As we mentioned in the recent article How to Build a Doomed Website, the future is now and digital capabilities are essential. Yet many distributors still don’t see the value of investing in a high-quality website. The article and podcast delve into why and how distributors build the wrong websites. But one contributing factor deserves a spotlight of its own: the ROI dilemma.
Distributors are looking for the payoff in an ecommerce investment and, if they don’t see one, they count it as unsuccessful. The problem with this way of thinking is that if distributors make plans based on forecasts that show limited ROI, they might decide to spend less and limit the site’s functionality and integration, dooming themselves from the start.
If you let potential ROI determine how much you’ll invest in your website and how you’ll measure its success, you’re going about it all wrong and you will not succeed.
The reality is that all marketing investments are uncertain because they are often hard to quantify. In every case, they compete with the very real choice of not spending the money and simply taking the cost savings to the bottom line instead. Sales and marketing teams don’t always have the data to make the case upfront that it will be a profitable investment. In these cases, distributors wind up with a half measure where they’re given a little bit of money to do something — but not enough to do it right. A half measure based on a standard ROI model is a fast way to fail in e-commerce.
What Gets Lost in the ROI Equation for eCommerce
A proposed website budget shouldn’t be treated like other capital expenditures because most ROI models can’t measure the effects of eroded long-term competitiveness from a failure to invest. This equation doesn’t account for the fact that digital capabilities are simply a survival requirement.
Consider this: In our research, featured in our 2016 report “What Customers Want: A Distributor’s Guide to Customer Buying & Shopping Preferences,” data from two different distributors’ end-customer bases showed the risk of high customer churn without ecommerce. Even accounting for sampling bias and discounting the risk significantly, 5.5 percent to 7.25 percent of customers were at risk due to customer unhappiness with the ability to order the way they want.
When we shared that data with other distributors, most agreed that somewhere between 3 percent and 5 percent of customers are at risk per year without an easy-to-use ecommerce platform.
This was back in 2016. Chances are, the percentage of the customer base at risk due to non-existent ecommerce or poor user experience has gone way up.
And since the COVID-19 crisis, it’s increased even more as customers have moved online out of necessity. This risk is not worth taking.
ROI models also typically don’t account for revenue results outside of shopping cart revenue. If you have a great e-commerce site with lots of information and customers are using it to research before ordering via a different mechanism, the e-commerce initiative isn’t getting proper credit for the potential revenue it’s bringing in. Customers may search online and then call in or talk to their account manager. Or they may be getting product data from your website to put together bids. None of that potential revenue is credited to the website in a standard ROI model.
The ROI on Staying Competitive is Hard to Measure
Sometimes your capability requirements are defined by what competitors offer – not based on whether an ROI model can prove closing gaps is a profitable decision for your firm. In the case of ecommerce, you may be less profitable after you launch a successful site than before – in the short term. But the real alternative to building these capabilities – which was not captured by your model – was a long, slow glidepath out of business.