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The Total Economic Impact™ of cleverbridge WebinarForrester Consulting
Reggie LauTEI Consultant
Peter SheldonSenior Analyst
September 25, 2012
© 2012 Forrester Research, Inc. Reproduction Prohibited 2
Welcome
Introductions
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Agenda
Market Overview
What is TEI?
Executive Summary
Analysis
o Interview Highlights
o Benefits
o Costs
o Flexibility
o Risk
Financial Summary
Q &A
Please note: this slide presentation is an abridged, graphical and complementary representation of a full case study. For a full explanation of methodology and details on model calculations, please refer to the full case study: Forrester Total Economic Impact of cleverbridge, August 2012).
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Housekeeping
Slides will be provided following the webinar
Submit questions at any time
On Twitter: #CRO
5© 2012 Forrester Research, Inc. Reproduction Prohibited
Market Overview
The global software market is set to grow to $476 billion by next year
Source: Forrester Research, Jan 12, 2011 “Which Software Markets Will SaaS Disrupt” Report
© 2012 Forrester Research, Inc. Reproduction Prohibited
2010 2013
6
Consumers, SMB’s and enterprises alike are increasing acquiring software via direct channels
7
Software firms have many options when choosing an approach for implementing eCommerce technology
8
Many have built and evolved home grown eCommerce solutions
9
But as the complexity of selling increases, these solutions are becoming costly to maintain
10
29% of online retailers are planning to re-platform their existing eCommerce solution in the next 2 years
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Research, Jan 28, 2011 “2011 Online Retail Technology Investment Outlook”11
12
Build-in-HouseAssembling a home grown solution may be viable in the short term, but should not be underestimated and will likely constrain growth in the long-term
Fraud Screening
PaymentGateway
Sales TaxEngine
MerchantAccount
My Account
Required partner solutionsExisting in-house systems
Custom development
CRM
GL / ERP
pricin
g
subscription
billing
BI &
analytics
quote
s
chargebacks
entitlements /
provisioning
Renewals Web Orders Channel Partners
payment
s
customer
accounts
API’
s
revenue
recognition
Front
Office
Back
Office
license keys
CDN
asset mgmt order mgmt
ContactCenter
© 2012 Forrester Research, Inc. Reproduction Prohibited
13
Fraud Screening
Digital eCommerce Platform
PaymentGateway
Sales TaxEngine
MerchantAccount
My Account
Required partner solutionsExisting in-house systems
Custom development
CRM
GL / ERP
pricin
g
subscription
billing
BI &
analytics
quote
s
chargeback
s
entitlements /
provisioning
Renewals Web Orders Channel Partners
payment
s
customer
accounts
API’
s
revenue
recognition
Front
Office
Back
Office
license
keys
CDN
asset
mgmt
order
mgmt
ContactCenter
© 2012 Forrester Research, Inc. Reproduction Prohibited
Outsource to a Commerce PartnerFull service digital commerce solutions provide an integrated suite of solutions and services across channels and markets, but may be overkill in some scenarios
Included in solution
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Recap
The world of eCommerce is becoming increasingly complex
With in-house solutions, companies have control over direction, capabilities, priorities, resources, etc.
When building an in-house solution, companies should be cognizant of the effort and resources required
Full service commerce partners can offer end-to-end solutions and extensive expertise
15© 2012 Forrester Research, Inc. Reproduction Prohibited
What is TEI?
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Disclosures
The audience should be aware of the following:
• This document is an abridged webinar version of a full case study (Forrester Total Economic Impact of cleverbridge, August 2012).
• The study is commissioned by cleverbridge and delivered by the Forrester Consulting group.
• Forrester makes no assumptions as to the potential return on investment that other organizations will receive. Forrester strongly advises that readers should use their own estimates within the framework provided in the report to determine the appropriateness of an investment in cleverbridge.
• cleverbridge reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its findings and does not accept changes to the study that contradict Forrester’s findings or obscure the meaning of the study.
• The customer name for the interview was provided by cleverbridge.
• Forrester does not endorse cleverbridge.
17
“Next level” business case justifications are increasingly vital for critical investments.
© 2012 Forrester Research, Inc. Reproduction Prohibited
33%, Somewhat important
4%, Somewhat unimportant
3%, Not at all important
60%, Very
impor-tant
Base: 825 IT decision-makers at North American enterprises
Investment Impact Categories TCO ROI TEI
IT ImpactIT costs
IT cost savings
Business Impact
User efficiency Business
effectiveness
Risk and Uncertainty
Risk mitigation Risk vs. reward
Strategic Impact
Scalability Flexibility
Do I need a business case? What is an effective business case?• Over 90% of IT decision-makers
find value in a business case
• Decision-makers will likely want to apply standard criteria/factors to investment opportunities
• TCO and ROI only tells the story of costs and quantified benefits
• TEI adjusts for risks and factors the flexibility of a product into the case study
18
TEI Framework and Components
© 2012 Forrester Research, Inc. Reproduction Prohibited
Total Economic
ImpactRISK
Benefits(Impact on Business)
Costs(Impact on Budget)
Flexibility(Options)
Perform due diligence
Conduct customer interview
Construct financial model
Write case
study
Conduct webinar
The TEI framework centers on quantifying benefits, capturing costs, evaluating flexibility, and adjusting risk.
TEI Approach and Methodology
19© 2012 Forrester Research, Inc. Reproduction Prohibited
Executive Summary
20
cleverbridge generates incremental revenues and simplifies eCommerce for organizations.
• Forrester was commissioned by cleverbridge to examine the financial benefit of cleverbridge
• cleverbridge is a full-service eCommerce provider for companies that sell software or SaaS
• Its services include customer shopping cart and experience optimization, transaction ownership, channel/partner integration, and customer service
• Based on an analysis of cleverbridge’s customer feedback and quantified benefits, costs, risks, and flexibility, Forrester has determined cleverbridge has a three-year risk-adjusted ROI of 18% and NPV of $769,566, with a payback period of less than 1 month
Executive Summary
Three-Year Risk-Adjusted Financial Snapshot
ROITotal
Benefits (PV)Total Costs
(PV)NPV
18% $5.1M $(4.4)M $769,566
Payback Period
<1 Month
Source: cleverbridge website and marketing
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
21© 2012 Forrester Research, Inc. Reproduction Prohibited
Analysis
› Interview Highlights
› Benefits
› Costs
› Flexibility
› Risk
22
cleverbridge’s customer found value in migrating from an in-house solution to the cleverbridge SaaS platform.
cleverbridge had an 8% impact on incremental international revenue.
The testing environment and overall product management
functionality created efficiencies.
Outsourcing eCommerce freed up both IT and customer service resources.
cleverbridge’s semi-annual networking events provided partnership and future
sales opportunities.
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
23
Incremental international revenue is the largest benefit area of the cleverbridge platform.
Three-Year Non-Risk-Adjusted Benefit
Metric Year 1 Year 2 Year 3 Total
Annual revenue $20,000,000 $21,500,000 $23,112,500
Annual revenue growth 7.5% 7.5% 7.5%
Incremental international revenue ratio 8.0% 9.0% 10.0%
Total $1,600,000 $1,935,000 $2,311,250 $5,846,250
Incremental international revenueCustomer migrated from an in-house platform supporting three languages, two payment options, and three currencies to the cleverbridge platform, which supports over 30 checkout languages, 20 payment options, and 30 currenciesKey metrics: International revenue growth
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
Incremental international
revenue91%
Three-Year Non-Risk-Adjusted Benefits
24
Although IT-focused productivity is a relatively small piece of the total benefits, it is a cost avoidance with implications for organizations seeking more automation.
Three-Year Non-Risk-Adjusted Benefit
Metric Year 1 Year 2 Year 3 Total
Hourly rate/FTE $40.00 $41.20 $42.44
Annual hours spent on manual process 144 144 144
Annual dollars spent on manual process $5,760 $5,933 $6,111
Efficiency gain ratio 50% 50% 50%
Efficiency gain $2,880 $2,966 $3,055
Relevant and adopted automated features 2 3 4
Total $5,760 $8,899 $12,222 $26,881
IT-focused productivityCustomer heavily adopted report generation and product management/testing features, which produced material time/resource savingsKey metrics: Heavily adopted automation features, efficiency/time saving, labor cost
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
IT-focused productivity
0.4%
Three-Year Non-Risk-Adjusted Benefits
25
eCommerce efficienciesCustomer was able to reallocate resources to more strategic initiatives like new product development, while also experiencing a resource efficiency in customer supportKey metrics: eCommerce/customer service headcount, average customer support inquiries, labor costThree-Year Non-Risk-Adjusted Benefit
There are intrinsic resource efficiencies in IT and customer service when outsourcing eCommerce.
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
Metric Year 1 Year 2 Year 3 Total
Annual IT FTE salary $80,000 $82,400 $84,872
IT FTE need for in-house 3.5 3.5 3.5
IT FTE need for outsourced 2.0 2.0 2.0
IT FTE cost avoidance $120,000 $123,600 $127,308
Hourly rate/customer service FTE $40.00 $41.20 $42.44
Average contact hours/year 702 1,160 1,247
Call center FTE cost avoidance $28,064 $47,806 $52,933
Total $148,064 $171,406 $180,241 $499,711
eCommerce effi-ciencies 8%
Three-Year Non-Risk-Adjusted Benefits
26
Incremental partnership revenueCustomer actively participated in cleverbridge’s semi-annual event and achieved a tangible, revenue impacting outcomeKey metrics: Events attended, conversion ratio
Three-Year Non-Risk-Adjusted Benefit
cleverbridge’s semi-annual events are a value-add that generate leads and partnerships.
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
Metric Year 1 Year 2 Year 3 Total
Event frequency/year 2 2 2
Incremental revenue $20,000 $20,000 $20,000
Probability/conversion 50% 50% 50%
Total $20,000 $20,000 $20,000 $60,000
Incremental part-nership revenue
0.9%
Three-Year Non-Risk-Adjusted Benefits
27
cleverbridge’s customer experienced three costs that are based on sales and usage.
Three-Year Non-Risk-Adjusted Costs
Cost Year 1 Year 2 Year 3 Total
Direct sales transaction ($1,003,600) ($1,651,200) ($1,765,795) ($4,420,595)
Affiliate sales transaction ($50,050) ($94,600) ($114,407) ($259,057)
Backup software ($156,000) ($258,000) ($277,350) ($691,350)
Total ($1,209,650) ($2,003,800) ($2,157,552) ($5,371,002)
Direct sales transactionThis is the transaction fee (8%) charged per direct sale, which can vary by customer. Direct sales accounted for over 96% of sales for the interviewed customerKey metrics: Direct sales transaction fee, direct sales revenue
Affiliate sales transactionThis is the transaction fee (11%) charged per indirect sale, which can vary by customer. Affiliate sales accounted for 3.5% of sales for the interviewed customerKey metrics: Affiliate sales transaction fee, affiliate sales revenue
CD/DVD Backup softwareThis is the blended fee ($6.50) charged per backup copy requested, which can vary by customer. The interviewed customer’s end-users requested an average of 2,000 copies per month – an above average amount as reported by cleverbridge across all clientsKey metrics: Cost per backup copy, backups requested
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
28
In addition to benefits and costs, TEI focuses on potential risks along with “flexibility” for future benefits.
Flexibility – Future ValueFraud management: Potentially allows customers to reduce support for fraudulent orders, reduce legal fees and fines, and lower risk of losing credit card contractsContinuous technology updates: Expect to experience updates in functionality that spans from new international payment options to compatibility with social media and mobileBusiness intelligence (BI): Sales data is analyzed and displayed through the BI module and can also be integrated with other popular BI applicationsNo exclusive contract required: Flexibility to stop using cleverbridge at any point or even split eCommerce operations with another third-party provider or an in-house solution
Risks*
Implementation risks (causing higher costs)−Transaction fee increase−Unexpected increase in affiliate revenue−Unusually high amount of backups requested
Impact risks (causing lower benefits)−Low focus on international growth−International product saturation−Low adoption of technology−Large eCommerce and customer service staff
Costs LowMost Likely
High Mean
Direct sales 98% 100% 110% 103%Affiliate sales 98% 100% 105% 101%Backups 98% 100% 102% 100%
Benefits LowMost Likely
High Mean
Intl revenue 90% 100% 105% 98%IT productivity 85% 90% 100% 92%eCommerce efficiencies
90% 95% 100% 95%
Partnership revenue
0% 50% 100% 50%
*Please refer to Appendix slides for details on how to use the risk adjustment table
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
29© 2012 Forrester Research, Inc. Reproduction Prohibited
Financial Summary
30
The three-year risk-adjusted cash flow for cleverbridge shows a positive ROI (18%), a NPV of over $750,000, and a payback period of less than 1 month.
Three-Year Risk-Adjusted Cash FlowInitial Year 1 Year 2 Year 3 Total PV
Benefits $0 $1,729,274 $2,083,743 $2,465,161 $6,278,179 $5,146,281
Costs $0 ($1,209,650) ($2,003,800) ($2,157,552) ($5,371,002) ($4,376,716)
Net Benefits $0 $519,624 $79,943 $307,609 $907,177 $769,566
ROI 18%
Payback Period <1 month
Initial Year 1 Year 2 Year 3
($3,000,000)
($2,000,000)
($1,000,000)
$0
$1,000,000
$2,000,000
$3,000,000
($1,209,650)
($2,003,800)
($2,157,552)
$1,729,274 $2,083,743
$2,465,161
CostsBenefitsPayback
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
© 2012 Forrester Research, Inc. Reproduction Prohibited 31
Recap
Incremental revenue
Positive ROI
Short payback period
Organizational efficiencies
Ongoing partnership approach
32© 2012 Forrester Research, Inc. Reproduction Prohibited
Q & A
© 2012 Forrester Research, Inc. Reproduction Prohibited 33
Wrap Up - The Total Economic Impact™ of cleverbridge
Expect an email follow up in the next 24 hours
Check out our TEI resources at http://tei.cleverbridge.com
• Executive Summary of the TEI Study
• Copy of the full TEI study
• On-demand version of this webinar
• ROI Calculator
35© 2012 Forrester Research, Inc. Reproduction Prohibited
Appendix
Introduction
Total Economic Impact is a methodology developed by Forrester Research that enhances a company’s technology decision-making processes and assists vendors in communicating the value proposition of their products and services to clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior management and other key business stakeholders.
The TEI methodology consists of four components to evaluate investment value: benefits, costs, risks, and flexibility.
Benefits
Benefits represent the value delivered to the user organization — IT and/or business units — by the proposed product or project. Often product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established between the measurement and justification of benefit estimates after the project has been completed. This ensures that benefit estimates tie back directly to the bottom line.
Costs
Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all the investments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are created.
Appendix A: TEI Methodology and Framework
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
© 2012 Forrester Research, Inc. Reproduction Prohibited
Introduction (cont.)
Risk
Risk measures the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two ways: 1) the likelihood that the cost and benefit estimates will meet the original projections, and 2) the likelihood that the estimates will be measured and tracked over time. TEI applies a probability density function known as “triangular distribution” to the values entered. At minimum, three values are calculated to estimate the underlying range around each cost and benefit.
Flexibility
Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the initial investment already made. For instance, an investment in an enterprise-wide upgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated. The collaboration can only be used with additional investment in training at some future point in time. However, having the ability to capture that benefit has a present value that can be estimated. The flexibility component of TEI captures that value.
Appendix A: TEI Methodology and Framework (cont.)
Perform due diligence
Conduct customer interview
Construct financial model
Write case
study
Approach
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
Framework and Components
Benefits(Impact on Business)
Costs(Impact on Budget)
Flexibility(Options)
Benefits• Quantified
value• Defined
metrics
Cost• People• Process• Technology
“Options” created• Are there new
opportunities created for the future?
Uncertainty• Impact of assumptions
Total Economic
ImpactRISK
Appendix A: TEI Methodology and Framework (cont.)
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
Interviewee
Forrester interviewed a current cleverbridge customer for this study. The customer is a U.S.-based utilities software company with annual eCommerce revenues of $20M. The primary revenue model focuses on the sale of software licenses – approximately 65% for consumers, and 35% for upgrades and enterprises. The customer had approximately 10 full-time staff supplemented by contractor support in its eCommerce department. The eCommerce department was responsible for building and maintaining the prior in-house eCommerce platform, which supported three languages, two payment methods, and three currencies.
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
Appendix B: Interviewee Description
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
Appendix C: Model Assumptions
Metric Value
Hours per week 40
Weeks per year (M-F, 9-5) 52
Hours per year (24x7) 2,080
Hours per year 8,760
Annual salary $80,000
Hourly wage $40.00
Annual labor increase 3%
Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although the Federal Reserve Bank sets a discount rate, companies often set a discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult their respective organization to determine the most appropriate discount rate to use in their own environment.
Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have higher NPVs.
Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total net present value of cash flows.
Payback period: The breakeven point for an investment. The point in time at which net benefits (benefits minus costs) equal initial investment or cost.
Return on investment (ROI): A measure of a project’s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs.
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
Appendix D: Glossary
© 2012 Forrester Research, Inc. Reproduction Prohibited
Source: Forrester Total Economic Impact of cleverbridge, a commissioned study conducted by Forrester Consulting on behalf of cleverbridge, August 2012
Appendix E: cleverbridge Overview
cleverbridge is a full-service eCommerce provider for companies that sell software or SaaS. Its services include customer shopping cart and experience optimization, transaction ownership, channel/partner integration, and customer service. cleverbridge works with more than 300 clients and more than 17,000 affiliates globally to provide eCommerce for B2C and B2B software licenses and subscriptions. Key highlights of cleverbridge capabilities include:
• A customizable checkout process that integrates into the customer’s web experience.
• The ability to enable a variety of promotions and discounts during the checkout process.
• Detailed multivariate and A/B testing modules that can assist in layout, regional, and pricing decisions.
• Localization with more than 20 local payment options, 30 checkout languages, and 30 currencies.
• Fulfillment of both online licenses/subscriptions and physical backups.
• An in-house customer service center.
• A standalone business intelligence module with the option of integrating sales data with existing CRM, ERP, and BI tools.
• A .NET solution with structured layers, multiple API’s and flexibility in customization.
• Management for eCommerce support functions such as marketing, affiliates, and fraud.