Assessing the potential return on investment (ROI) for various technologies in the retail industry can be challenging. Getting clean data on the actual costs and return on any particular investment is tricky. Most technology initiatives do not occur in a vacuum, driven by ever-changing industry trends, and it can be difficult to pinpoint results directly. Managing data while maintaining compliance is also a key concern.
Despite the challenges, ROI is still one of the leading metrics for evaluating the value of IT services in retail. If the data is accurate, ROI is relatively simple to calculate and serves as the ultimate benchmark for whether any given technology project has succeeded or failed. Retail IT teams can use anticipated ROI to justify new IT service projects to retail stakeholders. Additionally, CIOs and IT leaders can use ROI to determine if legacy technology generates negative returns.
This post outlines the steps for demonstrating ROI for retail IT services projects and the nuances involved.
Step 1: Define clear objectives
Net sales or income is a good “true north” for assessing the success of any piece of retail technology, but if taken out of context, it may miss part of the picture. That is why it is urgent to identify the metrics that clearly indicate value and most directly correlate with the project goals, such as improved in-store experience or increased foot traffic for a specific store section. These core metrics are referred to as key performance indicators (KPIs).
Depending on the technology project and the stated objectives, KPIs might include:
- Conversion rates.
- Sales volume.
- Customer satisfaction (C-SAT) score or net promoter score (NPS).
- Customer retention.
- Foot traffic.
It is critical to note that while every KPI is a business metric, not every business metric is a KPI. KPIs are actionable, linked to primary objectives, and serve as the guidelines that determine the success and failure of a technology project. While other metrics can undoubtedly be helpful, they are not KPIs unless they tie in directly to core business objectives and decision-making.
Knowing typical KPIs for competitors in the retail sector enables your team to define realistic numbers to hit when monitoring KPIs regularly. One of the drawbacks of traditional ROI measuring is that standard equations do not account for time (more on this later). So, checking in on a regular basis with your KPIs helps determine if the project is exceeding expectations or failing to deliver the desired results.
Step 2: Connect IT initiatives to consumer experience
Each IT service investment should enhance customer experience (CX) or employee engagement directly. However, telling the story of retail technology ROI can take time, effort, and creativity. For example, how might a retailer connect a mobile POS system project to CX? A handheld POS system might enable employees to lower checkout times, enable curb-side pick-up or BOPIS, and improve customer satisfaction. A retail IT team embarking on such a project must first define relevant KPIs and ensure that data is collected cleanly to measure success.
Retailers should pay close attention to ROI regarding cost efficiency and revenue generation. IT service projects in retail tend to accomplish these returns by:
- Streamlining operations or increasing efficiencies.
- Increasing sales through better customer experience and engagement.
However, not all ROI is tied to revenue. For example, there are “soft” ROI gains, such as emotional ROI or employee morale. Measuring such categories of ROI is secondary to “hard” financial ROI but still essential to factor into larger decision-making efforts, especially when generating overall impact reports.
Step 3: Track and measure impact
Measuring ROI for IT services in retail borrows from the scientific method. By objectively collecting data before implementing new technology and comparing the results afterward, retailers can impartially determine whether the “experiment” was successful. However, like science, ensuring access to accurate data is vital.
Depending on the technology being assessed, retailers might gather data from:
- POS systems.
- RFID tracking.
- Customer surveys.
- Web analytics tools for e-commerce.
- Location-based analytics, such as heat mapping.
IT retail teams can also utilize AI to mine their data in real-time for hidden insights, such as potential motivations for customer behavior, seasonal sales patterns, and so forth.
Step 4: Customer feedback and surveys
Utilizing the Net Promoter Score (NPS) or other trusted customer satisfaction metrics quantifies the impact of IT changes on consumer loyalty and satisfaction before and after deploying a new technology. NPS predicts customer loyalty and reflects a customer’s long-term value (LTV).
Various short quizzes or surveys can be tailored to directly address any changes that affect any given customer segment, further refined by using social media targeting or customization refined by AI. AI also has valuable use cases in contact centers and customer support venues in recording calls, transcribing notes, and sentiment analysis, helping support agents better do their jobs.
Also read: Maximizing workplace efficiency: The power of embedded AI in digital workplace solutions
Step 5: Cost-benefit analysis
Key to relating the story of ROI is having the numbers to back up the emotional elements. There are numerous ways to express ROI mathematically, but one of the simplest equations is:
ROI = (Benefit Value – Cost) / Cost
The key to calculating accurate ROI is to consider all benefits and costs. With technology projects, not only must the price of the hardware and software be taken into account, but also any licensing, installation costs, maintenance, and ongoing subscriptions. Likewise, all the financial benefits must be factored in, including increased revenue, reduced costs, and time saved from new efficiencies.
A weakness of most ROI equations is that they do not account for time. Several updated equations allow for ROI over a given period. Still, the key idea is to compare the “before and after” of the technology project in question and how it affects the overall bottom line.
Step 6: Craft a compelling story
While the numbers should form the foundation for communicating ROI, creating a concise and compelling narrative that showcases the direct link between IT investments, improved in-store experiences, and tangible business outcomes is also essential.
Avoid overwhelming stakeholders with data. Instead, provide the necessary context in the form of a story. Present the ROI findings and impact of IT initiatives in a manner that resonates with different stakeholders, addressing their specific concerns or interests.
There are several techniques to accomplish these goals:
- Provide context – Saying that your organization currently has 42,000 rewards program members is not necessarily impressive. Stating that members could completely sell out Wrigley Field (or another local sports venue of a similar size) is an easy way to contextualize that number. It is even better to provide specific stats about member activity, i.e. 80% are members are highly engaged.
- Highlight trends – Determining ROI trends over time is a powerful way of relating stories. Look for growth, savings, and other metrics that are likely to continue into the near future and are directly correlated to your technology project.
- Present milestones achieved – Milestones are a powerful way of tracking progress toward core objectives.
- Visualize results – Create graphs, charts, and other visuals to illustrate the impact of IT investments.
- Case studies – Case studies present technology use cases linearly, drawing direct connections from solutions to results. Highlight specific instances where IT-driven improvements resulted in a better in-store experience and subsequent positive outcomes (such as increased sales, and happier customers). In terms of examples, CBTS has many case studies. In a relevant case study, CBTS helped retailer Champion Windows successfully achieve their business outcomes and realize a cost savings of approximately 50 percent.
Seek out expert support in ensuring technology ROI
ROI is not a one-time measurement. The most successful retailers regularly consider ROI for their technology and processes, constantly creating greater efficiencies that improve customer experience, employee engagement, and sales. However, as mentioned, determining and demonstrating technology ROI is often challenging in the real world. Fortunately, CBTS has many years of experience adding value to our customers’ retail tech stack.
Get in touch to learn more about how CBTS can ensure your retail technology investments achieve substantial returns.
