September 30th, 2016

How to Create a Business Case for Mobile Services

Less than half of the mobile projects we deliver on behalf of clients have a business case with core metrics to back them up. Considering the enormous potential that mobility can have on an organization this is worrying, yet at the same time understandable. Creating a credible business case for mobile services is complex and carries a high level of uncertainty. Therefore, the easiest option is simply to state that the project is a necessity.

We think it’s important to quantify the impact from the start even if it carries uncertainty. Over the past years we’ve helped create over a hundred business cases and we’ve found it useful in setting and aligning the objectives, defining the scope and getting buy-in from all relevant stakeholders.

Here’s a quick guide to creating a business case that works for most projects.

1. Benefits

What are the benefits of the proposed service? Usually it’s one or more of the following:

  • customer acquisition
  • new product/service that can be offered/sold
  • increase average revenue per user or employee
  • loyalty/increased retention/higher customer satisfaction
  • cost savings for the business
  • productivity increases

2. Insights

What are the insights supporting the business case? For example, evidence that it’s going to drive acquisitions, increase revenue, reduce product returns, etc.? This can be found through internal or external market research. Surveys, data from similar services, stakeholder interviews, financial analysis, competitor benchmarks, pricing studies and customer feedback can all be used to build up the business case.

3. Costs

What is the total cost of creating, launching, maintaining and marketing the service? Capex or Opex might matter in some cases.

  • Service Design: Cost of designing the service including discovery, creative and UX/UI design
  • Development: Cost of developing, integrating and setting up the service
  • Maintenance: Cost post-launch of operating the services including SLAs, licenses, proactive maintenance and roadmap to keep the service relevant
  • Acquisition cost: Cost of acquiring users for the service whether it’s training, advertising or growth hacking

4. Revenue and cost savings

Calculating revenue uplift and savings is a question of quantifying the benefits and insights stated above.

Audience:

  • How big is the target audience?
  • What percentage of potential users will sign up to the new service?
  • How many of them will actually use it and how frequently?

Revenue:

  • What is the average revenue per user and/or increase in existing average revenue per user
  • Cross-sale or up-sell opportunities
  • Monetization of data
  • Reduction in churn/improvement in loyalty

Cost savings:

  • How much time do the users save per day and what is the impact of this to the business?
  • What are the savings when it comes to, for example, fuel, hardware, licenses, energy, telecom expenses, or maintenance cost thanks to the service?
  • What is the reduction in financial cost for customer care and administration?

5. Risk Discount

Any business case will carry a certain level of uncertainty ranging from low to very high, so you will need to apply a risk discount. Try to quantify the risk and provide a number to be used to give a range for the business case.

6. Summary

Finally, put the revenue and associated costs into the business case. Most businesses use a 3- to 5-year timeline even though the uncertainty increases over time.

Here is a high-level example of how this methodology works in practise:

A retailer has found a need to enable users to replace the plastic loyalty card with a mobile version.

Benefits: Cost savings for plastic, increased use of the loyalty card, increased footfall to stores and to the online store thanks to push notifications, omni-channel tracking and increased customer satisfaction.

Insights: 4.2 million cards issued in the last five years and 800,000 per year at current rate. 55% of customers stated in a survey that they would use the mobile loyalty card if offered to them and 15% stated that they would be more likely to use it. According to current data, only 22% of customers that are issued a loyalty card use it. Other retailers have showed an uplift in usage with a mobile version and younger customers in particular do not use loyalty cards. Customers with a loyalty card spend an average of $452 per year compared to $215 for those who don’t. Cost per loyalty card is $4 in printing and postage plus direct marketing.

Cost: $1.5m for service concept design, implementation and launch. $0.5m for marketing of the mobile loyalty card and $1m per year to maintain and manage.

Revenue and cost savings: Cost savings of about $1.8m per year for loyalty card (based on 55% replacing plastic). 5% uplift in loyalty card usage with an average increase of half of the ARPU equals 40,000 new users x $118.5 = $4.7m per year.

Risk discount: 50%

Summary:
3-year cost including build: $5m
3-year revenue and cost savings: $5.28m + $14.1 = $19.4m
ROI: $14.4m or $4.7m with 50% risk applied

There you go. It’s that easy.

This business case took about 30 minutes to think through and create. It can of course take more time to gather all the data and to calculate for more complex services. You may also have to use a more complex template that also looks at cash flow and tax implications of the business case. Nevertheless, the point is that most projects should have a business case even if it’s high level with an equally high level of uncertainty, which then leaves it open to improvement.

Don’t hesitate to contact us if you need help with your business case. Good luck!

Magnus Jern, President DMI International

Tags: development cost guidelines Mobility Strategy

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