Business without automation is a dead-end road. Nowadays, even small companies automate their processes, for example, using CRM, BI or chatbots. However, many IT projects do not provide the efficiency expected by managers at the start. What could be done? Assess the feasibility of investments in advance. Most often, this is calculated using the return on investment – ROI.
ROI is a key figure for business that helps managers understand the viability of investments in new technologies. After all, the introduction of IT solutions is not only a technological novelty, but also a real impact on business processes, profits and competitive capacity of the business. In today’s article, we will study this process in detail and understand how to apply it to your business.
Table of Сontents
How automation in business pays off
Automation of merchandising improves the efficiency and transparency of processes significantly. With this feature, one employee is able to check product display faster and visit more retail outlets. In addition, IT solutions reduce the number of errors in reports, thus improving their accuracy and reliability.
In general, business automation solves three main problems:
- Time saving and cost reduction. Automation helps speed up processes and complete more tasks for the same or even less money. For example, a merchandiser used to spend almost an hour on reporting at a retail outlet, but with an IT solution it only takes 18 minutes. This is 70% faster.
- Scaling. This follows from the previous issue. With automated processes, you can expand your business without hiring new employees.
- Understand the actual situation. Automation allows collecting data at every stage of the process, with breakdown by each employee, SKU or otherwise. This detailed analytics allows marketers to analyze the display, sales of individual brands or product categories, avoid out-of-shelf situations or oversupply.
It should be kept in mind that the benefits of automation are not measured only in money. It also provides “soft” benefits that are difficult to measure in numbers, such as public image enhancement or improvement of working conditions for employees. Such benefits are difficult to assess, but they cannot be ignored.
What are automation costs and how to calculate ROI
Automation of processes requires investments and also increases costs for individual items, for example, the costs of supporting the company’s IT infrastructure will become higher. Therefore, before implementing an IT solution, managers evaluate whether it will pay off in the future.
ROI is one of the indicators within such evaluation.
ROI is a measure of long-term performance of a project. It answers the question of how much profit each dollar of investment brought to the company. ROI is calculated based on the profit produced by investment compared with the amount originally invested in the project. The main metric is the difference between the growth of profit and the initial investment. For example: If the system enjoyed rise in sales, reduced personnel costs and decreased losses, the total benefit is compared with the costs of automation.
- cost of software (licenses or subscriptions under the SaaS model)
- cost of equipment, if required,
- integration of a new solution into the company’s existing IT infrastructure,
- staff training costs,
- solution support and maintenance.
- Break down the display checking process into individual stages and determine their performance indicators and cost:
- Average monthly salary of one employee engaged in merchandising.
- Number of product display checks or store visits that one employee completes during the year.
- Percentage of time an employee spends checking the display of goods out of the total working time.
- Average time an employee spends checking one display.
- Number of employees engaged in checking the display of goods.
- Percentage reduction in time for checking the display due to the implementation of automation (usually this can exceed 50%).
- Identify the risks and disadvantages of the existing process that will be eliminated by automation, for example:
- less errors in reports,
- low planogram compliance rate,
- data irrelevance.
ROI = (income – costs) / costs * 100%.
Example of ROI calculation for an automation project:
Let’s assume that a company is going to implement IT solutions for merchandising automation.- Automation costs will amount to $100,000: system refinement and deployment, integration with the company’s existing applications, staff training.
- Annual cost reduction: 80,000$. IT solution reduces time and costs of manual comparison of display with planogram,
- Gain in sales by optimizing display, reducing out-of-stock situations, and improving merchandising efficiency: +$50,000 per year.
- Payback period: 1 year.
ROI = (130,000 – 100,000) / 100,000 *100% = 30%
ROI of 30% means that the company not only returned its investment, but also earned 30% additional profit. Considering the system operation in the second year, we get:- Costs of the second year will include only support and maintenance: $20,000 per year.
- Income from automation remains the same – $130,000 per year
ROI = (130,000 – 20,000) / 20,000 * 100% = 550%
The company is now set to make significant profits in the coming years. At the end of two years, the ROI will be 116%: сosts for two years – $120,000, income from automation: $260,000.ROI = (260,000 – 120,000) / 120,000 * 100% = 116%
In this way, the company will recoup its investment in business automation. Project ROI should be assessed several times during project implementation. The first calculation should be made at the preliminary analysis stage, using the experience of previous projects and expert opinions. The second calculation should be made after a pre-project survey (initial investigation) which describes the company’s processes and analyzes them for optimization. The third calculation should be after the system is deployed, when you can observe actual results using actual data or expert assessments where precise calculations are impossible. After each stage, the ROI calculation becomes more accurate and you can make a more informed decision about automating the process.ROI helps you evaluate the profitability of your project
Calculating the benefits of merchandising automation helps you understand whether it is worth investing in new technologies or whether it is better to consider another solution to the problem. It is essential to consider not only the reduction in costs, but also other benefits: the availability of goods on the shelves is monitored continuously, sales information becomes more accurate, and employees spend less time on routine tasks.
Regularly calculating ROI allows you to assess whether the system is working well right now and identify ways to make it better. Ultimately, this helps gain higher sales and make customers happier.
