Justify your mobile strategy with calculated ROI

“No one is buying anything on their mobile phones! How do I get budget? How do I justify the cost of building out our mobile services offering?” These are questions we receive with increased frequency from our clients.

So how do you justify the cost of building out your mobile services? Especially as offline and online revenues continue to eclipse the revenues from mobile services (outside of mobile media), making it increasingly important for companies to attribute and quantify the broader set of mobile service benefits – beyond simply revenues.

Even though consumer product strategists know that mobile is the next frontier for their companies’ strategies, organisations have not yet institutionalised budgets for developing mobile initiatives. Think of it as a Catch 22: there’s no history to prove the concept, but it’s also clearly a critical competitive vector for 2010 across all business-to-consumer (B2C) industries.

Recent data from Forrester’s Q4 2009 European Technographics Consumer Technology Online Survey shows new ways to interact with customers: some 40% of European online users with unlimited mobile internet access read news on their phones, 39% search for information, 20% watch video/TV and 19% search telephone directories. The truth is that consumers are using their cell phones in new ways, including making purchases. And moving forward, mobile services will increasingly be table stakes for many consumer product and services companies – just as websites were in 1999.

However, with an emerging medium like mobile, it is difficult to forecast consumer adoption and usage – two key elements for assessing return on investment (ROI). In order to calculate the ROI of mobile services, consider breaking down the process into four key steps:

– Identifying the benefits (and which business objectives they support)
– Estimating usage of mobile services, and quantifying the benefits
– Calculating the total cost of ownership (TOC)
– Building a model to calculate the return over a period of time.

Using this process will help justify the resources needed for mobile services without getting lost in the details. Begin by identifying the benefits, segmented into three general categories: increased revenues, lower costs and increased satisfaction and loyalty. Consider mobile services supporting a pharmacy as an example. Mobile offers a unique marketing opportunity – such as proactively reminding customers to refill prescriptions or buy more vitamins – driving incremental revenues.

Alerts proactively sent to customers waiting to pick up a prescription will reduce the number of phone calls to the pharmacist, thereby allowing the pharmacist to fill and deliver more prescriptions. Consumer product and services companies will see early success when focusing on delivering convenient services to their customers on mobile phones, reaching a growing mobile audience: 85% of European online mobile users actively use SMS messages.

The next step in calculating ROI involves quantifying the benefits using consumer data and modeling. The challenge here lies in forecasting consumer adoption and usage of any given service. To quantify the benefit, multiply the event by the value accrued when the event happens. Although a daunting task, break it down into smaller steps: forecast consumer adoption over the next three to five years, estimate customer usage and finally, estimate the value of each incident for those driven by consumer usage.

The last two steps focus on total cost of ownership and building a model. Cost calculations tend to be straightforward and will often resemble those done for other IT projects. However, there are a few nuances unique to mobile, such as paying for delivery of each text message or payments to mobile operators. Obtaining accurate numbers for many of these elements will require proposals from vendors, while other components will be based on hours multiplied by fully weighted annual personnel costs.

With the first three steps in place, it now should be possible to build a model that calculates the benefits year by year. As mobile is an emerging medium with difficult-to-project adoption rates, it is best to use scenarios that take into account low, medium and high estimates of consumer adoption.

During the ROI calculation process, remember that calculating the ROI of emerging technologies and services depends on consumer behavior and as a result, will be challenging. Here are a couple additional tips to augment the four step process.

Don’t let ROI alone drive your decision-making – there are a wide range of qualitative reasons to invest in mobile services and learning and gaining experience is a very real objective.

Don’t get carried away with the “theoretical” calculations. Saving 10 minutes per day per pharmacist in 1,000 stores is effectively not saving because you can’t eliminate 2% of a person. Could they leave 10 minutes early, and could you save that money if you pay them by the hour? Yes. However, they will instead likely use the time for tasks they omit today, like tidying stock. Increased job satisfaction may be an added benefit, but it is difficult to quantify beyond lower staff turnover.

If it’s your turn to ask: “How do I justify the cost of building out our mobile network?” Turn to these four steps for successful ROI calculation.