Writing the Killer Business Case for Database and Analytics Investment Speakers: Arthur Middleton Hughes, Vice President of The Database Marketing Institute Lloyd Lyons, Senior Value Engineer from SAS Bill Carino, Vice President Sales and Marketing

1. WRITING THE KILLER BUSINESS
CASE FOR DATABASE & ANALYTICS
INVESTMENT
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2. 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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3. 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:
ROI = ( (Net profit) – (amount invested)) / (amount invested)
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4. 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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5. 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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6. 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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7. 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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8. BIRTHDAY CLUB LTV
LTV Before Birthday Club
Customers
Retention Rate
Visits per year
Spend per visit
Total Revenue
Variable Costs 60%
Gross Profit
Discount Rate
NPV Profit
Cumulative NPV
Lifetime Value
Year 1
200,000
40%
1.5
$120
$36,000,000
$21,600,000
$14,400,000
1.00
$14,400,000
$14,400,000
$72.00
Year 2
80,000
45%
2
$130
$20,800,000
$12,480,000
$8,320,000
1.16
$7,172,414
$21,572,414
$107.86
Year 3
36,000
50%
2.5
$140
$12,600,000
$7,560,000
$5,040,000
1.35
$3,733,333
$25,305,747
$126.53
Year 1
200,000
50.00%
3
$130.00
$78,000,000
$46,800,000
$3,000,000
$49,800,000
$28,200,000
1.00
$28,200,000
$28,200,000
$141.00
Year 2
Year 3
100,000
55,000
55.00%
60.00%
3.50
4
$140.00
$150.00
$49,000,000
$33,000,000
$29,400,000
$19,800,000
$400,000
$400,000
$29,800,000
$20,200,000
$30,200,000
$20,600,000
1.16
1.35
$26,034,483 $ 15,259,259
$54,234,483
$69,493,742
$271.17
$347.47
LTV With Birthday Club
Customers
Retention Rate
Visits per year
Spend per visit
Total Revenue
Variable Costs 60%
Birthday Club $15, $2
Total Costs
Gross Profit
Discount Rate
NPV Profit
Cumulative NPV
Lifetime Value
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
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9. KILLER BUSINESS CASE
Typical Benefits: Acquisition, Retention, Total Spend
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
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10. CUSTOMER SUCCESS EXAMPLES
•
Over 500 on SAS.Com, many with financial metrics
Examples
Acquisition
Retention
Cross/Up-Sell
Increase customer spending
30% – 50% annually
Direct-to-consumer
Conversion lift 30%-98.5%
Increase by 15%
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
Reduce attrition by 50% (Redemption
rates from 22% to 7% where industry
avg. 25%); Predict who going to
churn: 80%
Significantly increase
customer balance
Capital Markets
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%
Success Story
Composite
5% to 100%
3% to 50%
Increase cross/up-sell
10% to 50%
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11. 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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12. THIRD-PARTY STUDY
March 2013 Commissioned study conducted by Forrester Consulting
on Behalf of SAS Institute
“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
Fortune 500, 50,000+ employee organization with retail operations in North America, Europe, and Asia.
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-tomarket for campaigns (non-quantified)
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13. EXAMPLE
Executive Summary
Strategic Goals
Key Opportunities
Key Value Drivers


Self Service Guest and Campaign Response Analysis (high value)

Annual Value Range: $X - $Y Annually
Derive analytic models to grow the size of each market segment while
maintaining the same response rates

Annual Value Range $A - $B Annually

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

Leverage insights gained and productivity improvements identify and
market to a larger audience that will be receptive to offers

Improve Monthly
Mailer Returns
Reduce amount of staff time spent collecting data (low value)

Reduce Cost
Automate Manual
Report and
Campaign Process
Annual Value Range $E - $F Annually
Increase Profit
Drive from Mass
Marketing to Target
Marketing
Increase
Guest Wallet
share
Execute “New”
Campaigns
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14. EXAMPLE
Financial Summary
Translating the detailed spreadsheets…into an executive summary
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15. 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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16. 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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17. ENGAGE ALL REQUIRED STAKEHOLDERS
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18. VALUE ENHANCEMENT- RISK ASSESSMENT & EXPECTED VALUE
Same Calculations, Different Inputs
Breakeven Case
Upside Case
•
Used to asses risk!
•
Used to calculate expected value
•
Minimal impact on “revenue
up” value drivers.
•
Prioritize value enhancements
to “get to value” quickly!
•
•
Assumptions validated by all
key stakeholders.
Incorporate “internal” costs –
staffing, etc..
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19. 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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20. 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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21. 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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22. 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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23. QUESTIONS, CONTACT INF0, REQUEST BIZ CASE TEMPLATE
Bill Carino
Vice President – Sales and Marketing
_________________________________________________
89 Degrees
25 Burlington Mall Road, Suite 610 • Burlington MA 01803
Email carinob@89degrees.com
Mobile 781-266-6301
_________________________________________________
Highlighted by Forrester Research as an emerging "agency led" marketing service provider.
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