of a smaller scale.
Will SAP CX Be Your Platform Of Choice?
To correctly evaluate the potential financial impact of investing in SAP Customer Experience products for your organization, you have to consider the specifics of your business environment. As our experiment has shown, not every solution is going to pay off. Depending on different determining factors, you can enjoy a dramatic 372% ROI or face a horrifying -49% ROI within the first 3 years.
About The Author
Valerie Nechay is MarTech and CX Observer at Itransition, a Denver-based custom software development provider. Using her writing powers, she's translating complex technologies into fascinating topics and shares them with the world. Now her focus is on Salesforce implementation how-tos, challenges, insights, and shortcuts, as well as broader applications of enterprise tech for business development.