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Automating the Complete Sales Cycle to Facilitate the Quote-to-Order Process:

Evaluating the ROI of ChannelOnline™ February 2005 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

Automating the Complete Sales Cycle to Facilitate the Quote-to-Order Process: February 2005 Evaluating the ROI of ChannelOnline

Circulation or disclosure in whole or in part of this report outside the authorized recipient organization is expressly forbidden without the prior written permission of Callan Consulting. © 2005 Callan Consulting. All rights reserved. Reproduction or redistribution in any form without the prior permission of Callan Consulting is expressly prohibited. This information is provided on an “as is” basis and without express or implied warranties. Although this information is believed to be accurate at the time of publication, Callan Consulting cannot and does not warrant the accuracy, completeness or suitability of this information or that the information is correct. Information Callan Consulting provides is general background and is not intended as legal or financial advice. Callan Consulting cannot and does not provide legal or financial advice. Readers are advised to consult their attorney or qualified financial advisor for legal and/or financial advice related to this information.

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Table of Contents Executive Summary Page 4 Introduction and ChannelOnline Overview Page 4 ChannelOnline ROI Components Page 5 Reduced Quote Management Costs - Quote Generation - Purchase Order Generation - Purchasing

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Reduced Customer Inquiry Handling Costs - Pre-Sale Inquiries - Post-Sale Inquiries

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Increased Competitive Win Rate Pages 7-8 Negotiating Better Prices from Vendors Page 8 Other ROI Benefits and Considerations - Reduced Cost of Error Handling and Returns Page 8 ChannelOnline Solution Costs Page 9 Sample ROI Calculation - Inputs - ROI Benefits

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Conclusion Page 13 Appendix: Notes on the ROI Model Pages 14-15

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Executive Summary Introduction and ChannelOnline™ Overview VARs and System Integrators face unprecedented business challenges: declining margins, growing customer expectations, and a complex competitive landscape. While resellers are under increasing pressure to execute consistently and efficiently across their sales, purchasing, and back office operations, many still rely on highly inefficient manual sales processes. Sales representatives often waste time searching through spreadsheets, binders, and Web sites for the information they need. And after a sale is closed, processes are just as inefficient. Once an order is received, resellers manually search vendor Web sites for needed products — a time-consuming process that often fails to ensure the best possible pricing. This is where CNET Channel’s ChannelOnline solution delivers tremendous value. ChannelOnline is a turnkey online solution that automates the complete sales cycle, improving customer service, sales productivity, and sourcing profitability. Instead of accessing multiple applications, Web sites, and documents, sales reps have a single work environment for all steps in the sales process: researching products, creating quotes, sourcing, pricing, determining availability, and confirming orders. And with out-of-the-box compatibility (product catalogs, pricing and availability) with top U.S. distributors, including Tech Data, Ingram Micro, SYNNEX, D&H, HP PartnerDirect, and Azerty, ChannelOnline helps resellers obtain the best and most profitable source to fulfill each order.

To demonstrate and quantify the economic benefits associated with ChannelOnline, CNET Channel contracted Callan Consulting, an independent business modeling consulting firm, to develop a detailed return on investment (ROI) model. Callan Consulting interviewed a range of ChannelOnline customers and gathered data from a variety of secondary sources to create the ChannelOnline 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.

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ChannelOnline ROI Components Organizations that implement ChannelOnline typically achieve economic benefits in four major categories:

• Reduced costs for quote management • Reduced costs to handle customer inquiries • Increased win rate for competitive bids • Improved contribution margin resulting from better negotiated deals

with vendors

Reduced Quote Management Costs

For most resellers, the single largest category of economic benefit is the time saved in end-to-end quote management. Quote management can be split into quote generation, PO creation, and purchasing.

Quote Generation

Reseller sales reps spend a tremendous amount of time responding to customer inquiries and preparing sales quotes. Lacking an automated solution like ChannelOnline, sales reps depend largely on manual, time-consuming processes. They visit supplier Web sites to check on product availability and pricing, key information into spreadsheets to calculate markup and customer price, and then spend hours cutting and pasting (or even re-keying) data from supplier Web sites into proposal documents. ChannelOnline reduces the time required to perform critical sales functions. It allows sales reps to search by keyword, supplier or manufacturer part numbers, and category; perform side-by-side product comparisons; and access detailed product descriptions. This can free up time for sales reps to engage in more strategic tasks such as proactively targeting new business.

A note on calculating time savings benefits — the ROI model can estimate the value of sales rep time savings in one of two ways: by assuming that the time a sales rep spends on strategic tasks is worth at least what the reseller pays the rep, or by

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calculating the savings that could be attained through sales force headcount attrition. For additional discussion see the Appendix.

Purchase Order Creation

Once the rep receives a sales quote (i.e. the reseller wins the business), the reseller then needs to load customer information into its Purchase Order or accounting system. This information usually includes contact name, address, and shipping details.

Doing this manually typically requires 10-15 minutes per new order. With ChannelOnline, data are automatically loaded based on the information from the sales quote — reducing this process to several verification mouse clicks.

Purchasing

For every new sale, the reseller must purchase products from one or more suppliers. Conducted manually, this process requires researching vendor sites for pricing and availability. Although the rep may have already researched vendor sites to generate the quote, most resellers perform a more detailed search before making the purchase. Because resellers have such small margins, they need to make every effort to secure the best possible pricing. In contrast, ChannelOnline reduces purchasing time by providing all product and supplier information in one easily searchable repository. Instead of spending hours digging through vendor Web sites, ChannelOnline users can quickly view pricing and availability across a wide variety of suppliers, and then select the best one for that order.

Reduced Customer Inquiry Handling Costs

ChannelOnline also provides unlimited secure private customer extranets (private e-commerce storefronts). These private storefronts allow customers to log in and view the assigned product catalog(s), search and compare products, place new orders, and view/modify the status of existing orders. This means customers can opt for

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self-service, and won't take up a sales rep's time every time they have an inquiry. A public store option is also available to enable end customers to browse and compare products without logging in.

Pre-Sales Inquiries

Resellers often field dozens of pre-sale calls a day from customers checking on product availability and pricing. Not all of these calls are from customers ready to purchase. By shifting information-gathering inquiries to the Web site, resellers can free up additional sales rep time. In some cases, however, resellers want their sales reps to engage in every pre-sale inquiry, even if the customer is not ready to make a purchase. This gives sales reps greater control over the interaction and allows them to engage more deeply with the customer. For this reason, the benchmark data used in the ROI model assumes that only a moderate number of pre-sales inquiries are shifted to the ChannelOnline e-commerce site.

Post-Sales Inquiries

Most resellers want to migrate as many post-sale inquiries possible to their Web sites as these customer interactions eat away at sales rep’s valuable time. Post-sale inquiries typically consist of customers calling to check on order status, delivery, and timelines. ChannelOnline e-commerce sites significantly reduce the burden on sales reps by enabling customers to view, modify, and approve quotes online. Customers can also access order status and shipping/tracking information. One reseller who implement-ed a ChannelOnline e-commerce site now addresses over 50 percent of its post-sale inquiries via its Web site.

Increased Competitive Win Rate

While most benefits to resellers typically come from quote management cost savings, there are a number of other significant benefits, including improved win rates for competitive bids.

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This win rate improvement is driven by three factors:

• Faster quote turnaround time: By automating the quote generation process, ChannelOnline enables sales reps to respond more quickly to customer inquiries.

• More professional looking quotes: Using manual processes, many sales reps send out quotes consisting of spreadsheets or bullet points in an email. In contrast, ChannelOnline quote templates are professional and polished.

• More competitive pricing: When depending upon manual quote processes, it’s difficult for reps to be sure they have found the best available pricing. With ChannelOnline, sales reps are confident they have the lowest available supplier pricing, so they can be more price competitive in their quotes.

Negotiating Better Pricing from Vendors

One of ChannelOnline’s greatest contributors to ROI is the leverage it provides resellers to negotiate better vendor pricing. Many resellers have a preferred list of suppliers who represent a large percentage of their sales. And because they often negotiate without the benefit of complete competitive pricing knowledge, resellers don’t always get the best pricing from these suppliers. With ChannelOnline, resellers view the best available pricing from a wide range of suppliers. Armed with this knowledge, they can work with key suppliers to meet or beat these prices. Some resellers estimate that using ChannelOnline to negotiate better deals has improved their contribution margins by a full two to three points.

Other ROI Benefits and Considerations

Reduced Cost of Error Handling and Returns

Resellers can also realize cost savings by reducing the rate of incorrect orders that can result, for example, from quoting products that are discontinued or out of stock. Because ChannelOnline provides sales reps with complete and current information, quotes are more likely to be accurate — reducing mistakes and eliminating costs associated with processing misquotes.

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ChannelOnline Solution Costs To calculate the economic returns associated with the ChannelOnline investment, the model captures all elements of the upfront and ongoing investment in ChannelOnline. These costs fall into one of three categories:

• Ongoing ChannelOnline licensing fees • Setup costs, including the time it takes a site administrator and Web

developer to set up the e-commerce storefront • Training (as CNET Channel provides free weekly training on ChannelOnline,

the training costs captured in the model consist solely of the opportunity costs of time reps spend in training)

While the model is pre-populated with benchmark data, including typical costs and prices for each of these categories, it can be modified to address the specific costs of the reseller being analyzed. 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. It uses the benchmark data points that pre-populate the model.

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Inputs Key inputs for this sample are provided in Table 2.

Table 2 – Key Sample ROI Calculation Inputs

Overall AssumptionsOverall annual company revenue 10,000,000$ Overall contribution margin, % 10%

Reduced Costs for Quote ManagementMinutes required per quote for inside sales rep to prepare manually 45

Number of quotes generated per sales rep per day 10Minutes required to manually key data into PO system per customer order

15

Minutes required to research suppliers' websites per new purchase 30

Minutes required to generate POs for suppliers, per new purchase 15

Annual salary of sales reps 86,142$ Reduced Inquiry Calls

Number of pre-sales inquiry calls per day (to check on availability, pricing)

20

% of pre-sales inquiries that would be shifted to website 10%Number of post-sales inquiry calls per day (to check on delivery, 5% of post-sales inquiries that would be shifted to website 75%

Increased Win RateOverall % of revenue that comes from competitive bids 80%Improvement in win rate due to using ChannelOnline 5%

Improved Price Negotiations% of overall company COGS that passes through the purchasing process

80%

Contribution margin improvement due to purchasing agent's ability to perform side-by-side comparison and negotiate better deals with

1%

Other BenefitsAverage # of returns per month due to misorders 3 Average cost of processing a return 50$ Reduction in misorders using ChannelOnline 50%

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ROI Benefits The overall gross margin benefits by year for this example are shown in Figure 1.

Figure 1 – Gross Margin Benefits by Year

Total gross margin benefits

$507,221

$784,252$756,770

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

1 2 3

Year

Additional metrics, including 12-month ROI, 3-year ROI, and payback period (in months) are provided in Table 3.

Table 3 – Additional ROI Analysis Metrics

ChannelOnline CostsOne-time implementation costs including training, website setup 1,697$ Ongoing annual costs 16,632$

Investment Analysis Summary12-month ROI, % 2567%3-year ROI, % 3670%Payback period, months 3.1

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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

40%

6%0%

30%

9%

12%

1%

2%

Reduced time for quote generation

Increased win rate due to improvedquotesReduced misorders

Reduced time for P.O. creation

Reduced time for purchasing

Improved contribution margin frompurchasingReduced time for pre-sales inquiries

Reduced time for post-sale inquiries

Finally, Table 4 provides a detailed breakout of benefits by category and by year realized.

Table 4 – ROI Benefits Detail

Year 1 Year 2 Year 3Reduced Costs for Quote Management

Reduced time required for quote generation 199,562$ 306,827$ 314,498$ Reduced time required for PO creation 149,916$ 230,496$ 236,258$ Reduced time required for purchasing 46,849$ 72,030$ 73,831$ Subtotal: reduced costs for quote mgmt 396,327$ 609,353$ 624,587$

E-Commerce Site BenefitsReduced costs to handle pre-sales inquiries 2,661$ 4,418$ 4,891$ Reduced costs to handle post-sales inquiries 7,484$ 12,426$ 13,756$ Subtotal: e-commerce site benefits 10,144$ 16,845$ 18,647$

Other BenefitsIncreased win rate due to improved quotes 33,333$ 43,200$ 46,656$ Improved contribution margin from purchasing 66,667$ 86,400$ 93,312$ Reduced misorders 750$ 972$ 1,050$ Subtotal - other benefits 100,750$ 130,572$ 141,018$

Total - All ROI Components 507,221$ 756,770$ 784,252$

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Conclusion CNET Channel’s ChannelOnline solution greatly increases the operational efficiencies of resellers—and enables them to deliver a higher quality of service to their customers. With automated processes, resellers can gain significant operational cost savings in end-to-end quote management, PO generation, and purchasing, as well as reduce the cost of servicing customer inquiries. Moreover, by reducing the response time to generate quotes, increasing the professionalism of those quotes, and ensuring the best pricing, ChannelOnline can increase reseller win rates. And by enabling them to view pricing information from a wide variety of sources, ChannelOnline helps resellers negotiate and secure the best possible pricing from their suppliers. The result? A direct, positive impact on gross margin. After analyzing the ROI components of a typical ChannelOnline solution, Callan Consulting believes that most resellers can achieve significant bottom-line benefits, beginning in the first year of operation. Callan Consulting recently created a detailed ROI model that describes these benefits. It also enables resellers to estimate returns for their specific business. For a custom ROI analysis tailored to your organization, please contact your regional ChannelOnline sales executive at 1.877.276.5560 (toll free.) He or she will be happy to discuss your situation and perform a comprehensive modeling exercise to help estimate your ChannelOnline ROI. Contact information: Scott Danish Vice President, Global Marketing CNET Channel +1.415.344.2722 [email protected] Ed Callan Principal Callan Consulting +1.650.375.0573 [email protected] 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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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 ChannelOnline solution, which generally corresponds to Earnings Before Income and Taxes, or EBIT. EBIT impact is a standard for evaluating investment decisions

• Realizing time saving benefits: Many ChannelOnline ROI benefits stem from making sales reps more efficient and therefore saving them time. However, these time savings don’t translate into bottom-line benefits unless they can be monetized. One way would be to reduce sales force headcount through attrition, effectively enabling the organization to do the same work with fewer staff. Alternatively, the reseller can focus the sales team on more productive tasks such as proactively seeking out new orders. The model enables the user to realize benefits using either of these methods. To estimate the value of reps’ time being freed up for more productive tasks, the model simply calculates the value of the time based on what the rep is paid per hour. This assumes the value of that rep’s time to the reseller is worth at least what the rep is being paid. (If not, why would the reseller keep the rep on the payroll?) Callan Consulting believes this is a conservative assumption as a highly productive rep can bring in business potentially worth several times what he or she is being paid.

• Automated versus manual processes: The ROI model is designed to compare the benefits of ChannelOnline versus the costs of conducting business using largely manual processes. Callan Consulting believes this is the most appropriate comparison for resellers, as most execute these processes manually. An alternative approach would evaluate the costs of purchasing ChannelOnline versus building a comparable solution. This approach would be valid in cases where a reseller recognizes its need for an automated quote management system and is deciding whether to build or buy the solution. While Callan Consulting considers this scenario to be the exception and not the rule, the ROI in this scenario would still be highly attractive, as it would likely require 2-3 FTEs performing tool updates and keying in new data to maintain a home-grown system—which is much less cost-effective than a comparable ChannelOnline implementation.

• Benchmark data: The ROI model comes pre-populated with benchmark assumptions ranging from the annual salary of sales representatives to competitive win rates. These data points can be used without alteration, or resellers can overwrite any of the key inputs to tailor the analysis. So, for example, while the model is preloaded with a reseller contribution margin of 10 percent, the user of the model can insert the reseller’s actual contribution margin.

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• Pick modules and benefits appropriate for the analysis: There are three separate ChannelOnline modules a reseller can purchase: Quote Generation, PO/Purchasing, and Private E-Commerce Site. The ROI model captures several different categories of economic benefits, each of which is associated with one of the three available modules. Model users have the ability to pick and choose which modules to include in the estimates, so the analysis is tailored to their particular situation.

• Ramp-up time to realize benefits: For some resellers, manual processes are ingrained into the way they do business. Thus, it may take some time after implementing ChannelOnline for reseller organizations to realize the full range of benefits. For this reason, the ROI model includes several fields that enable users to specify the time required to realize full benefits—both for staff time savings and for margin benefits (due to improved negotiations with suppliers).

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