B2B eCommerce: Understanding the Business Impact and ROI
This blog post is the first in a six-part series focused on helping manufacturers and distributors develop and execute their B2B eCommerce strategy, all the way from initial-goal setting to continuous improvement of their B2B eCommerce efforts.
Welcome to Handshake’s blog series on B2B eCommerce, a collection of posts that covers all the most important considerations and questions you and your business will have related to B2B eCommerce solutions.
You can expect this series to walk you through the B2B eCommerce solution evaluation journey chronologically, starting with identifying the business challenges and opportunities solved by B2B eCommerce. From there, we’ll move on to other topics like understanding the types of solutions in the market, the exact questions to ask when you’re choosing a B2B eCommerce vendor, tips on setting up your B2B eCommerce account, and how to launch your B2B eCommerce software to optimize for strong buyer adoption.
This first post in our series is about setting the foundation for your B2B eCommerce initiative—helping you think through why buying B2B eCommerce software could make sense for your business and what exactly you expect to get out of it.
B2B eCommerce: Understanding the Business Impact and ROI
Typically, businesses that are on the brink of evaluating B2B eCommerce fall into two camps.
The first camp is made up of manufacturers and distributors facing strategic or operational challenges and intuitively know that there has to be a “better way” to sell to their wholesale customers. They are sick of the manual B2B ordering processes that are slowing their business down, as their customers are typically sending in orders over the phone and email. They are often scaling businesses that know that automating core B2B ordering functionality will cut costs, free up time wasted by their customer service team and unlock new revenue potential for their company.
The second camp of businesses are those who are familiar with B2B eCommerce because their customers are asking for it and their competitors already have it in place. These companies start to look at B2B eCommerce software because the market is demanding it and, while their search may initially be less about proving ROI, they eventually face the same impact questions when it comes to determining their budget for a B2B eCommerce solution.
Given you’ve landed on this post, chances are that you fall into one or even both of these camps. In either scenario, it’s important to think through your “why” for B2B eCommerce.
What are the costs associated with the current B2B ordering challenges your business is facing, and how should you be thinking about your revenue upside? Why is B2B eCommerce worth the investment and what is your potential ROI?
We’ll be addressing these questions and more in this blog post.
It’s important to note that the impact of B2B eCommerce is multifold—impacting both the costs (reduction) and revenue (growth) elements of your businesses’ profit equation. It’s key that you understand your businesses’ specific opportunities related to both of these elements before you invest in a B2B eCommerce solution.
Knowing what you expect to get out of your B2B eCommerce investment will impact the type of solution you choose, the way you launch your initiative, and the metrics you are track (we’ll cover these topics in future posts in the series).
As you read this, think critically about what applies to your business. Ask yourself: Is your company wasting tens of thousands of dollars on unnecessary data entry? How much do you spend on printing and distribution of paper catalogs per year? What could your staff be doing if they weren’t fielding order questions on the phone or email
Costs You’ll Reduce Using B2B eCommerce
B2B eCommerce solves a number of operational challenges related to B2B ordering. The best first step when thinking through your business goals related to B2B eCommerce is to consider the current costs you face with your B2B ordering process, and what would disappear or drastically lessen if you were to implement a B2B eCommerce solution.
You can expect the following costs to reduce (or disappear) once you implement a B2B eCommerce solution:
- Costs related to printing and distribution of paper catalogs and forms. Let’s say you spend $20K on printing and distributing paper catalogs and order forms per year. Most companies that implement B2B eCommerce almost entirely wipe out this line item, or reduce this number to a fraction of the original total (assuming they still feel it’s necessary to service a segment of their customer base manually).
- Costs related to data entry. For suppliers who have not yet implemented B2B eCommerce software, it’s common that their B2B ordering process includes unnecessary or redundant steps, like re-entering orders into their account system or ERP after they’ve been received by the back office, or transcribing an order from a phone call or email. We’ve worked with companies that accumulate over $30K/year in data entry costs alone.
Whether it’s about calculating the percentage of your staff’s time that is wasted on this task as a function of their salary or the potential option to reduce headcount related to data entry, the cost reduction here is very real.
- Costs related to managing backorders. If you aren’t giving information on inventory availability to your customers at the time they’re placing orders, there’s a good chance they’ll be placing orders with items that are out-of-stock. If you have a sense for the amount of time each of your staff spends on managing order issues related to backorders, you can quantify the amount of time your staff is wasting on this task as a percentage of their total salary.
- Costs related to order errors and returns. If you know the percentage of orders that include errors and require reshipments, you can calculate the costs you are incurring. On average, order errors cost approximately $50/order to fix (this number could be higher or lower depending on your specific business operations). Orders that come through B2B eCommerce are much less prone to errors, because your customers actively place and view items in their cart, and get an order confirmation immediately following the transaction. For this reason, suppliers with B2B eCommerce end up dramatically reducing their costs related to order errors.
- Cost of a legacy B2B eCommerce solution. If you’re currently using a legacy B2B eCommerce solution that is costly to maintain and upgrade (or worse yet, isn’t functioning well enough to be worth the investment), it’s likely time to start looking at what else is out there. Software-as-a-Service B2B eCommerce software has come a long way in the last 5 years, and is a much more affordable option compared to the on-premise or custom-built solutions of old. And of course, this is a very straightforward way to cut costs: simply buy a cheaper solution.
A note on opportunity cost…
Any discussion on the ROI impact of B2B eCommerce would be incomplete if we left out the very real concept of opportunity cost. While we’ve listed it in the cost section of this post, it’s also very much about revenue (up next).
The opportunities for your business that your staff—namely, your sales reps and customer service team—are missing out on due to manual and outdated B2B ordering process are likely handicapping your business.
To try and quantify your opportunity cost, think about what your staff could be doing if they weren’t tied down with data entry or having to email or call your customers about order details. They could have a more specific focus on retaining customers, running marketing campaigns to drive additional revenue, or getting back more time in the day to visit your customers in person.
On that note, let’s transition to talk about the powerful revenue opportunities that come from B2B eCommerce.
The Revenue Opportunity of B2B eCommerce
In addition to the revenue associated with your opportunity costs, here are other ways you can expect to drive additional revenue from your B2B eCommerce solution:
- Revenue from more time in the day. One of the big impacts of B2B eCommerce is getting back a lot of time that was previously wasted on tasks related to manual ordering. Whether your company is losing customers because you can’t keep up with your order volume at busy times like trade shows, or your sales reps can’t visit enough accounts in a day, a slow process can prevent you from more orders and faster cash flow.
Think about it this way: what revenue-driving activities could your team do more of if they had more time? For example, the more your customers are able to place re-orders on their own, the more time your team will have to focus on new customer acquisition. With a conservative estimate of potential new customers, multiply this number by your average customer value to reveal the upside.
- Revenue from new customers. There are many reasons manufacturers and distributors who launch B2B eCommerce end up expanding their customer base. Whether it’s inactive customers that haven’t placed orders in years from you, but finally come back when you get online (we see this all the time!), or the sheer fact that you can finally service customers in new regions and territories that you couldn’t reach in-person, new customer revenue is a big part of the B2B eCommerce equation.
- Revenue from better product discoverability. When you give your customers convenient access to your entire product catalog, they discover and order products they never have before. For some companies, their paper catalog or excel order form was not user-friendly enough to encourage comprehensive browsing. For others, sales reps only have time to present just a fraction of their product line in person. A self-curated browsing experience allows your buyers to find the products they want, and we hear feedback constantly that this leads to larger orders and new product experimentation. On average, orders that are placed online are between 10-20% larger than those placed manually.
- Revenue from new marketing opportunities. B2B eCommerce opens up a whole slew of marketing opportunities that were previously unavailable to suppliers selling B2B manually. Among them are email marketing campaigns, online marketing initiatives to drive new customers to sign up for your B2B eCommerce software, and even your ability to market free samples of your products through your B2B eCommerce solution. These marketing opportunities contribute to new customer acquisition, upsell, and customers ordering new products—and this, of course, all contributes to more revenue.
A quick note: If your company has not done a lot of marketing towards your B2B customers, or if you aren’t as familiar with digital marketing initiatives afforded by B2B eCommerce software, you might not have enough historical data to approximate the revenue upside of your future B2B eCommerce initiative. If that’s the case, you can be more cautious in your ROI calculation and rely more on the cost reduction calculations to understand your potential savings.
Once you have a good handle on this number, you should ensure that the software you are vetting has the user-experience and features that will make the revenue-driving opportunities above possible. We’ll talk more about this when we get into evaluating B2B eCommerce vendors, later in this series.
These revenue opportunities should help you orient your launch and continued maintenance of your B2B eCommerce software, as it will make a dramatic impact on ROI.
B2B eCommerce: ROI, Goals, and What To Do Next
Once you’ve fully considered the cost savings and revenue upside of B2B eCommerce for your specific business, it’s time to take that number and start vetting options that fall into your new budget. If your calculation shows savings and additional revenue that add up to more than the software license, you’ll be in the clear.
As you can see from this post, B2B eCommerce has a number of different impacts on your business. It’s important for you to stack rank what you think are your biggest opportunities—a process that looks very different for every business.
For example, if you are losing money related to data entry, then your goal should be to find a solution that can reduce this cost to next to nothing. If you know that offloading reorders to your customers through B2B eCommerce would allow your sales reps to see 2 more customers everyday, then your goals should be around finding a solution that focuses on seamless order submission, speed, and ease of ordering.
That’s all we have on the ROI of B2B eCommerce for now! Stay tuned for the next post in our B2B eCommerce series, where we’ll lay out the online ordering options you have to choose from.
If you want to talk about the B2B eCommerce opportunity for your business, including help on calculating your potential ROI, sign up for a 10-minute call with a Handshake specialist today.