Mobile Roadmap: Calculating Hard ROI on Soft ROI Initiatives
Mobile Strategy Partners
Date Posted: Sunday, May 13, 2012
A Fictitious ROI Chart
We’re commonly hired to help companies make decisions on their mobile roadmap and build the business case around the mobile initiatives.
Many execs put items on their roadmap that their gut tells them are important, but it’s difficult to calculate the ROI.
While I agree that it’s impossible to calculate the exact ROI of soft ROI initiatives, I think you can calculate the ROI enough to objectively assess your priorities.
In fact, I think it’s critical that you do so. The mobile landscape is littered with too much wasted money because of executive gut decisions that didn’t end up the way they expected.
So, let’s walk through an example:
I’m going to use mobile banking because I think it’s actually harder to calculate than retail mobile commerce in some ways. Retail mobile commerce ultimately results in a sale, whereas banking is a loyalty play. Retail is tricky to calculate because increasingly, the sale crosses channels, hiding the fact that mobile, online, or bricks-and-mortar retail affected the sale.
So, imagine a mobile banking roadmap with ten items on it but you only have budget to do five or six.
The number one item on your roadmap is some cool new feature, like Remote Deposit Capture (aka RDC, depositing checks with your phone) that you think will get you tons of press, excite your employees and deliver way more soft benefits than the actual feature itself. In your gut, this is your top priority but you can’t calculate it.
Number two on your roadmap is something bland like cross-selling functionality. It’s a feature you could never promote to customers, because customers don’t want to be marketed to. However, by implementing this technology, you can sell more products.
How do you choose?
The first step is to find a way to measure the impact of the priority. In the case of RDC there’s an intrinsic feature value we can calculate (the profitability of adding new deposits to the bank and the reduced cost of doing the deposits in an electronic channel vs a more expensive channel like the bricks-and-mortar branch, less any increased fraud). Secondly, the exec thinks the brand-promotion aspect will far outweigh the benefit of the actual product benefits. Calculate them both. For brevity, let’s just outline how to calculate the brand benefit.
Answer the following questions for yourself:
What’s the addressable market of new customers?
What percentage of non-customers will be drawn to do business with me because of this innovative new feature?
How will this cool feature reduce existing customer attrition?
How will this cool feature increase adoption of mobile and other products that I value?
Will this new feature cause any adverse impact?
So, in the mobile RDC example, I could hypothetically argue the following:
My market is 50 million consumers and 1/3 are my customers. I could reach 33 million new consumers. If I convert half of one percent (0.5%) to customers, I get 165,000 new customers. If I profit only $50 annually from each customer, that’s $8.25 million in additional new revenue and the opportunity to market additional products.
Adding RDC could help increase my mobile adoption from 20% to 22% (a 10% increase). Mobile customers are stickier customers and more profitable, similar to online bill pay users. If I add 330,000 mobile users to my 3.3 million existing mobile users at an average increased value of $50 annually, that’s an additional $16.5 million each year.
RDC could increase my fraud costs and could increase calls to the call center. While many banks report reduced fraud in the mobile RDC channel as compared to the ATM channel, institutions should estimate some impact. Let’s remove 10% of the total benefits as a conservative calculation.
Similarly, adding cross-selling capabilities can also have an impact, and as adoption increases, the impact increases.
Mobile ads continue to have far more effect than online ads. Personalization can further improve ad effectiveness. If 5% of my 3.3 million mobile customers respond to my ad impressions to adopt a new product (like bill pay), that’s 165,ooo new products. If the average value of those products is $100, that’s $16.5 million in new revenue.
If these new products reduce attrition by 2%, that’s 66,000 customers staying with the bank. If that’s worth $100 annually, that’s $6.6 million each year with the opportunity to continue marketing to them.
So with these two basic calculations, the more bland initiative comes out slightly more profitable than the flashy new product ($23.1M in net impact vs. $22.3M).
Your mileage may vary, of course. You can argue any of these numbers are too high or too low for your situation. Replace them with your numbers.
My point is to encourage objective thinking about emotional mobile product roadmap decisions, so more teams make the best decision possible.