Costs vs. profitability: When does a configurator pay off?

Author: Claudia Riener

The profitability of an upcoming project is certainly one of the first topics to come up and be examined. Experience has shown that we at Combeenation are also confronted with this topic right at the beginning of our customer meetings, and our prospective customers would like to know in advance: "Does the configurator even pay off for me?" In this blog article, we would like to answer this question as best as we can and, first and foremost, help you make a decision.
 

What is profitability and how to calculate it?

A brief definition of the term "profitability": A project is considered successful if the benefit is higher than the costs incurred. For this purpose, various methods can be used, such as the profitability index, the cost-benefit analysis or the calculation of the ROI - Return on Investment. These methods are very useful as a basis for decision-making and are also justified, but on closer inspection they are not so easy to implement, as there is often a lack of empirical values, especially for product configurators.
 

When does my configurator pay off?

Who hasn't experienced this: "Please go ahead and find out if this is even worthwhile and makes sense." However, without the right key figures - and getting them is sometimes a challenge - these analyses are for the most part meaningless. That's why it's important to us to give you a few points to help you answer "How does the configurator pay off?" and "When does the configurator pay off?" as best you can, without having to make extensive calculations.

Checklist: Profitability Configurator

In order to quickly get an initial indication of whether the "configurator" project makes sense for your company or product or should perhaps be pursued at a later date, we have created the following checklist for you:
 

1. Simple rough calculation

We don't know your company's figures, but we do have experience regarding the increase in sales with a configurator.  Experience has shown that many of our customers in the B2C sector have generated up to 20% and more sales with products that are sold using a configurator. In the following calculation example, we assume an increase of 10%.
 

Example: 

• Company: Furniture manufacturer in B2C
• Product: modular shelving system
• Average sales value per shelf: € 1,500,-
• Sales / month: 30 pieces
• Annual turnover: € 540,000,-
   

By using the configurator:

• Increase of sales / month to: 33 pieces (+ 10 %)
• New annual sales: € 594,000,-.
• Costs configurator: creation of 3D models once with € 7,000,- (varies depending on product and/or already existing 3D data) & assumed monthly costs for the configurator (Software-as-a-Service fee) of € 1,200,-.

Calculated over a year, that's € 54,000 more in sales. Deducting the annual costs of the configurator, this project already pays off in the first year.

Of course, these are not your actual numbers. The costs for the creation of the 3D models and also the monthly fees vary depending on the industry and product. However, it is definitely worth taking a closer look and doing some quick math.

2. Cost vs. benefit calculator - is the price of the configurator justified?

We have developed this tool to run through various scenarios of a simple profitability calculation with our customers. We would like to make it available to you here as well. Simply try it out, feed it with numbers and you will see the first calculations of how and whether your planned configurator will pay off. Click here for the cost vs. benefit calculator.
 

3. Sales Representative 24/7

In short: finding good and affordable sales staff is a challenge. This is exactly where a configurator can help you, because it performs valuable sales work for you online 24 hours a day, 7 days a week. If you look at this aspect again in terms of the profitability of the configurator, nothing more needs to be added - personnel costs vs. configurator costs speak for themselves.
 

4. E-commerce sales formula = website traffic x conversion rate x shopping cart x customer loyalty

In the e-commerce field, it is important to serve all four factors mentioned above optimally in order to get the desired result. Each area is important in itself and has an impact on the other 3 factors. This means that all four factors mesh like cogs and influence each other.

Brief illustration: 
Without enough website traffic on your homepage, the conversion rate cannot increase. The completion rate is an important metric in online marketing that indicates how many visitors to a website or online store perform a desired action, such as making a purchase, filling out a contact form, or signing up for a newsletter. It is the same with the checkout process. The checkout process begins when the customer has filled their shopping cart with the desired products and is ready to complete the purchase. If this process is not satisfactory for customers and they do not complete the purchase, many website visitors and a high completion rate are of little use. And customer loyalty is more important than ever in the fast-moving digital world and can be significantly influenced by an optimal sales process.

You may now be asking yourself, "What does all this have to do with a configurator?"

A lot - because a configurator can have a significant influence on customers' brand and purchasing decisions. Based on the experience of our customers, we can say that more visitors stay longer on websites that use a configurator in the online sales process. Potential customers are more likely to choose a brand that gives them the opportunity to understand the product and adapt it to their own wishes and needs already in the research phase.

Conclusion: Does my configurator pay off?

As you can see, it is difficult to evaluate the profitability of a configurator project solely with key figures; rather, there are several factors that have a favorable influence on the project, others less so. The fact is, online sales is not the sales channel of tomorrow, but of today. Already 89% of customers start the buying process with an online search engine. So, if you can agree with one or more of the above points and/or what you have read is comprehensible to you, feel free to send us your inquiry.

In an initial get-to-know-you meeting, we specifically address your requirements and your product in order to show you possibilities and find initial approaches to solutions.