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04/17/2020

How to calculate the ROI of a telco product

When it comes to selecting a new product to launch, effective calculation of ROI is mission critical both in pitching the business case to senior management and the product’s success. To learn more about how to effectively calculate ROI we spoke with Marwan Chanawani, CSO, Whalebone.

Generally speaking, inputs to ROI must be factored in first. In the simplest case, this means the benefit (i.e. the returns) of the investment divided by the cost of the investment in a specific product. In the case of Whalebone, telco product managers acquire a complete product that is then resold to their subscriber base.

The first thing is to determine a suitable end user price point. This means exploring how much a given customer or customer segment is willing to pay for the product or service. Obviously this will differ by country in relation to the average revenue per user. Western telcos can expect a higher average revenue per user than those of smaller, less economically developed countries. For example, average revenue per user in a country like Poland or Slovakia will be less than average revenue per user in the Nordic countries, Germany or the UK. Determining average revenue per user is based on the operator’s knowledge of the local market and its respective market segments.

The second major factor to consider when setting out to determine ROI for a new telco product is the adoption rate of new products, namely the penetration rate of a given product across the subscriber base. For example, out of a hypothetical one million subscribers, how many are likely to adopt the new product? This is to a large extent influenced by the product’s price point. If a product is priced too high, the far fewer people will actually buy it.

The importance of ease of use

An ancillary factor of equal importance in the telco market is ease of use. Experience has shown that when it comes to new products, the easier a product or service is to use, the higher the total adoption rate.

In the antivirus market, many products today require installation, activation, and setup complicating the ease of use factor. The simple maxim is the more complicated the product is to install and use, the lower the overall adoption rate. Users, it seems, what their lives made easier, not more complex.

No installation enhances customer adoption

That’s where Whalebone is unique on the market, requiring no installation whatsoever. Customers what security and are willing to pay for it, what they don’t want is to be compelled to be proactive in installing a product on their devices and having to sort out how it works. Whalebone effectively eliminates those potential complications by requiring no end user installation, instead users simply opt in to the product, which already resides on the network, taking adoption rates to a whole new level.

Where usually operators can expect a 5-6% adoption rate for products that require end user installation, Whalebone’s “unique no installation necessary” approach can raise standard adoption rates to 40% or higher.

The next question is the adoption curve, meaning how long a product will take to reach its optimal adoption rate. This requires product managers to look at the curve from initial rollout over the next months and years.

The formula

So in a nutshell, product managers need to look at the adoption rate, the price point and the cost of acquiring the new product from the vendor and calculate the gain from investment divided by the cost of investment to determine the ROI of a new telco product or service.

Of course, other associated costs also need to be included in the calculation, which include things such as the cost of internal sales and support in man hours, IT staff and deployment, and the channels used to push the product. That said, the internal and sales costs can be mitigated by the number of products an operator is offering, i.e. sales and support staff representing a basket of say 20 different products and services can significantly lower the per product or service cost used to calculate ROI.

In conclusion, internal cost + cost to vendor + cost of investment = gain (price point x adoption rate x subscriber base over time). For more information and help calculating your ROI when introducing Whalebone security on your network, contact a Whalebone expert today!

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