Automating the Complete Sales Cycle to
Facilitate the Quote-to-Order Process:
Evaluating the ROI of ChannelOnline™
February 2005
A White Paper Developed for CNET Channel
Project Director:
Ed Callan, Principal
Callan Consulting
61 Baywood Avenue
San Mateo, CA 94402
U.S.A.
Phone: +1.650.375.0573
Fax: +1.650.375.0144
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Automating the Complete Sales Cycle to Facilitate the Quote-to-Order Process: February 2005
Evaluating the ROI of ChannelOnline
Circulation or disclosure in whole or in part of this report outside the authorized recipient organization is
expressly forbidden without the prior written permission of Callan Consulting. © 2005 Callan Consulting.
All rights reserved. Reproduction or redistribution in any form without the prior permission of Callan
Consulting is expressly prohibited. This information is provided on an “as is” basis and without express or
implied warranties. Although this information is believed to be accurate at the time of publication, Callan
Consulting cannot and does not warrant the accuracy, completeness or suitability of this information or
that the information is correct. Information Callan Consulting provides is general background and is not
intended as legal or financial advice. Callan Consulting cannot and does not provide legal or financial
advice. Readers are advised to consult their attorney or qualified financial advisor for legal and/or financial
advice related to this information.
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Evaluating the ROI of ChannelOnline
Table of Contents
Executive Summary
Page 4
Introduction and ChannelOnline Overview
Page 4
ChannelOnline ROI Components
Page 5
Reduced Quote Management Costs
- Quote Generation
- Purchase Order Generation
- Purchasing
Pages 5-6
Reduced Customer Inquiry Handling Costs
- Pre-Sale Inquiries
- Post-Sale Inquiries
Pages 6-7
Increased Competitive Win Rate
Pages 7-8
Negotiating Better Prices from Vendors
Page 8
Other ROI Benefits and Considerations
- Reduced Cost of Error Handling and Returns
Page 8
ChannelOnline Solution Costs
Page 9
Sample ROI Calculation
- Inputs
- ROI Benefits
Pages 9-12
Conclusion
Page 13
Appendix: Notes on the ROI Model
Pages 14-15
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Executive Summary
Introduction and ChannelOnline™ Overview
VARs and System Integrators face unprecedented business challenges: declining
margins, growing customer expectations, and a complex competitive landscape.
While resellers are under increasing pressure to execute consistently and efficiently
across their sales, purchasing, and back office operations, many still rely on highly
inefficient manual sales processes. Sales representatives often waste time searching
through spreadsheets, binders, and Web sites for the information they need. And
after a sale is closed, processes are just as inefficient. Once an order is received,
resellers manually search vendor Web sites for needed products — a time-consuming
process that often fails to ensure the best possible pricing.
This is where CNET Channel’s ChannelOnline solution delivers tremendous value.
ChannelOnline is a turnkey online solution that automates the complete sales cycle,
improving customer service, sales productivity, and sourcing profitability. Instead of
accessing multiple applications, Web sites, and documents, sales reps have a single
work environment for all steps in the sales process: researching products, creating
quotes, sourcing, pricing, determining availability, and confirming orders.
And with out-of-the-box compatibility (product catalogs, pricing and availability) with
top U.S. distributors, including Tech Data, Ingram Micro, SYNNEX, D&H, HP
PartnerDirect, and Azerty, ChannelOnline helps resellers obtain the best and most
profitable source to fulfill each order.
To demonstrate and quantify the economic benefits associated with ChannelOnline,
CNET Channel contracted Callan Consulting, an independent business modeling
consulting firm, to develop a detailed return on investment (ROI) model. Callan
Consulting interviewed a range of ChannelOnline customers and gathered data from
a variety of secondary sources to create the ChannelOnline ROI model. As this white
paper describes key ROI benefits, it can be read either as a stand-alone document or
in conjunction with the ROI model.
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Evaluating the ROI of ChannelOnline
ChannelOnline ROI Components
Organizations that implement ChannelOnline typically achieve economic benefits in
four major categories:
•
Reduced costs for quote management
•
Reduced costs to handle customer inquiries
•
Increased win rate for competitive bids
•
Improved contribution margin resulting from better negotiated deals
with vendors
Reduced Quote Management Costs
For most resellers, the single largest category of economic benefit is the time saved
in end-to-end quote management. Quote management can be split into quote
generation, PO creation, and purchasing.
Quote Generation
Reseller sales reps spend a tremendous amount of time responding to customer
inquiries and preparing sales quotes. Lacking an automated solution like
ChannelOnline, sales reps depend largely on manual, time-consuming processes.
They visit supplier Web sites to check on product availability and pricing, key
information into spreadsheets to calculate markup and customer price, and then
spend hours cutting and pasting (or even re-keying) data from supplier Web sites
into proposal documents.
ChannelOnline reduces the time required to perform critical sales functions. It allows
sales reps to search by keyword, supplier or manufacturer part numbers, and
category; perform side-by-side product comparisons; and access detailed product
descriptions. This can free up time for sales reps to engage in more strategic tasks
such as proactively targeting new business.
A note on calculating time savings benefits — the ROI model can estimate the value
of sales rep time savings in one of two ways: by assuming that the time a sales rep
spends on strategic tasks is worth at least what the reseller pays the rep, or by
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calculating the savings that could be attained through sales force headcount attrition.
For additional discussion see the Appendix.
Purchase Order Creation
Once the rep receives a sales quote (i.e. the reseller wins the business), the reseller
then needs to load customer information into its Purchase Order or accounting
system. This information usually includes contact name, address, and shipping
details.
Doing this manually typically requires 10-15 minutes per new order. With
ChannelOnline, data are automatically loaded based on the information from the
sales quote — reducing this process to several verification mouse clicks.
Purchasing
For every new sale, the reseller must purchase products from one or more suppliers.
Conducted manually, this process requires researching vendor sites for pricing and
availability. Although the rep may have already researched vendor sites to generate
the quote, most resellers perform a more detailed search before making the
purchase. Because resellers have such small margins, they need to make every
effort to secure the best possible pricing.
In contrast, ChannelOnline reduces purchasing time by providing all product and
supplier information in one easily searchable repository. Instead of spending hours
digging through vendor Web sites, ChannelOnline users can quickly view pricing and
availability across a wide variety of suppliers, and then select the best one for that
order.
Reduced Customer Inquiry Handling Costs
ChannelOnline also provides unlimited secure private customer extranets (private e-
commerce storefronts). These private storefronts allow customers to log in and view
the assigned product catalog(s), search and compare products, place new orders,
and view/modify the status of existing orders. This means customers can opt for
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self-service, and won't take up a sales rep's time every time they have an inquiry. A
public store option is also available to enable end customers to browse and compare
products without logging in.
Pre-Sales Inquiries
Resellers often field dozens
of pre-sale calls a day from
customers checking on
product availability and
pricing. Not all of these
calls are from customers
ready to purchase. By
shifting information-
gathering inquiries to the
Web site, resellers can free
up additional sales rep time.
In some cases, however, resellers want their sales reps to engage in every pre-sale
inquiry, even if the customer is not ready to make a purchase. This gives sales reps
greater control over the interaction and allows them to engage more deeply with the
customer. For this reason, the benchmark data used in the ROI model assumes that
only a moderate number of pre-sales inquiries are shifted to the ChannelOnline
e-commerce site.
Post-Sales Inquiries
Most resellers want to migrate as many post-sale inquiries possible to their Web sites
as these customer interactions eat away at sales rep’s valuable time. Post-sale
inquiries typically consist of customers calling to check on order status, delivery, and
timelines.
ChannelOnline e-commerce sites significantly reduce the burden on sales reps by
enabling customers to view, modify, and approve quotes online. Customers can also
access order status and shipping/tracking information. One reseller who implement-
ed a ChannelOnline e-commerce site now addresses over 50 percent of its post-sale
inquiries via its Web site.
Increased Competitive Win Rate
While most benefits to resellers typically come from quote management cost savings,
there are a number of other significant benefits, including improved win rates for
competitive bids.
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Evaluating the ROI of ChannelOnline
This win rate improvement is driven by three factors:
•
Faster quote turnaround time: By automating the quote generation
process, ChannelOnline enables sales reps to respond more quickly to
customer inquiries.
•
More professional looking quotes: Using manual processes, many sales
reps send out quotes consisting of spreadsheets or bullet points in an email.
In contrast, ChannelOnline quote templates are professional and polished.
•
More competitive pricing: When depending upon manual quote processes,
it’s difficult for reps to be sure they have found the best available pricing.
With ChannelOnline, sales reps are confident they have the lowest available
supplier pricing, so they can be more price competitive in their quotes.
Negotiating Better Pricing from Vendors
One of ChannelOnline’s greatest contributors to ROI is the leverage it provides
resellers to negotiate better vendor pricing. Many resellers have a preferred list of
suppliers who represent a large percentage of their sales. And because they often
negotiate without the benefit of complete competitive pricing knowledge, resellers
don’t always get the best pricing from these suppliers.
With ChannelOnline, resellers view the best available pricing from a wide range of
suppliers. Armed with this knowledge, they can work with key suppliers to meet or
beat these prices. Some resellers estimate that using ChannelOnline to negotiate
better deals has improved their contribution margins by a full two to three points.
Other ROI Benefits and Considerations
Reduced Cost of Error Handling and Returns
Resellers can also realize cost savings by reducing the rate of incorrect orders that
can result, for example, from quoting products that are discontinued or out of stock.
Because ChannelOnline provides sales reps with complete and current information,
quotes are more likely to be accurate — reducing mistakes and eliminating costs
associated with processing misquotes.
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ChannelOnline Solution Costs
To calculate the economic returns associated with the ChannelOnline investment, the
model captures all elements of the upfront and ongoing investment in
ChannelOnline. These costs fall into one of three categories:
•
Ongoing ChannelOnline licensing fees
•
Setup costs, including the time it takes a site administrator and Web
developer to set up the e-commerce storefront
•
Training (as CNET Channel provides free weekly training on ChannelOnline,
the training costs captured in the model consist solely of the opportunity costs
of time reps spend in training)
While the model is pre-populated with benchmark data, including typical costs and
prices for each of these categories, it can be modified to address the specific costs of
the reseller being analyzed.
Sample ROI Calculation
The following section provides a sample ROI calculation for a hypothetical online
reseller. This sample calculation was taken directly from the ROI model. It uses the
benchmark data points that pre-populate the model.
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Evaluating the ROI of ChannelOnline
Inputs
Key inputs for this sample are provided in Table 2.
Table 2 – Key Sample ROI Calculation Inputs
Overall Assumptions
Overall annual company revenue
10,000,000
$
Overall contribution margin, %
10%
Reduced Costs for Quote Management
Minutes required per quote for inside sales rep to prepare manually
45
Number of quotes generated per sales rep per day
10
Minutes required to manually key data into PO system per customer
order
15
Minutes required to research suppliers' websites per new purchase
30
Minutes required to generate POs for suppliers, per new purchase
15
Annual salary of sales reps
86,142
$
Reduced Inquiry Calls
Number of pre-sales inquiry calls per day (to check on availability,
pricing)
20
% of pre-sales inquiries that would be shifted to website
10%
Number of post-sales inquiry calls per day (to check on delivery,
5
% of post-sales inquiries that would be shifted to website
75%
Increased Win Rate
Overall % of revenue that comes from competitive bids
80%
Improvement in win rate due to using ChannelOnline
5%
Improved Price Negotiations
% of overall company COGS that passes through the purchasing
process
80%
Contribution margin improvement due to purchasing agent's ability
to perform side-by-side comparison and negotiate better deals with
1%
Other Benefits
Average # of returns per month due to misorders
3
Average cost of processing a return
50
$
Reduction in misorders using ChannelOnline
50%
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ROI Benefits
The overall gross margin benefits by year for this example are shown in Figure 1.
Figure 1 – Gross Margin Benefits by Year
Total gross margin benefits
$507,221
$784,252
$756,770
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
1
2
3
Year
Additional metrics, including 12-month ROI, 3-year ROI, and payback period (in
months) are provided in Table 3.
Table 3 – Additional ROI Analysis Metrics
ChannelOnline Costs
One-time implementation costs including training, website setup
1,697
$
Ongoing annual costs
16,632
$
Investment Analysis Summary
12-month ROI, %
2567%
3-year ROI, %
3670%
Payback period, months
3.1
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Evaluating the ROI of ChannelOnline
Figure 2 provides a breakout of ROI component savings by category.
Figure 2 – Three-Year ROI Component Breakout
Detailed ROI Component Breakout - 3-Year Cumulative
40%
6%
0%
30%
9%
12%
1%
2%
Reduced time for quote generation
Increased win rate due to improved
quotes
Reduced misorders
Reduced time for P.O. creation
Reduced time for purchasing
Improved contribution margin from
purchasing
Reduced time for pre-sales inquiries
Reduced time for post-sale inquiries
Finally, Table 4 provides a detailed breakout of benefits by category and by year
realized.
Table 4 – ROI Benefits Detail
Year 1
Year 2
Year 3
Reduced Costs for Quote Management
Reduced time required for quote generation
199,562
$
306,827
$
314,498
$
Reduced time required for PO creation
149,916
$
230,496
$
236,258
$
Reduced time required for purchasing
46,849
$
72,030
$
73,831
$
Subtotal: reduced costs for quote mgmt
396,327
$
609,353
$
624,587
$
E-Commerce Site Benefits
Reduced costs to handle pre-sales inquiries
2,661
$
4,418
$
4,891
$
Reduced costs to handle post-sales inquiries
7,484
$
12,426
$
13,756
$
Subtotal: e-commerce site benefits
10,144
$
16,845
$
18,647
$
Other Benefits
Increased win rate due to improved quotes
33,333
$
43,200
$
46,656
$
Improved contribution margin from purchasing
66,667
$
86,400
$
93,312
$
Reduced misorders
750
$
972
$
1,050
$
Subtotal - other benefits
100,750
$
130,572
$
141,018
$
Total - All ROI Components
507,221
$
756,770
$
784,252
$
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Evaluating the ROI of ChannelOnline
Conclusion
CNET Channel’s ChannelOnline solution greatly increases the operational efficiencies
of resellers—and enables them to deliver a higher quality of service to their
customers. With automated processes, resellers can gain significant operational cost
savings in end-to-end quote management, PO generation, and purchasing, as well as
reduce the cost of servicing customer inquiries.
Moreover, by reducing the response time to generate quotes, increasing the
professionalism of those quotes, and ensuring the best pricing, ChannelOnline can
increase reseller win rates. And by enabling them to view pricing information from a
wide variety of sources, ChannelOnline helps resellers negotiate and secure the best
possible pricing from their suppliers. The result? A direct, positive impact on gross
margin.
After analyzing the ROI components of a typical ChannelOnline solution, Callan
Consulting believes that most resellers can achieve significant bottom-line benefits,
beginning in the first year of operation. Callan Consulting recently created a detailed
ROI model that describes these benefits. It also enables resellers to estimate
returns for their specific business.
For a custom ROI analysis tailored to your organization, please contact your regional
ChannelOnline sales executive at 1.877.276.5560 (toll free.) He or she will be happy
to discuss your situation and perform a comprehensive modeling exercise to help
estimate your ChannelOnline ROI.
Contact information:
Scott Danish
Vice President, Global Marketing
CNET Channel
+1.415.344.2722
scott.danish@cnet.com
Ed Callan
Principal
Callan Consulting
+1.650.375.0573
ed@callan-consulting.com
About Callan Consulting
Founded in October 2000, Callan Consulting is a marketing consultancy with specific
emphasis on business modeling and ROI analysis. Ed Callan, Principal of Callan
Consulting, leverages over 20 years’ experience in technology management and
marketing to help companies understand and articulate the economic business value of
IT investments. Additional information can be found at www.callan-consulting.com
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Appendix: Notes on the ROI Model
Note the following items pertinent to the development of the ROI model described in
this paper:
•
Margin contribution: The model looks at the margin contribution associated
with the ChannelOnline solution, which generally corresponds to Earnings
Before Income and Taxes, or EBIT. EBIT impact is a standard for evaluating
investment decisions
•
Realizing time saving benefits: Many ChannelOnline ROI benefits stem
from making sales reps more efficient and therefore saving them time.
However, these time savings don’t translate into bottom-line benefits unless
they can be monetized. One way would be to reduce sales force headcount
through attrition, effectively enabling the organization to do the same work
with fewer staff. Alternatively, the reseller can focus the sales team on more
productive tasks such as proactively seeking out new orders.
The model enables the user to realize benefits using either of these methods.
To estimate the value of reps’ time being freed up for more productive tasks,
the model simply calculates the value of the time based on what the rep is
paid per hour. This assumes the value of that rep’s time to the reseller is
worth at least what the rep is being paid. (If not, why would the reseller keep
the rep on the payroll?) Callan Consulting believes this is a conservative
assumption as a highly productive rep can bring in business potentially worth
several times what he or she is being paid.
•
Automated versus manual processes: The ROI model is designed to
compare the benefits of ChannelOnline versus the costs of conducting
business using largely manual processes. Callan Consulting believes this is
the most appropriate comparison for resellers, as most execute these
processes manually.
An alternative approach would evaluate the costs of purchasing
ChannelOnline versus building a comparable solution. This approach would
be valid in cases where a reseller recognizes its need for an automated quote
management system and is deciding whether to build or buy the solution.
While Callan Consulting considers this scenario to be the exception and not
the rule, the ROI in this scenario would still be highly attractive, as it would
likely requir e 2-3 FTEs performing tool updates and keying in new data to
maintain a home-grown system—which is much less cost-effective than a
comparable ChannelOnline implementation.
•
Benchmark data: The ROI model comes pre-populated with benchmark
assumptions ranging from the annual salary of sales representatives to
competitive win rates. These data points can be used without alteration, or
resellers can overwrite any of the key inputs to tailor the analysis. So, for
example, while the model is preloaded with a reseller contribution margin of
10 percent, the user of the model can insert the reseller’s actual contribution
margin.
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Evaluating the ROI of ChannelOnline
•
Pick modules and benefits appropriate for the analysis: There are three
separate ChannelOnline modules a reseller can purchase: Quote Generation,
PO/Purchasing, and Private E-Commerce Site. The ROI model captures
several different categories of economic benefits, each of which is associated
with one of the three available modules. Model users have the ability to pick
and choose which modules to include in the estimates, so the analysis is
tailored to their particular situation.
•
Ramp-up time to realize benefits: For some resellers, manual processes
are ingrained into the way they do business. Thus, it may take some time
after implementing ChannelOnline for reseller organizations to realize the full
range of benefits. For this reason, the ROI model includes several fields that
enable users to specify the time required to realize full benefits—both for staff
time savings and for margin benefits (due to improved negotiations with
suppliers).
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