How to measure Return On Investment ROI on a CRM system

Updated: November 16, 2009

Return on Investment for any CRM system can be a difficult item to define.

This short article looks to break down how you should go about defining a Business Case for any CRM solution and the steps to build such as case.

A lot of organisations start out by "wanting" a CRM system, this "want" is translated into a "need" and is often driven by a perceived requirement or a response to organisational pain.

Common areas for such organisational pain are:

  • Customer service may be poor - customer problems going unsolved and issues escalating right the way up to CEO level
  • Sales process may be disconnected from the business - selling products that are not in stock, discounting or not cross selling or up selling services.
  • Marketing may be "loose" - meaning that no strong metrics are in place on return for marketing spend. Leads being accused of being the wrong type of leads without any track back to actual marketing spend and compare.

While real these issues cannot easily be measured in either revenue or cost terms. They therefore cannot easily contribute to a solid return on investment case for the investment in a CRM solution.

Clearly different metrics for CRM ROI are therefore needed. We can broadly break these down into two very simple categories:

  1. A decrease in cost to the business
  2. An increase in revenue or margin to the business

So what items must we look at too determine a realistic return from CRM?

Well on the cost side of the equation we have clearly measurable costs of people, technology and infrastructure. While from a revenue perspective we are looking for opportunities for additional sales of products and or services.

These break down through the study of Business processes into the following areas:

Productivity: measured in terms of Salary savings and perceived time savings in %. Although difficult we have to come to a view on how efficient the current employees are in performing customer related tasks. Then a view on what improvements could be made through the adoption of CRM.

Business Process: Time spent managing and monitoring current business processes, what materials and information are used and all the expenditure in managing customer interaction. This comes in many forms paperwork, email, print, phone time or customer touches and time expended on and off site. Quoting and estimating time etc.

Technology: How is the business currently managing customers and what technologies and platforms are deployed that CRM might replace? What savings could be made if these solutions were switched off. Software, support, hardware and people savings. This item is usually not so popular with large IT departments!

Revenue: CRM should provide for more accurate business forcasting but what impact should this have on revenue. What additional products or services could the company sell to it's existing client base? What would the impact of cross and up selling have on revenues. How many more customer visits could be made or additional services provided.

Implementation Costs and Internal investment

The final big piece of the jigsaw must be the accurate costing of implementing CRM in the organisation. This excercise should look at all associated direct and indirect costs broadly categorized as follows:

  • Software Licensing - Up front or pay as you go through Software as a Service
  • Required Hardware - Onsite or Hosted are the options here
  • Consulting and Implementation Costs - Configuration v Customisation
  • Ongoing Support and Maintenance - Software and solution
  • Development and Integration Costs - linking CRM to accounting solutions or the Internet for Web based self service
  • Data migration and cleansing - often a large black hole with a disproportionate actual rather than predicted time and hence cost - be realistic or dump your data and start again if feasible
  • Internal staff and project time - how much internal time will need to be devoted to getting it right, what executive involvement is required to sponsor. Ongoing adminstration and internal support.
  • Training and User Adoption - Training of users, Super users or administrators and the ongoing program to ensure full adoption and the solutions success.

Without a comprehensive look at all of the above a compelling ROI case cannot be built.

CRM Return on Investment Modelling tools do exist that attempt to break the above into complex spreadsheets and science and can be useful. Alternatively the use of an external CRM Consultancy should be sort to provide an impartial and external view to any organisation.

So do you "need" a CRM system? or just "want" one?

I hope that this article is helpful starter for all of you about to embark on the CRM journey, one that will never end!

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