28 May 2018
Four Vital Steps To Measure the ROI of Your IoT Solution
So, you want to invest in the Internet of Things (IoT) and why not – IoT has been purported to be key in creating new revenue streams, increasing productivity, improving time and cost efficiencies, delivering a better customer experience and automating business processes.
1. It's all about data
IoT focuses on the “things” themselves – sensors, machines, equipment and almost everything else in the physical world. However, the greatest value for businesses comes from combining the data generated by these devices with other business or operational data to uncover insights and even establish predictive models. Such models can be used to improve maintenance scheduling or provide just-in-time service before a product fails. For example, many industrial firms managing connected equipment receive remote diagnostics reports with information about faults or upcoming service needs based on interpretations of the data. This is the incredible promise of IoT, enabling the ability to link data from the smart, networked “things” with other business data.
Organizations can also combine data from devices with other customer data to gain new insights and identify new signals of potential churn or propensity to purchase. These insights can lead to a deeper understanding of and greater responsiveness to customers. And once again, an enterprise can leverage on the real-time data and insights in predictive models.
Such real-time data and insights into how a business is functioning, and where improvements can be made such as reducing costs as well as increasing revenue, adds brand value, and enhances the customer experience. This last point is an important consideration. IoT enables businesses to leverage on data to improve as well as customize their offerings and services to customers. By obtaining and leveraging on data, companies can evolve to meet their customers’ desires. With this understanding, you may gain new insights and identify new commercial opportunities to refine your product and service offering further.
2. Assessing viability
Consider if an IoT solution can produce the economic returns anticipated. Weigh the risks against the rewards. Based on the data analysis, assess the IoT solution’s impact on the bottom line. While it is easy to dump time, money and effort in IoT, the results sometimes can be disappointing. Creating a new device for its own sake, a new product that’s technologically groundbreaking is exciting but it’s easy to get caught up in developing the prototype and the technical details. If there’s little to no return on your investment, then it’s not worth pushing ahead to market.
So, the way forward is to define clear objectives and to use a systematic approach to determine if producing an IoT device would be worthwhile and can provide a return on your investment.
- Step 1 - Meeting customer's needs
Your prototype should be as close to the final solution that will be going to market and a critical requirement is the user experience. It’s all very well the technicians in the lab being able to use it, but does the customer and/or user find it useful and easy to use? Work with technical partners that will develop a pre-industrialized solution that can be fully beta tested.
TIP: An obvious but often overlooked factor is that the IoT device should deliver only the data needed to solve customers’ problem and no more. Don’t overspec the IoT device or it could be too costly when it goes to market. It’s very tempting to allow the technology side to take over when developing an IoT solution. The commercial viability of the solution is just as important.
- Step 2 - Get real: test, test and test again with actual users
In calculating ROI, testing will enable businesses to better define the specs, the features and the behavior of the devices. At each stage of project implementation, businesses should re-calculate the expected ROI of IoT implementation and check “plan vs. fact”.
In order to properly measure the viability of the IoT solution, organizations should test for usability, connectivity, security, performance and compatibility. At this point, it is important to note that testing IoT devices is the best way to accurately match the solution to users’ needs.
“The value of any IoT device is the data you are able to extract from it: this is the value added proposition of connectivity. Extract as much data as possible during the test phase so you can understand the benefits of the device, and the way it is used by your test users.”
Florian SPLENDIDO – Head of Sigfox IoT Agency
- Step 3 - Calculate the estimated business value
The pillars of any IoT solution is to create new revenue streams, make savings, be it on costs, time, effort, improve productivity or business processes, and enhance customer relationships.
From the test users’ feedback, identify the value proposition unique to your new solution. Conduct interviews with users to see which value proposition is delivered by the solution and compare it to your assumption when launching your IoT solution project. The data you gather during the test phase provides valuable insights into how the solution performs and the way users put the solution to use. This means it gives you a better understanding of the value brought by the solution.
At this stage, businesses have to assess the way in which IoT can deliver business value: cost and/or operations optimization or new revenue streams with new products and services. In some cases, the value of data derived from IoT devices will lie in spotting ways to improve existing products and services to enhance customer satisfaction or better understand and anticipate customer needs.
Even if the results are not measurable, understanding end user behavior better is also of great value. IoT devices are used by businesses to gather information and data that in the past was inaccessible or time consuming to collect. The pace, variety and depth of information gathered by IoT devices provide detailed insight into customer behavior. This ranges from service consumption to product engagement, all of which will determine how a business can offer and personalize new services. In business-to-business consumer verticals, the information collected contributes to the automation and optimization of services, for example, in property management.
By using data analytics, businesses can go beyond finding ways to adapt to customer experience trends and demands to now predicting and delivering accurate customer experiences proactively.
This means that businesses will be able to weigh this customer data against the cost of acquiring that data. In this way, they will be able to evaluate the true cost of their exploration into the ROI of IoT.
TIP: To create IoT business value, understand what your business uniquely offers to its customers, and why those customers keep coming back. IoT can enhance what your company does well and also provide entirely new ways to serve your current and new customers. Once you know how you already delight and thrill your customers, and what it is that keeps them coming back, then it’s much easier to identify ways to strengthen and augment your value proposition with IoT technology.
“Make use of data analytics tools to run in-depth analyses. If necessary, go back to your test users and ask them more questions about their use patterns and their experience of the device performance, so you can build up a comprehensive picture of how your solution was used and why.”
Florian SPLENDIDO – Head of Sigfox IoT Agency
Metrics that can be used to measure the value of an IoT solution include:
- - Increased revenue
- - Reduced downtime
- - Lower operation costs
- - A rise in productivity
- - Streamlined business processes
- - Quicker time to market for new products and services
- - Better customer service response times
- - Improved visibility
- - Better understanding of equipment use
- - Better understanding of new behaviour
For example, using smart buttons, customers are able to quickly and simply order food or services. Supplies can be restocked and companies can even offer new services, making all transactions simple while improving customer service response times, a measurable ROI metric. Using smart buttons, customers are able to register their satisfaction level quickly and simply. A customized, connected dashboard allows you to view the results in real time. The use of smart buttons and the streamlining for business processes meets the measurable ROI metrics, from lower operation costs to a rise in productivity.
Sometimes, IoT solutions can lead to unforeseen positive externalities: for example, companies providing care services to the elderly can use Sigfox-enabled time card readers to collect data for billing purposes. The connectivity and integration of data collection to billing systems allows these care services companies to eliminate waste, billing mistakes and human error considerably. It also reduces fraud by identifying beneficiaries who are no longer eligible for care services.
- Step 4 - Calculate P&L
Implementing an IoT solution is not without its costs, and there are some costs that may well get forgotten, such as hardware/software installation, integration with the customer’s existing IT infrastructure, client onboarding, and modifying business processes.
These costs have to be weighed up against the current costs as the goal of the IoT solution is to reduce these costs.
TIP: Determine the level of cost savings you want to achieve.
Most of the time, implementing an IoT Solution will require at least the following costs:
- - Electronically engineering and mechanical design
- - Hardware and plastic materials, named Bill Of Material (BOM). The cost will depend on quantity ordered.
- - Industrialisation process.
- - Integration Verification Validation & Qualification (IVVQ)
- - End to end tests
- - Certification
- - Software platform development
Organizations that want to implement an IoT solution can work with Sigfox to assess the current state of the business and the costs involved, that is, the cost of the current problems, and how Sigfox-enabled IoT solutions can help to reduce those costs.
TIP: It may be interesting to go for an off-the-shelf solution which may be cheaper to implement. So, it is important to calculate the ROI assessment annually as you deploy more and more devices because unit costs may decrease with volume.
In case you missed our previous articles: