ROI Calculation For Travel Industry Digital Transformation

Digital technology is transforming the way in which companies conduct their day-to-day business. Businesses must embrace digital transformation to stay competitive in today’s digital age. As Skift points out, the global tour operator software market, estimated to be worth $500 million in 2020, is projected to be valued at $1.2 billion by 2026. This just goes to show that no industry is exempt.

Digital transformation projects can benefit any business regardless of industry, starting with improved customer experience, operational efficiency, and innovation. At the same time, it is a time-consuming and complex process, oftentimes expensive. To that end, every company should have a good way of managing and measuring their digital return on investment and innovation. 

ROI, or Return on Investment, is a performance measure that evaluates the efficiency or profitability of a company’s investment. It is a crucial metric for assessing the success and potential of an investment and helps investors and businesses make informed decisions regarding their financial activities. Based on ROI calculation, companies can directly calculate the return on a particular investment compared to its potential cost. 

So, how can companies calculate ROI? And more importantly, what should businesses do to identify and achieve desired ROI goals? 

We’re bringing you the four essential steps below.

Step 1: Define the Goals and Metrics of Your Digital Transformation Project

The travel industry has a wide range of digital technologies that can be implemented, from online booking platforms and artificial intelligence-powered chatbots to end-to-end back-office software solutions. Ideally, businesses should focus on one digital transformation goal at a time. That way, a company can plan specific strategies and dedicate appropriate measures, effectively using the company’s existing resources. The company should pick the most impactful goal first.

Before starting any digital transformation project, it is crucial to clearly define the goals and objectives. These goals can vary from increasing revenue, reducing costs, improving customer experience, or streamlining processes. This step will help determine the project’s success.

Defined goals should be SMART: Specific, Measurable, Achievable, Relevant, and Time-bound. This approach eliminates guesswork, sets a clear timeline, and makes it easier to track progress and identify missed milestones. Depending on your goals, you can choose different metrics to track and analyze the process.

SMART goals

Step 2: Identify and Review the Cost of Investment

The next step is to identify all the costs associated with the digital transformation project. It’s important to be comprehensive in identifying all costs, including those that may be hidden or indirect. The costs include the expenses incurred on hardware and software and other ongoing costs such as maintenance and support. Additionally, consider the cost of consultation, training, and personnel that will be included in the project as well.

Make sure you review your existing cost structure by considering:

  • Which activities are truly cost-effective?
  • Does more need to be invested, or should costs in any activities be cut?
  • Should any other adjustments be made in order to align the current cost structure with the set digital transformation goals?

When determining ROI, in order to get a comprehensive understanding of the overall investment and potential returns, make sure you don’t overlook soft costs. Soft costs may be less tangible than hard or monetary ones but are equally important. They are often related to human factors and can impact productivity, morale, and efficiency. They include but are not limited to employee efficiency and productivity, change management, downtime, customer service and satisfaction.

Step 3: Estimate the Benefits of The Digital Transformation Project

At this point, you should determine your potential IT solution’s immediate and long-term benefits. Generally speaking, the benefits of a digital technology investment should affect customers, employees, operations, and infrastructure. 

It’s time to ask yourself if you’re:

  • minimizing redundancies to save money,
  • increasing employee productivity by introducing new solutions,
  • resolving security vulnerabilities that could negatively impact your business overall,
  • increasing technological efficiency by streamlining or automating processes, 
  • enhancing revenue streams by expanding the market for your business services and/or products.

ROI calculations can easily be manipulated. Therefore, project income and expenses should be realistic and measurable. Project benefits may be attributed to more than one improvement, so ensure no double counting. Also, make sure you divide the benefits into two groups: tangible and intangible.

ROI calculations for digital transformation

Tangible benefits are those that are easily measurable. They are what IT system projects’ ROI should be based on. 

Some examples of tangible IT benefits include:

  • enhanced business productivity and efficiencies,
  • reduced costs,
  • revenue increase.

Intangible benefits are also known as soft or non-financial benefits and should not be included in ROI calculations. As Axia points out, while they are often as important as tangible benefits, they are challenging to quantify financially. Instead, intangible benefits should be fully explained within the business case and, where possible, details of any measurement. 

Examples of intangible IT benefits include:

  • increased user and customer satisfaction,
  • better customer service and support,
  • improved and/or automated business processes,
  • faster and more accurate information,
  • improved analytical solutions, reporting, and better forecasting.

Step 4: Set Up A Timeline, Monitor, And Adjust The Project Accordingly

ROI is calculated by dividing the profit earned on an investment by the cost of that investment, but it shouldn’t be a one-time ROI calculation. Rather, it is a continuous process that requires monitoring and adjustment over time. Since digital transformation is a long and complex process, the results will not be visible overnight.

Moreover, the benefits and costs of digital transformation may change over time. Therefore, evaluating ROI regularly to ensure that the project remains aligned with the organization’s objectives is crucial.

The role of calculating ROI in the process of a digital transformation project is undeniable. Through this calculation, businesses can measure the success of the investment. By defining the objective, identifying costs, measuring benefits, calculating return on investment, and monitoring and adjusting the project, companies can determine if digital transformation is a worthwhile investment. By leveraging technology, you can enhance the travel experience for customers, ultimately leading to increased revenue and growth. 

We’ve created a savings calculator that can give you an estimate of the revenue increase you could expect once you embark on your digital transformation journey with Lemax.

Calculate potential ROI with Lemax!