writing the killer business case for database and analytics investment

Copyr i g ht © 2013 , SAS Ins t i tu t e Inc . A l l r ights reser ve d .

WRITING THE KILLER BUSINESS CASE FOR DATABASE & ANALYTICS

INVESTMENT


AGENDA - SPEAKERS

Webinar attendees are eligible to receive a complementary business case template, customized for their unique business by 89 Degrees.

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WHAT IS RETURN ON INVESTMENT?

What you want to know: “If I invest $1,000 what will I have left over, above getting my $1,000 back?”

Formula:

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ROI = ( (Net profit) – (amount invested)) / (amount invested)


IS ROI ALWAYS POSITIVE?

• No. It is often negative. • ROI for a series of transactions can be positive. • Lets look at profitability of a customer • Banks typically calculate profitability

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PROFITABILITY IS COMPLEX

• There is a lot of guesswork • Is it trending up or trending down? • ROI is backward looking. Did we win or lose? • Profitability is forward looking:

• What will this client do in the future? • Will we be able to retain her? • What is the competition offering?

Better than profitability is Lifetime Value

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WHAT IS LIFETIME VALUE?

• It is the profit you will receive from your customers over a three year period

• It varies from company to company, depending on the product and the effectiveness of their communications.

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BUILDING LIFE TIME VALUE WITH A NEW STRATEGY

• Assume you create a birthday club • Significant gift on customer’s birthday • See effect on retention, visits per year, spending per visit and resulting LTV

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LTV Before Birthday ClubYear 1 Year 2 Year 3

Customers 200,000 80,000 36,000 Retention Rate 40% 45% 50%Visits per year 1.5 2 2.5Spend per visit $120 $130 $140Total Revenue $36,000,000 $20,800,000 $12,600,000Variable Costs 60% $21,600,000 $12,480,000 $7,560,000Gross Profit $14,400,000 $8,320,000 $5,040,000Discount Rate 1.00 1.16 1.35NPV Profit $14,400,000 $7,172,414 $3,733,333Cumulative NPV $14,400,000 $21,572,414 $25,305,747Lifetime Value $72.00 $107.86 $126.53

LTV With Birthday ClubYear 1 Year 2 Year 3

Customers 200,000 100,000 55,000 Retention Rate 50.00% 55.00% 60.00%Visits per year 3 3.50 4 Spend per visit $130.00 $140.00 $150.00Total Revenue $78,000,000 $49,000,000 $33,000,000Variable Costs 60% $46,800,000 $29,400,000 $19,800,000Birthday Club $15, $2 $3,000,000 $400,000 $400,000Total Costs $49,800,000 $29,800,000 $20,200,000Gross Profit $28,200,000 $30,200,000 $20,600,000Discount Rate 1.00 1.16 1.35NPV Profit $28,200,000 $26,034,483 15,259,259$ Cumulative NPV $28,200,000 $54,234,483 $69,493,742Lifetime Value $141.00 $271.17 $347.47

Impact of Birthday Club: Retention Rate up Visits per year up Spend per visit up Cost to sign them up and reward Result: Boost in LTV Profit goes from $25 Million To $69 Million

BIRTHDAY CLUB LTV

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KILLER BUSINESS CASE

Often requires a “leap of faith”; Collaboration can minimize • What YOUR company believes is realistic • What OTHER companies have achieved • The perspective of software & services partners • Independent 3rd party analysis

Typical Benefits: Acquisition, Retention, Total Spend

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CUSTOMER SUCCESS EXAMPLES

Examples Acquisition Retention Cross/Up-Sell Direct-to-consumer Conversion lift 30%-98.5% Increase by 15% Increase customer spending

30% – 50% annually

Insurance Avg. # sales up 40%; sig. increase profitability

Predict who is going to cancel policy; Reduce churn by 25%

Banking Increase conversion rates from 4%-5% to 20%-30% Reduce churn by 20% to 25% Increase share of wallet

Capital Markets Reduce attrition by 50% (Redemption rates from 22% to 7% where industry avg. 25%); Predict who going to churn: 80%

Significantly increase customer balance

Hospitality & Gaming #1 in profit as % of revenue Wallet share from 36% to 45%

Publishing Retention from 52.5% to 58.5% (6%)

Online Retention up 15% Increase cross/up-sell

Success Story Composite 5% to 100% 3% to 50% 10% to 50%

• Over 500 on SAS.Com, many with financial metrics

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SAS EXPERIENCE

Your partners can help evaluate what your potential is given their experience elsewhere

Lot’s of experience

Average employee tenure > 10 years

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THIRD-PARTY STUDY

March 2013 Commissioned study conducted by Forrester Consulting on Behalf of SAS Institute

Benefits Summary: • Increased sales with more targeted marketing

• Enhanced marketing productivity and process efficiency

• Improved scalability of campaigns

• Improved flexibility and reusability of assets for campaigns

• Reduced customer attrition with more-targeted marketing (non-quantified)

• Increased used of existing technology for faster speed-to-market for campaigns (non-quantified)

Fortune 500, 50,000+ employee organization with retail operations in North America, Europe, and Asia.

“We now have faster time-to-market and better targeting [with SAS Marketing Automation], and that shows in increased response, and thus increased ROI and profitability for these campaigns.” Director of circulation and analytics

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EXAMPLE

Automate Manual Report and

Campaign Process

Reduce amount of staff time spent collecting data (low value)

Self Service Guest and Campaign Response Analysis (high value)

Annual Value Range: $X - $Y Annually

Key Value Drivers Key Opportunities Strategic Goals

Reduce Cost

Increase Profit

Increase Guest Wallet

share Execute “New” Campaigns

Leverage insights gained and productivity improvements identify and market to a larger audience that will be receptive to offers

Annual Value Range $E - $F Annually

Derive analytic models to grow the size of each market segment while maintaining the same response rates

Annual Value Range $A - $B Annually

Improve Monthly Mailer Returns

Reduce manual steps to pull lists of guests and execute campaigns

Improve campaign KPIs by increasing the ability to interact 1 on 1 with a guest vs. generic messaging

Annual Value Range $C - $D Annually

Drive from Mass Marketing to Target

Marketing

Executive Summary

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EXAMPLE

Financial Summary Translating the detailed spreadsheets…into an executive summary

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PREPARING AND DELIVERING THE BUSINESS CASE

“Look what I found in the dumpster, a perfectly good business case!”

A business case is a document executives make you read, that they don’t read…

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ADVICE FOR “BUILDING AND PLEADING THE CASE”

• Make sure all the right stakeholders are informed and engaged

• Identify and articulate all the value enhancement opportunities and scenarios

• Understand your company’s financial perspective • Negotiate contract terms in a beneficial way

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ENGAGE ALL REQUIRED STAKEHOLDERS


VALUE ENHANCEMENT- RISK ASSESSMENT & EXPECTED VALUE

• Used to calculate expected value • Prioritize value enhancements

to “get to value” quickly!

• Used to asses risk!

• Minimal impact on “revenue up” value drivers.

Breakeven Case Upside Case Same Calculations, Different Inputs

• Assumptions validated by all key stakeholders.

• Incorporate “internal” costs – staffing, etc..

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VALUE ENHANCEMENT- “COSTS DOWN” CONSIDERATIONS

• Used to bolster the case made through “revenue up” analysis.

• Can provide substantial value justification – but usually don’t make the case here.

• Be careful/respectful with regard to employee headcount considerations:

• Operational tasks Strategic tasks • Lower staffing costs can be big • Potential for higher output

• “Diamonds on the floor” often exist

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UNDERSTAND THE COMPANY’S FINANCIAL PERSPECTIVE

• You need some quality CFO time!

• Understand the financial criteria for business opportunities your company is willing

to fund, and at what level the company considers an investment:

• Capital Expenditure (CAPEX) - Write SOW carefully to optimize CAPEX opportunity!

• Operational Expense

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CONTRACT TIPS TO HELP YOUR BUSINESS CASE

• Agreeing to accelerated payment terms can result in lower overall costs, and this

will have positive impact on the business case.

• Agreement to longer contract term can reduce costs, can be required for CAPEX

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KEY POINTS

• Look at the big picture: impact on customer lifetime value • Pick a focus point for driving value (you can’t do it all at once!) • Devil is in the details: back up your assumptions with detailed analysis • Business case is about consensus, ensure all stakeholders are engaged • Structure contracts to ensure business case benefits are realized

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Bill Carino Vice President – Sales and Marketing _________________________________________________ 89 Degrees 25 Burlington Mall Road, Suite 610 • Burlington MA 01803 Email [email protected] Mobile 781-266-6301 _________________________________________________

QUESTIONS, CONTACT INF0, REQUEST BIZ CASE TEMPLATE

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