How Much Should You Spend Integrating ECommerce Into Microsoft Dynamics AX, GP, or CRM?
Our clients often ask us whether they should integrate an ecommerce solution into their Microsoft Dynamics GP, AX, or CRM system. When we tell them it has become easier than ever, their next question is this: how much they should spend?
This last question requires a more involved answer. With all the many choices in the marketplace ranging from a few thousand dollars to a couple of million for a large enterprise solution, it is hard to know just how much you should be investing.
COST IS NOT THE ISSUE. THE RETURN ON INVESTMENT IS.
Think about it this way: if I charged you $500,000 for an integrated ecommerce solution that could generate $2,000,000 in additional gross margin each year and save you another $1,000,000 in operating costs, then would the $500,000 investment be A LOT? The answer, of course, is no.
Positive Cash Flow: $2,000,000 + $1,000,000  $500,000 = $2,500,000 
The point is simple: you've got to figure out how much money an ecommerce solution will make you before you draw a conclusion of whether or not the cost is too much. So how do you do that? It's actually pretty easy.
Here is a simple process for determining the Return on Investment (or ROI) of an ecommerce storefront. First, you've got to know how much profit you make on each sale. For instance, if you buy whatever it is you sell for $50 and you sell it for $80, your gross profit is $30. That's easy enough. Now take that calculation up a level and do the same thing for all of your products together. Hint: start with the Income Statement.
CALCULATING ROI: An Example
Here's a simple example to illustrate. Let's say ABC Company sold 200,000 widgets last year for $100 each. The cost for each one of these widgets was $40. Therefore, you would take 200,000 widgets x ($100  $40) and get a total gross profit for ABC Company of $12,000,000 for all of last year.
Step 2 is to figure out how much you can save by streamlining the ordertaking process and eliminating any wasted effort. (Note: It is important to remember that in order to achieve ANY cost savings, the ecommerce solution must integrate directly into your Dynamics ERP. Otherwise, you are actually going to increase the cost). To determine your cost savings, you have to figure out how much each one of these order entry resources costs the company. To do this, take their combined salaries, add in things like vacation pay, payroll taxes, benefits, etc., or simply multiply their gross salaries by about 150% to account for that good stuff.
Let's say, for instance, that you have five branch offices and, in each office you have four people whose job it is to take customer orders and/or apply payments. You pay these resources, on average, about $30,000 per year. To get the total cost of order taking, you need to multiple $30,000 x 150% for overhead x 5 offices x 4 people per office. In this example, the calculation amounts to $900,000
There, the hardest part is over.
Step 3 is to plug all these great numbers into the table below to figure out your profit from ecommerce.
Here are the three steps again:
1. Figure out your gross profit from sales
2. Calculate the total personnel costs from your ordertaking process
3. Work out the breakeven amount that you can spend on an ecommerce solution.
Increased Profits from Revenue 


Total Revenue last year 
$20,000,000 



Subtract: Cost of Goods Sold 
$8,000,000 



Gross Profit 
$12,000,000 



Multiply by Expected Increase In Revenue From ECommerce (keep it conservative, Cowboy!) 
5% 


Expected Increase In Profits From Revenue (1) 
$600,000 

Increased Profits from Cost Savings 


Total Order Processing Costs 
$900,000 



Multiply by the amount of time you can save from not having to key in all those orders into your ERP system 
30% 


Expected Increase In Profits From Cost Savings (2) 
$270,000 

Total Increase In Profits from ECommerce 

Add: (1) + (2) 
$870,000 

And that's your breakeven figure! In this case, ABC Company could spend up to $870,000 on an ecommerce solution and still break even the first year. Then, in year two, three, four...100, this amount becomes pure profit. Imagine that!
Once you have this information, you can figure out what you will make over the next five years, like this:
Increase in sales ($000) 
Yr 1 
Yr 2 
Yr 3 
Yr 4 
Yr 5 
5 Yr Total 
% Increase in Sales 
5% 
7% 
9% 
11% 
13% 








Increased Profits from Sales 
$600 
$840 
$1,080 
$1,320 
$1,560 
$5,400 
Increased Profits from Savings 
$270 
$270 
$270 
$270 
$270 
$1,350 
Initial Cost of Solution 
($250) 
 
 
 
 
($250) 
Annual Software Maintenance 
($30) 
($30) 
($30) 
($30) 
($30) 
($150) 
Net Profit 
$590 
$1,080 
$1,320 
$1,560 
$1,800 
$6,350 
Now, did you get that? That's over $6,000,000 in pure positive cash flow over the next five years for an investment that paid for itself in Year 1. Not bad!
Contemporary electronic
Contemporary electronic commerce involves everything from ordering "digital" content for immediate online consumption, to ordering conventional goods and services, to "meta" services to facilitate other types of electronic commerce.
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