Digital Transformation : How Much Should I Spend?

Reading Time : 5  Minutes 

“I WOULD LOVE TO HAVE MY BUSINESS GO DIGITAL, BUT I AM NOT WILLING TO INVEST IN IT!”

Before we start, I want to make something very clear, enhancing your digital infrastructure should be treated as AN INVESTMENT, and NOT A GET RICH QUICK SCHEME (you guys won’t believe how many people I meet who thinks $$$ will just come flying in with a click of a mouse, I blame those “Gurus” out there).

In my previous article, I talk about what Digital Transformation is about, and why traditional businesses should consider going digital. 

There are of course many businesses in Malaysia who have gone digital around the year 2000 to 2015 through one way or another.

Utilizing servers to store data, building an e-commerce website, purchasing an accounting software, all these are initiatives done by many to go digital. 

However simple this may sound like, many SME’s and large organizations still have various challenges into making it work seamlessly. 

The most common issue that I constantly get from businesses are: 

“I already have a website/system/e-commerce, but the amount of money spent does not justify the income that I was expecting!”

From this, I would then reverse engineer the whole process in which said digital product has failed. This will usually lead to me finding out a few common issues like: 

• There wasn’t any marketing/digital marketing done for awareness.
• Your team wasn’t trained properly to utilize the full suite of the product thus causing inefficiency, with an equally donkey brained manager overseeing things.
• You have purchased the basic system that cannot achieve the bigger goal your business is trying to do.

All these would usually lead me to a single answer, you need to spend more to tie up loose ends! 

So here comes the big question, How Much is Truly Needed for Digital Transformation?

How Much Should I Spend for Digital Transformation?

I do not condone companies to spend huge sums of money blindly. A calculated investment is always better than agreeing with everything a consultant/software salesman tells you. 

Here is how I usually propose to people on expenses regarding digital.

1st Step: Reverse Calculate Your Expected Outcome (KPI), and Put a Budget to It! 

Say you would like to start e-commerce for your traditional retail business, you MUST set a target to achieve.

For example, lets put the target at RM500,000 per month. With a margin of 20%, you hope that your e-commerce/digital marketing division can strike you a RM100,000 gross profit at the end of the day.

From here on, you have to be realistic in calculating the manpower + software licenses (or development costs) involved to achieve that 20% Gross Profit. 

A team to manage your e-commerce, digital marketing, and software licenses would easily bring you to RM15,000 a month to hit that kind of numbers (you should consult your go-to industry expert on the reasonable numbers for this calculation).

A typical E-Commerce organizational structure for a large corporation

Anything lower than proposed monthly costs would require you to bring down your expected target, therefore cutting your manpower needed to achieve it. 

Therefore, upon revisiting your company’s financial health, you realized that you only have RM10,000 to spend as investment to grow your e-commerce channel. With only RM10,000 left per month, it is wise to call down your numbers to probably RM400,000 per month. 

This is only an example. Bigger projects with larger targets would definitely involve more departments and operational structures to achieve.

The advice here is to reverse calculate an expected target, only then you are able to mix and match your required resources to fit within your costs.

There is NO 1 COST FITS ALL MODEL as EACH INDUSTRY IS DIFFERENT! 

2nd Step: Decide how to split your available investment.

Splitting your expenses must be reasonable, as each industry has different target focus among the pillars involved. Here is an outlook on how your funds should generally be split.

Building A New Digital Revenue Channel

If you are starting out in building a new revenue channel, your funds should be focused on creating that channel 1st, be it hiring a software development team, or outsourcing a solutions firm to customize that software for you.

A typical e-commerce website would cost anywhere from

• Freelancer – RM1,500 to RM3,000 
• Mid-Tier Agency – RM7,000 to RM20,000
• High-End Consultancy Firms and public listed Software Houses – RM50,000 to RM1,000,000 (and beyond)
• Hiring your own software team to build something for you would cost typically RM3,000 (Fresh Grad Programmer) to RM8,000 (Experienced Technical Lead), in which a proper team would at least consist of 2 – 3 people.

*Numbers may vary as time passes.

Hiring a Team to Maintain and Properly Operate The System

Once that is done, the funds should extend further by hiring relevant people to manage, maintain, and run that software/system for you.

It could be getting back the same agency/software company to do it for you, or getting your operations/sales team to learn how to utilize the newly built system.

Ensure Data Analytics is Carried Out

The reason many companies who don’t see or can’t feel the improvements of building something digital, is because there is no one that has visibility towards key-success metrics.

Many companies do not invest in this particular segment, which causes the company to be highly inefficient when they run their business. 

Optimizing E-Commerce, Digital Sales or Digital Marketing spend is one of the key reasons you actually build a digital platform or system. It is through the opportunity to get data, that you are then able to understand how to further optimize costs, improve conversion rate, and therefore generate more profit. 

To ensure this gets carried out, you either hire someone that can crunch data, or send your existing staffs to training and courses which are relevant to your industry. The last resort? YOU as a business owner should be able to understand your own business data too! Training’s these days are abundant and easily searchable in Google or Facebook Events itself. 

You would be amazed by the enhanced optimization this tiny improvement can get you.

Digital Marketing

So now that you have a digital system and a team to properly operate it, it is time to crank up that awareness!

A full time in-house digital marketing team would cost around RM3,000 for a 1st class fresh grad, and about RM8,000 for a lead with multiple years of experience. In my experience though, digital marketing is a skill that is best executed by people with experience, as fresh grads till today do not get enough exposure by their courses and curriculum yet.

Getting a digital marketing agency on the other hand also has a very wide and varied market rate.

My advice on this would be to find a digital agency with relevant experience, and also enquire about how “busy” they currently are too. A very popular agency might not be a good thing as their team is so swarmed with clients, each of their work would only turn out subpar. 

Topics on digital marketing can go on forever, even I have an entire section dedicated to it. However my main point for this section is to always allocate funding for awareness.

Afterthoughts

I hope this article would give owners some kind of clarity on other angles to think of when investing in digital. Spending wisely is key, and a good coverage across all pillars should be attempted to not keep things only one sided.

To read more in the Digital Transformation Series (Stay Tuned for More!)

1. Digital Transformation : An Introduction
2. Digital Transformation : How Much Should I Spend?

This will be a series of articles in regards to “Digital Transformation”  with BFM! Thanks to Jeff from BFM for this. We believe that businesses in Malaysia is still at it’s trial and error period, and hopefully with this series, we are able to bring more light towards pushing your business ahead in this digital era!

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