1. Delivering Multi-Vendor Product
Information to Facilitate Customer
Purchase Decisions:
Evaluating the ROI of CNET Channel DataSource™
December 2004
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
3. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
Table of Contents
Executive Summary Page 4
Introduction and DataSource Overview Page 4
DataSource ROI Components Page 5
Reduced Database Implementation and Maintenance Costs
- Initial Database Build
- Ongoing Maintenance Pages 5-6
Increased E-commerce Revenues
- Cross-Selling and Upselling
- Improved Close Rates
- Repeat Sales Pages 7-8
Reduced Sales and Customer Service Costs
- Reduced Calls to Sales and Support
- Improved Call Handling Efficiency
- Improved Inside Telesales Ramp-Up Time
- Improved Proposal Development Efficiency Pages 8-10
Other ROI Benefits
- Improved Telesales Margins
- Reduced Cost of Error Handling and Returns Page 10
DataSource Solution Costs Page 11
Sample ROI Calculation
- Inputs
- ROI Benefits Page 11-14
Conclusion Page 14-15
Appendix: Notes on the ROI Model Page 16
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4. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
Executive Summary
Introduction and DataSource Overview
To succeed in the highly competitive IT and consumer electronics e-commerce world,
online resellers need to differentiate their offerings, increase revenues, and reduce
operating costs. Many online resellers depend on their online product catalogs to
both generate revenue and differentiate their offerings. And while product catalogs
are frequently considered only as a cost center, they do get results. A recent survey
of over 2,500 IT consumers noted that “access to detailed product specs” was the #1
factor for consumers making online purchase decisions.
This is where CNET Channel DataSource™ comes in. DataSource provides online
resellers with a complete, accurate, and impartial source of worldwide IT and
consumer electronics product information. DataSource contains product images,
marketing descriptions, and detailed specifications on over 2 million SKUs in 12
languages. Resellers that use DataSource rather than building their own product
catalogs gain access to constantly updated, multi-vendor, and multi-lingual product
data—while saving time and money. DataSource leads the market in breadth and
granularity of vendor data, as well as in the number of languages it supports. Online
resellers using DataSource access product information customized to meet their
specific needs.
By using DataSource as their trusted source of product data, online resellers can:
• Decrease costs associated with creating and maintaining an in-house
product database. Additionally, with accurate and complete product
information featured on their websites, resellers reduce costs to handle
customer complaints
• Boost revenues through improved website cross-sell and upsell—increasing
customer loyalty and shrinking sales drop-off rates
• Improve organizational efficiency by making it easier for telesales
representatives to search product information. DataSource also enables
resellers to provide customers with better website self-service, thereby
reducing calls to customer service. And, with better data at their disposal,
sales organizations can more efficiently generate detailed proposals
• Greatly enhance the customer experience by enabling customers to
easily access complete product data, compare multiple products, print
datasheets, and select compatible accessories
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5. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
To demonstrate and quantify the economic benefits associated with DataSource,
CNET Channel contracted Callan Consulting, an independent business modeling
consulting firm, to develop a detailed return on investment (ROI) model. Callan
Consulting interviewed a broad range of CNET Channel customers and gathered data
from a variety of secondary sources to create the DataSource 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.
DataSource ROI Components
Organizations that implement DataSource typically achieve economic benefits in
three major categories:
• Reduced costs to implement and maintain a product database
• Increased revenues from the e-commerce website
• Reduced sales and customer service costs
Reduced Database Implementation and Maintenance Costs
Initial Database Build
An online reseller can spend a great deal on building its initial product catalog
database, especially if it builds the database using internal resources. Human capital
costs can quickly escalate, as building a reasonably sized database requires
significant investment in data entry operators, data entry managers, QA managers,
product managers, and database ontologists (librarians).
Consider this. Data entry operators typically enter 25-30 SKUs per day. At this rate,
a reseller would need to employ six data entry operators to build a database of
50,000 SKUs over a six-month period. To create the database, select products, and
define product interrelationships, the reseller would also need at least one full-time
employee equivalent (FTE) data entry manager and several FTE QA managers,
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6. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
database administrators, and ontologists. Thus, the fully-loaded staff costs for the
entire database build team could run a half a million dollars or more. By outsourcing
this entire operation to CNET Channel, an online reseller can bypass these costs
entirely.
Ongoing Maintenance
Once it has built its database, the online reseller must then invest labor hours to
maintain and update it. CNET Channel estimates that product catalogs typically
change by about 10% per month—resulting in a complete catalog change-over within
one year.
To maintain the database, resellers need the same laborers required to build it: data
entry operators and managers, QA personnel, database administrators, product
managers, and ontologists. Using the same assumptions described above, the costs
to maintain a catalog can run into the hundreds of thousands of dollars per year—a
figure supported by a recent survey of Catalog Age subscribers (Table 1).
Table 1 – Mean Annual Cost to Maintain an E-commerce Web Site Among
Multi-Channel Catalog Companies, 2004
Consumer merchants $197,935
B2B merchants $125,611
Sales less than $10 million $53,204
Sales $10 million to $49.9 million $172,593
Sales at least $50 million $362,500
N=249, Catalog Age subscribers; Source: Catalog Age, July 2004
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7. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
Increased E-Commerce Revenues
In addition to reducing or eliminating the cost of building and maintaining a product
catalog, DataSource also helps online resellers to increase e-commerce revenues by
improving product cross-sell and upsell, reducing the shopping cart abandonment
rate, and increasing repeat sales.
Cross-Selling and Upselling
DataSource includes normalized product cross-selling dependencies, enabling e-
commerce resellers to build multi-vendor accessory selectors and offer relevant
cross-selling products at the point of sale. Experience shows that when the right
products are offered in a cross-sell environment, take rates rise significantly.
Moreover, these add-on products are typically sold at a higher gross margin percent
than the primary product, resulting in a disproportionately greater margin impact.
The situation is similar for
upselling. DataSource
provides normalized upsell
information, enabling
resellers to provide
customers with pertinent
offers at the point of checkout. Again, upsell products typically command a higher
price and higher gross margin, leading to an attractive margin impact.
Cross-selling and upselling are treated separately in the ROI model so resellers can
consider their benefits individually.
Improved Close Rates
E-commerce resellers are all too familiar with the tendency of online customers to
fall off at various points in the purchase process. As a result of these fall offs,
significantly fewer customers complete sales than originally initiate the shopping
process. One estimate published by DoubleClick in 2004, is that for every dollar
made in e-commerce, approximately five dollars are left in abandoned shopping
carts.
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8. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
DataSource reduces online
shopping fall off rates by
providing multi-vendor
product comparisons and
quicker, more targeted
searches for online
customers. Because
DataSource makes it more likely that customers will find the products they seek,
they are less likely to abandon the process prior to completing their purchases.
NetIQ estimates that fully 17% of shopping cart abandonment occurs because
customers lack sufficient information to make their purchases. CNET Channel
estimates that resellers can reduce average shopping cart abandonment from 41%
to 38% by using a structured catalog such as DataSource.
Repeat Sales
Finally, improved repeat sales result in an e-commerce lift. Because repeat
customers are typically the most profitable segment for an online reseller, increasing
customer loyalty and/or turning casual buyers into regular customers can yield
tremendous gains in profitability.
With its support of multi-vendor product comparisons, normalized product
information, and ability to format data into attractive data sheets that are easier to
comprehend, DataSource provides the cornerstone for a more satisfying and
complete purchasing experience. And higher customer satisfaction leads to
increased customer loyalty—and a greater likelihood that casual purchasers will
return to, and purchase from, the reseller’s site in the future.
Reduced Sales and Customer Service Costs
Many businesses use DataSource for their employees, enabling them to perform
more accurate and improved internal catalog searches. Whether or not a company
has implemented DataSource for its online commerce site, DataSource can aid
employee product searches—resulting in a number of efficiencies for internal sales
organizations.
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9. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
A note on nomenclature – depending on the business model of the organization in question, affected
organizations could include inbound telesales, inbound telemarketing, inside sales, or customer service
organizations. In this paper we will refer to the benefits for the telesales organization, although benefits
apply equally well to any of the aforementioned functions.
Reduced Calls to Sales and Support
By having more complete and accurate product information available on its website,
a reseller can reduce calls into its telesales and support organizations. Because
customers can easily find more complete product information on the website, they
are less likely to place sales calls over the phone. And because they are won’t
encounter missing or inaccurate information, they are less likely to call support with
complaints or problems. It is typically much more expensive on a per-incident basis
to handle calls via a live rep than enabling customers to serve themselves via the
web. Multiply the per-incident savings over a large number of customers, and online
resellers using DataSource will see dramatic overall savings.
Improved Call Handling Efficiency
Because telesales organizations are one of their largest cost centers, resellers try to
squeeze efficiencies out of their telesales representatives. By directly increasing the
product search efficiency of telesales reps, DataSource can significantly reduce costs
in this area.
Just as DataSource’s multi-vendor accessory selectors, multi-vendor product
comparisons, and more targeted product searches can improve an online customer’s
experience, it can also improve the efficiency with which an organization’s telesales
reps can service customer needs. By reducing the time required to handle individual
calls, DataSource enables resellers to reduce overall telesales costs without
adversely impacting the customer experience.
Improved Telesales Ramp-Up Time
Telesales organizations have notoriously high turnover, with some statistics citing
33% annual call center turnover rates. Resellers pay new employees throughout
training, even though their initial productivity is limited. This creates significant drag
and increases costs.
DataSource reduces
trainee ramp-up time by
providing all product
catalog information in
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10. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
one quickly and easily
searchable repository.
Instead of wasting time
learning to navigate
multiple, disparate
product data sources,
telesales reps leveraging DataSource can easily access product data and achieve
maximum productivity sooner.
Improved Proposal Development Efficiency
Inside and outside sales reps in direct sales organizations spend significant time
developing proposals and responding to RFPs. During this “dead time,” the rep is not
identifying new contacts or developing new business. By providing complete catalog
information all in one place, DataSource enables inside and outside sales reps to
develop proposals and respond to RFPs quickly—freeing them up for more productive
tasks that can have a sizable impact on the bottom line, such as identifying or
bringing in new business.
Other ROI Benefits
Improved Telesales Margins
Resellers can implement DataSource to include contribution margin information for
each product in their catalogs. If inside sales representatives have margin
information at their fingertips while assisting customers, they can steer customers
(all other factors being equal) to products that provide the reseller with the greatest
margin contribution.
Reduced Cost of Error Handling and Returns
Finally, resellers can realize cost savings by reducing errors and lowering return rates
from website sales. If customers have more complete product information when
they make online purchases, they are less likely to be surprised by the products they
receive, and therefore less likely to return them.
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11. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
DataSource Solution Costs
To calculate the economic returns associated with the DataSource investment, the
model also captures all elements of the upfront and ongoing investment in
DataSource. These costs fall into one of three categories:
• Ongoing DataSource licensing fees
• One-time, up front professional services installation fees
• Any other up front hardware, software, or services fees (such as costs to
develop and integrate the data feeds)
The model's ROI and payback calculations assume the licensing fees for DataSource
are paid in quarterly installments spread over the contract period, and that all other
upfront costs (professional services, hardware, or software requirements) are
incurred by the end of the first quarter of the analysis period.
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 and uses the
benchmark data points with which the model is pre-populated.
Inputs
Key inputs for this sample are provided in Table 2.
Table 2 – Key Sample ROI Calculation Inputs
Overall Assumptions
Overall number of e-commerce transactions per month 30,000
Average current revenue per e-commerce transaction $75
Reduced Costs to Build and Maintain Database
Number of SKUs in database 50,000
Average number of SKUs a data entry operator can add/hour 4
Hourly rate per data entry operator $10
% of SKUs in database requiring monthly update 10%
Increased E-commerce Revenues
Average increased revenue per cross-sell $15
Cross-sell close rate, % 10%
Average increased revenue per upsell $25
Upsell close rate, % 10%
Current (pre-DataSource) shopping cart abandonment rate 41%
Improved drop-off rate due to improved product data after 38%
installing DataSource
Improved % of purchases casual buyers make from your site 35%
due to improved customer experience/ability to find products
that match their needs
Reduced Sales and Support Costs
Total Inside Sales team reps 10
Calls per day an Inside Sales team rep can handle 40
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12. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
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Total Outside Sales team reps 20
Reduction in calls into Inside Sales organization 3%
Improvement in average call handling time 10%
% reduction in training time due to more efficient internal 25%
product search capability and more complete product
information through internal search
ROI Benefits
The overall ROI benefits by year, broken into all ROI components and hard ROI cost
saving components, are shown in Figure 1.
Figure 1 – ROI Benefits by Year, Hard Components vs. All Components
ROI Benefits by Year
$2,500,000
$2,000,000
$1,500,000
Other ROI Components
Hard ROI Cost Savings Components
$1,000,000
$500,000
$-
1 2 3
Year
Additional metrics, including net present value (NPV), internal rate of return, (IRR),
and payback period, both for hard ROI components and all ROI components, are
provided in Table 3.
Table 3 – Additional ROI Analysis Metrics
Hard Costs All ROI
Only Components
12-month ROI, % 128.4% 268.7%
3-year ROI, % 348.8% 935.7%
Payback period, months 1.9 1.2
3-year NPV $1,653,161 $4,065,919
IRR, % 2914.6% 12219.1%
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13. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
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
1% 9%
21%
Initial Database Build
Ongoing Database Maintenance
Inside Sales/Telesales Headcount Reduction
Outside Sales Headcount Reduction
Improved Margin from Inside Sales/Telesales
E-Commerce: Increased Cross Selling
39% E-Commerce: Increased Upselling
15% E-Commerce: Improved Close Rates
E-Commerce: Repeat Sales
E-Commerce: Reduced Errors and Returns
4%
2% 5% 4%
0%
Finally, Table 4 provides a detailed breakout of benefits by category and by year
realized.
Table 4 – ROI Benefits Detail
Annual Contribution
Year 1 Year 2 Year 3
"Hard" ROI Cost Savings Components
Initial Database Build $ $508,263 $- $-
Ongoing Database Maintenance $568,140 $825,517 $901,470
Reduced Sales Costs
Realizable inside sales headcount reduction $65,678 $87,570 $87,570
Realizable outside sales headcount reduction $- $- $-
Subtotal - hard cost savings ongoing contribution $633,817 $913,087 $989,040
Subtotal - hard cost savings total contribution $1,142,080 $913,087 $989,040
Benefits of Other ROI Components
Increased E-commerce Revenues
Increased cross selling $25,313 $38,053 $42,905
Increased upselling $63,281 $95,133 $107,262
Improved close rates $220,510 $331,500 $373,766
Repeat sales $303,750 $456,638 $514,859
Other Benefits
Improved margin from inside sales $75,000 $110,000 $121,000
Reduced e-commerce errors and returns $13,500 $19,800 $21,780
Subtotal - Other ROI Components $701,353 $1,051,123 $1,181,572
Total - Benefits of All ROI Components $1,843,434 $1,964,210 $2,170,611
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14. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
DataSource Implementation Costs
Annual Ongoing Fees and Costs
License usage definition $250,000 $250,000 $250,000
Catalog maintenance $150,000 $150,000 $150,000
Subtotal - ongoing fees and costs $400,000 $400,000 $400,000
One-Time Implementation Costs
CNET Channel professional service fees $50,000 $- $-
Other one-time implementation costs $50,000 $- $-
Subtotal - one-time fees and costs $100,000 $- $-
Total DataSource Costs $500,000 $400,000 $400,000
Net Economic Benefits (Costs) in Year
Nominal Benefits
Hard costs only $642,080 $513,087 $589,040
All ROI benefits $1,343,434 $1,564,210 $1,770,611
Discounted Benefits at WACC
Hard costs only $499,535 $914,500 $1,399,886
All ROI benefits $1,146,175 $2,411,249 $3,734,889
Months Required to Implement 3
Conclusion
The bottom line is that CNET Channel DataSource provides online resellers with an
attractive, cost-effective alternative to building and maintaining an internal product
catalog database. By greatly reducing or eliminating the costs associated with
internally building and maintaining this database, DataSource can drive tremendous
cost savings for resellers.
Moreover, by providing customers with an improved shopping experience through
more complete, normalized, and indexed product data, DataSource helps online
resellers improve their overall e-commerce revenue stream. This uplift can come
from improved cross-selling and upselling, decreased shopping cart abandonment
rates, and improved customer loyalty.
Additionally, DataSource can be applied to internal employee product search tools as
well, resulting in telesales efficiencies. Representatives can perform more accurate
and efficient product searches, rapidly ramp up the training curve, and generate
sales proposals more quickly and efficiently. And with customers better able to self-
serve their needs on the reseller’s website, the overall number of inbound telesales
calls can be reduced as well.
After analyzing the ROI contributors associated with DataSource, Callan Consulting
concludes that typical online resellers who implement DataSource can realize
significant contribution margin ROI benefits over a three-year period—both when
considering all categories of ROI benefits and when looking only at the more
quantifiable, “hard” benefits. Callan Consulting recently created a detailed ROI
model that describes these benefits and enables organizations to estimate the
specific returns they could accrue by implementing DataSource.
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15. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
For a custom ROI analysis tailored to your organization, contact your regional CNET
Channel sales executive. He or she will be happy to discuss your situation and
perform a comprehensive modeling exercise to help estimate your DataSource 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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16. Delivering Multi-Vendor Product Information to Facilitate Customer Purchase Decisions:
Evaluating the ROI of CNET Channel’s DataSource
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 DataSource solution, which generally corresponds to Earnings Before
Income and Taxes, or EBIT. EBIT impact is a standard for evaluating
investment decisions
• Benchmark data. The ROI model comes pre-populated with benchmark
assumptions ranging from the cost of data entry operators to shopping cart
abandonment rates. These data points can be used directly, or alternatively
any of the key inputs can be over-written to tailor the analysis to the
organization being analyzed. So, for example, while the model is preloaded
with an average hourly rate of $10 for a data entry operator, the user has the
opportunity to insert the actual hourly rate for his or her organization
• Different types of analysis. In addition to calculating the return on original
investment over several different time periods, the model also provides a
variety of other investment assessment benchmarks such as net present
value (NPV), payback period, discounted payback, and internal rate of return
(IRR)s
• Pick categories appropriate for the analysis. The ROI model developed
by Callan Consulting for CNET Channel is designed to quantify the economic
returns associated with implementing a DataSource solution. While it
captures a broad range of economic benefits, not all categories of benefit are
necessarily applicable to all companies’ business models (for example,
companies that do not have an inbound telesales organization will not be able
to realize efficiencies in their telesales organization). Readers of this paper
and users of the ROI model should select the benefits associated with their
particular situations.
• All benefits vs. “hard” benefits only. The model separates its benefits
analysis into two categories: benefits associated with all ROI components and
those associated with “hard” ROI components only. Hard components are
those that have a direct, measurable bottom-line effect and include:
o Cost of building and maintaining the product database
o Headcount reductions in the sales organization realizable through
headcount efficiencies
Even though Callan Consulting believes all components are pertinent to the ROI
calculation, it is frequently difficult to determine with certainty the impact of
DataSource on items like overall e-commerce revenues (vs. outside factors, such as
overall sales growth in the category). By separating out the hard benefits, the user
of the model can determine whether these alone will justify the investment, and any
other less easily quantifiable benefits are icing on the cake.
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