Don’t worry, this isn’t therapy. But the relationship at times can be strained and we’re here to talk through why ROI is more than just crucial when making digital transformation decisions.
Whether you’ve been attending an industry event or participating in any business discussion, any topic involving innovation, digital strategy or pivoting (thanks, covid) — Digital Transformation is a buzzphrase you’ll have heard not far behind.
The biggest issue we face — as a digital transformation agency — is how do you determine the tangible value and return of investment made? A sensible question, and one that bring us to write an article discussing the crucial metric: ROI in digital transformation.
ROI, you say? 💰
ROI (Return On Investment) is a cornerstone metric in business. If you love or hate the phrase, it serves as a decisive tool for businesses of any size. It’s a metric a librarian could use when deciding between maintaining stacks of physical books or transitioning to a digital lending system.
Simply put, ROI helps you understand the benefit (return) you get from the money (or investment) you’ve put in. And when it comes to digital transformation and justifying your investment, ROI is your best friend in proving that all that tech and change isn’t just for show.
Understanding the formula 📚
Let’s take a look at the ingredients for our recipe.
- Net Profit (from the Digital Transformation): This is the extra money you’ve either made or saved because of the digital changes.
- Cost (of the Digital Transformation): How much did it cost you to make these changes? This could be for a new software, training for the team or any associated expenses.
We put those numbers into the below formula:
(Net Profit - Cost) / Cost
Now you multiply the answer by 100, and voila, you get your ROI percentage. Whilst there’s no benchmarks for ROI as they can be business specific, not just sector relevant, you want the number to be positive.
- Jane owns a bakery shop and wants a digital ordering solution to replace people calling her store.
- Jane spends £100 a month on the new software but saves £15 a month on her phone bill. Jane’s now incurring costs of £1,020 a year as a result of the transformation.
- Because of the transformation though, Jane’s been able to increase sales by £2,000 during that same year.
- Jane’s ROI calculation looks like this:
(2000 - 1020) / 1020
- Jane’s ROI percentage is 96.08%. Kudos to, Jane.
Why does it matter though? 🤔
If you’re still not sold — you can be forgiven. When a three-letter-acronym becomes a buzzword, it can be frustrating and a topic you just want to avoid.
Let us summarise though why it matters for any business making any decision involving any level of investment (it doesn’t matter how big or small your business is):
- Clarity: By understanding a decision’s ROI, you’re confident that you’re not just throwing money into the abyss hoping it’ll all work out. You’ve done the math that based on cost in and increased output out, you’re cash positive over the long-term.
- Confidence: With a solid ROI, you can confidently strut answer questions from anybody with insight and understanding. You’ve done the numbers and the math doesn’t lie — it’s not opinion driven decision making.
- Credibility: Whether it’s for your team, investors, skeptics (or even yourself) your business case coupled with ROI calculation can show anyone that your digital transformation idea is more than just a set of fancy buzzwords.
Time to Ascend 🚀
Digital transformation isn’t just about changing tools or platforms. It’s a mindset shift. A journey. A rollercoaster with its ups, downs, and (hopefully) thrilling outcomes. As for calculating ROI? That’s just your ticket to ride.
Like any journey though, it’s made better by having the right company alongside you for the ride. That’s where we come in. Ascend is here to guide, support and be the co-pilot on your digital transformation journey. Let’s take your business to new heights.
Connect with Ascend today to start your journey.
Rise to it.