If you are an entrepreneur with a nascent startup, it can be easy to get lost in a sea of digital jargon. KPIs. AI. Cloud computing. The list goes on. One of these terms increasingly entering the entrepreneurial lexicon is “digital transformation.”
While the concept may seem simple enough to intuit, it is actually a holistic business philosophy that can play a key role in driving the profitability of modern businesses. Keep reading as we explore the financial impact of digital transformation for startup companies.
What Is Digital Transformation?
Digital transformation is the process of using technology to fundamentally change how a business operates, delivers value, and interacts with customers and employees.
While technology and digitization are central to digital transformation, it is not the whole story. The big picture involves reshaping business processes, day-to-day operations, and culture to effectively leverage digital technology to achieve a competitive advantage.
In an increasingly digital business climate, digital transformation is crucial for small businesses looking to scale. Digital integration can help small businesses improve operational efficiency, automate time-consuming tasks, and expand their marketing network to ultimately drive profitability.
Typical Investments to Start a Digital Transformation
A digital transformation can cost anywhere from tens of thousands of dollars to tens of millions of dollars, depending on the size and scope of the company. Some of the most pertinent considerations are upgrading the technological infrastructure, integrating business processes throughout the transformation, and team member training.
Among these, the ERP implementation cost will be one of the most impactful line items.
ERP, or enterprise resource planning, is a business management software system that integrates and streamlines an organization's functions, processes, and workflows. It allows companies to manage data and operations across multiple departments.
There is no set value on just how much an ERP implementation will run in terms of dollars and cents. There are typically 5 key factors that can influence price:
- Software
- Infrastructure
- Personnel
- Ongoing costs
- Hidden costs
Each of these categories is unique for every small business and will impact the quote of the implementation. In general, personnel costs will be the most expensive aspect of an implementation, with more than 50% of the budget going toward consulting fees, internal labor, and project management.
As such, it is crucial to partner with a reputable provider skilled in your specific ERP software to help keep these costs in check and reduce the risk of error.
Potential Financial Gains of a Digital Transformation
There are numerous avenues through which a digital transformation can lead to favorable financial results.
It can help boost revenues through new streams (e-commerce, subscriptions, etc.). It can use data aggregation to personalize the shopping experience for higher revenue customers. Market expansion is another opportunity, as digital enterprises are not bound by a physical location.
Reduced costs are another possible financial benefit of digital transformation. Leveraging technology to automate tasks and streamline workflows adds efficiency to day-to-day operations. Digitizing documents and integrating systems can reduce office waste. Chatbots and self-service portals can help lower administrative expenses.
Digital transformation can also boost customer experience. It gives customers multiple outlets to access your business, allowing them to engage in their preferred manner at their own pace. With convenient digital options such as autopay and curated subscriptions, digitization can make customers “stickier” for repeat business and ongoing profits.
Finally- and, perhaps, most importantly- digital transformation provides the company with data-driven insights. This takes the guesswork out of marketing efforts and drives down the cost per customer.
Data can help businesses with everything from how to generate more leads from your website to how to differentiate product designs for competitive advantage, reducing costs and adding value at all stages of the business cycle.
Real-World Examples of Successful Digital Transformations
There are countless examples of digital transformation across businesses in niches as diverse as banking and home furnishings. Here are a few specific examples:
- Netflix - Arguably the most iconic example of digital transformation, Netflix digitized an entire genre of at-home entertainment. Originally a mail-order DVD rental platform to help address customers’ concerns over late fees, Netflix eventually took its entire library digital and changed the way movies, television shows, and documentaries are created, distributed, and viewed.
- Altria Senior Living - This Kentucky-based senior care facility developed a customer relationship management (CRM) system for better prospect management. It used essential website interaction features to track how often visitors used specific keywords in chatbot conversations, allowing them to analyze how prospects engaged with its facilities.
- Starbucks - With the introduction of its “Digital Flywheel” in 2017, Starbucks helped improve customer experience by transforming rewards, payments, personalization, and ordering based on customer feedback. This has allowed them to offer more personalized offerings and rewards for improved customer satisfaction.
In cases like Altria’s, the insights gained from keyword tracking and web interaction can directly inform PPC (pay-per-click) advertising strategies. By understanding what prospects are searching for and engaging with, businesses can craft hyper-targeted ad campaigns that speak directly to user intent.
Startups, in particular, can benefit from ppc optimization to generate qualified traffic quickly—especially when paired with CRM or analytics systems that refine targeting over time.
Know the Ins and Outs of Digital Transformation for Improved Profitability
While digital transformation involves using technology to change the way a business operates, it is a holistic movement that involves all levels of company SOPs.
By considering the points listed above, you can gain a greater understanding of the financial impact of digital transformation and arrive at the best approach for your startup. For more of the latest trends in contemporary business, explore the resources at Fundz for the leading insights in the industry!
