Businesses of all kinds are embarking on IoT initiatives. And no matter the business type or scale of project, stakeholders always have one burning question: “How soon until we start seeing some ROI?” For businesses that have a concrete plan in place for measuring ROI, the answer is typically within the first year. That’s because companies that take the time to make these plans have the clearest objectives, which make them easier to attain and in a faster amount of time. The ROI planning process is essentially the same for a company just starting out and for one that is having trouble finding profitability from IoT investments and needs to revisit their approach.
The first step is to set a goal. Ask yourself “Where is the pain point?” and “If I were to eliminate this problem, what would it solve? The “gains” will either stem from reducing expenses or increasing revenue, and in best-case scenarios, it will positively impact both. If you happen to alter your goal during this first year, you’ll need to adjust your timeframe for expecting ROI.
Identify your direct and indirect costs
One of the keys to measuring “gains” for a particular goal is to include both direct and indirect cost savings. For example, if IoT enables you to streamline operations and have fewer field technicians, in addition to the direct savings from reductions in technician salary/benefits, companies will have indirect savings as well. Needing fewer assets (fleet vehicles, office space etc.) and fewer internal support services (Operations Management, HR, IT etc.) all represent savings that should be included in the ‘gains’ component to create a holistic view of ROI.
Keep in mind that the cost of IoT varies based on the size of the implementation, its complexity, and any professional services required prior to launch – custom development, integration with 3rd party solutions, etc. Professional services can actually represent a significant portion of the up-front costs, so it’s important to estimate the useful life of the solution. Following your company’s software depreciation schedule is a simple, conservative approach, though the benefits of the IoT solution may extend beyond this window.
Velocity – or value accumulated over time – is another consideration in a holistic ROI assessment. IoT represents a shift in technological perception and behaviors within a company, so the benefits need to be measured over time. Elements like machine learning and predictive analytics are solutions that inherently improve over time. As the quality and size of data pool increases, so does the accuracy and applicability of these elements. Incremental improvements can add up to substantial gains, so taking the long view when calculating ROI will yield a more accurate result.
While ROI mapping is an involved process, you can get the picture of what ROI in your business might look like with this simple back of the napkin math: A single long-haul truck can generate revenue upwards of $200,000 per year, but unplanned downtime can reduce potential revenue as much as 2 percent, or $4,000. IoT powered predictive analytics and data driven repair process can mitigate 75 percent of that unplanned downtime pushing overall utilization to 99.5 percent resulting in a $3,000 improvement in total revenue. A solution cost of $50 per month ($600 annually) would generate a 400 percent ROI. Multiplying this across a fleet of 1,500 tractors results in an impressive $4.5 million boost to top line revenue.
It starts at the beginning
Most, if not all IoT deployments start out as a pilot. Performing a high-level ROI analysis before the project kicks off is critical for aligning stakeholder expectations and establishing preliminary direct and indirect drivers of performance. The scope of the initial analysis should be limited to the pilot, but upon completion, a robust ROI analysis of a full production deployment should be performed based on the outcomes of the pilot. Once a full deployment is launched, ongoing reporting and KPI reviews should occur monthly or quarterly at the very minimum.
Outside of dedicated monthly KPI review meetings, project owners should leverage IoT’s live data streaming capability to build interactive dashboards with data visualizations that communicate results at any time. By leveraging popular data visualization tools such as Tableau or Microsoft Power BI and making them available company wide, anyone can better understand the underlying drivers of company success, spot unseen trends, and contribute new ideas.
Solidifying how and when you measure profitability from your IoT deployment will deliver multiple advantages to your business. Stakeholders will come together in agreement on expectations at the start. Poor performance can be isolated and improved more quickly and success can be built on more rapidly.
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