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Unlock funding opportunities BY calculating the ROI of a digital showroom

Oct 28, 2020 – Álvaro Pin, Head of Growth at HATCH

Fashion is undergoing a huge digitization process and digital showrooms are a leading factor. The investment in one can be daunting and brands don't always know how to calculate the ROI of a digital showroom. Luckily for fashion, this is very common in many digital transformations across other industries. Digital transformation is top of mind for companies, yet less than 15% of companies can quantify the ROI of their digital strategies. How is this possible?

First of all, it's hard to measure innovation in a business plan. Next, companies don't always start with the most important question: why do we need to change? Companies must involve employees in this exercise. Not only do they ultimately make or break any business strategy, they can boost your business plan beyond your expectations. 

Another common challenge for innovation teams is aligning progress with the company’s KPIs. These are often set to calculate the long-term impact and often miss quantifying continuous progress and milestones. Digital transformation initiatives like implementing a Digital Showroom are in constant evolution and the long-term impact is often hard to measure at the start. To quantify the value and ROI of a digital transformation businesses need to measure progress.

digital investment should be linked to progress

Progress enables tech companies to measure growth and milestones at shorter cycles than regular fixed budgetary cycles, which in turn gives greater visibility to budget holders, making it easier to drive investment in the early stages of your digital transformation initiative.

If your digital showroom value is clear and the relevant people are involved (aka sales teams), now’s the time to set the framework to calculate the ROI of a digital showroom through its lifecycle. Here’s how you can get started:

#1 Gather your numbers 

This may sound obvious, but it can be tricky. In many cases, brands often focus on costs and revenue, leaving behind other areas that can provide a more holistic view of your progress. When looking into a digital showroom solution, knowing these numbers will be handy:

Sample costs: Both production and shipping costs are included here.
Sales window: How long does it take to serve all your wholesale customers each season?
Number of B2B customers: How many wholesale customers do you serve each season?
Average appointment time duration: How long does it take you to serve one customer on average? Don’t forget to include preparation time! 
Mandatory buy %: How many customers are buying into your mandatory buys and what’s the percentage of their total buy?
Wholesale sales revenue: What is the yearly – or seasonal – revenue of your wholesale business.
Tools and materials used: How many assets do sales teams use to conduct a sales appointment currently? PowerPoint, Excel? Everything counts. This will help you understand the progress of your digital initiative through streamlining the journey, eliminating unnecessary steps by removing tools in favor of others.  

#2 Define your targets 

Have you completed the exercise in our previous post? Great! You should then know the value you want to unlock for your brand. Now’s the time to set a target for that value. Don’t worry if you aren’t totally sure about them now. You’ll most likely (and you should) refine your targets as your progress in your digital transformation initiative. Is sample reduction the unlock for you? Then make sure to set a sample reduction target. Is it sales efficiency instead? Then a sales window reduction may be a good one to track. 

Tip: Define progress and milestone sub-goals, when setting any value-based targets. This will help you quantify the progress and wins of your digital initiative in shorter cycles than traditional yearly budget cycles.

#3 Quantify the value

At HATCH we call this a value assessment as it doesn’t just capture costs and wins, but does it based on the value defined for your digital transformation. To run this exercise, you have two scenarios: 

  1. You don’t know your digital showroom provider: Focus on defining the wins of your digital initiative. Measure and calculate the wins based on your value unlocks. Use this as a reference of the maximum budget range you should invest in a digital showroom provider.  
  2. You know your digital showroom provider: Add the costs of this digital showroom provider to the mix in option A and see how costs relate to the benefits. 

Value CalculatorAssess & Calculate the potential value and calculate the ROI of your digital showroom with the HATCH Value Calculator Tool

Download the Value Calculator

 

 

#4 Refine your targets

Whether you know the right Digital Showroom for your brand or not (and if not, check out this article), go back to your targets and reassess them based on step #3 to optimize the value you can get out of your transformation. 

Just like other global sectors, the Fashion industry is still facing constant market valuation shifts in 2020. Unfortunately, the aftermath of 2020 is still palpable in 2021 meaning any investment is being scrutinized more than ever. Your digital transformation can accelerate your growth, but the lack of purpose or the misalignment between progress and KPIs may make it fail before it starts. 2020 has made it clear that businesses need to adapt faster than ever before and so should their digital transformation initiatives to match the ever-changing world we live in.