Source: Innovations International Blog

Innovations International Blog Meshing Omni-Channel Resources to Create Positive ROI

As we have moved into the digital age, it has become evident that omni-channel resources are crucial for providing consumer's information and developing positive relationships, but, aside from the ecommerce sales numbers, quantifying the cooperative effect of utilizing an omni-channel strategy has been rather tough. How much brick and mortar traffic is driven in store by my eCommerce site? Are these customers there to look at the item they found online cheaper at a competitor, or are they there to purchase local?What we do know is that three out of four customers are more likely to visit your store if your online info is useful. This makes sense, since 83% of customers search online to before buying in brick and mortar. The consumer's tendency is to research items online, select the product that fits their lifestyle and design preferences, then buy in store. Additionally, 55% of online shoppers would prefer to buy from a merchant with a physical store presence over an online-only retailer and in-store tickets are 7 times higher than online average tickets. Finally, we know that the cost of not being omni-channel is 10% in lost revenue for the retailer. So the question becomes how do retailers leverage the new omni-channel environment, and how real are these number in my particular market.At RM Innovation, we have been working closely with brick and mortar rug and furniture retailers for the past 8 years and officially rolled out our newest eCommerce platform in December 2015. We have gathered data from legacy customers on our beta platform and even some data from customers using the new platform. The information derived from this exercise has been eye-opening to say the least. In the context of an omni-channel strategy, the return on investment for an eCommerce platform, when properly implemented, marketed, and with valid SKU data and detail that is searchable is approximately 4.06x invested capital in year one. First, let's get the qualifiers out of the way, and we are going to use nice rounded numbers to make it pretty. The retailers included have an average revenue of $2M per year, maintained existing sites with approximately 2,000 self-managed SKUs (prior to RM Innovation feeding in an average of 55,000 SKUs), each of them spend around $1,200 in web marketing per month (almost all of which comes out of the traditional marketing budget). The average initial investment outlay for the folks included is $5,100, and the monthly maintenance fee averages $738.RMI is seeing an average of 21% increase in foot traffic in the brick and mortar location with the RM eCommerce solution and proper web marketing in place. This translates to approximately a 4% increase in in-store revenue, which is highly variable and is dependent on in-store selection and sales staff close capability. Web-site sell through is increasing business revenue by approximately 1.5%. So on the revenue side, we are seeing increases of 5.5%. So at a 50% margin, and a $2M average revenue business, we are seeing a gross margin increase of almost $4,600 per month ($55K annually). Here are the first year revenue and gross margin numbers in a table to give a visual: 123456789101112Total Year 1Instore Increase03,3336,6676,6676,6676,6676,6676,6676,6676,6676,6676,66770,000Web Increase01,2502,5002,5002,5002,5002,5002,5002,5002,5002,5002,5002,500Total Rev Increase04,5839,1679,1679,1679,1679,1679,1679,1679,1679,1679,16796,250Gross Margin Increase (50% assumed)02,2924,5834,5834,5834,5834,5834,5834,5834,5834,5834,58348,125 But... We have not even got to the cost savings yet.Our retailers have been spending around $2,000 per month manually maintaining their average of 2,000 SKUs on the web-site. This data entry spend is no longer necessary because RMI includes that maintenance in the data service. We are also seeing a reduction in print marketing costs which is very hard to quantify due to variability and the muddling of costs, but, fairly subjectively, the bulk of our users are seeing reduction in print marketing costs. This typically mitigates the digital marketing spend to attract visitors to the site.So, what does the omni-channel strategy look like in terms of ROI in the rug and furniture business given the above data? Take a look at the table below incorporating all of our numbers: 0123456789101112Total Year 1Gross Margin Increase-02,2924,5834,5834,5834,5834,5834,5834,5834,5834,5834,58348,125Monthly Fee-07387387387387387387387387387387388,856Digital Marketing* 01,2001,2001,2001,2001,2001,2001,2001,2001,2001,2001,20014,400Savings on Data Maintenance-0(1,000)(2,000)(2,000)(2,000)(2,000)(2,000)(2,000)(2,000)(2,000)(2,000)(2,000)(23,000)Net Margin Increase0(938)4,6454,6454,6454,6454,6454,6454,6454,6454,6454,6454,645-*most customers subjectively feel this cost is mitigated by decreased print marketing cost Total Invested5,10073873873873873873873873873873873873813,956Total Return-(200)3,0925,3835,3835,3835,3835,3835,3835,3835,3835,3835,38356,725Y1 ROI4.06Seems like a no-brainer investment to us and our customers at RM Innovation. And with the large large dot-com's taking market share (Wayfair, Amazon, etc.), it really feels like an eat or be eaten kind of scenario. (Special thanks to Colby Wright for pulling a lot of the reference material together for the blog post)

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