SCRM's Dirty Little Word is Really Not so Dirty

Updated: May 18, 2010

Why ROI is a dirty word

Too many folks view ROI as something evil (or evilish) because it provides a financial insight into a corporate initiative. A common belief is that the money test creates a undue hurdle that has to be jumped before folks can get on to meaningful work of social business or other initiatives. Well, sorry, but if you can't show sufficient value for an initiative then your company should invest in ones that will generate more potential revenues or profitability.

Why ROI really is not a dirty word

There's a misunderstood piece to the valuation puzzle that folks need to understand to get beyond limiting views about ROI. First, you need to understand ROI is just one of three factors in the valuation question and not necessarily the most important. You start a valuation by performing a cash flow analysis of prospective gains and costs. Getting to a realistic forecast requires the inputs of a realistic set of defendable assumptions. These assumptions come right out of the strategic vision and definition. Using Lawrence's example in his article, it would include insight into ROC across your customer base.

Once you have the cash flows, then you consider the time-value of the money to determine the net present value (NPV). The NPV allows you to recognize it might take time for an initiative to gain traction and return a positive payout - and that time is incorporated into the valuation determination through the application of appropriate risk (a.k.a., the discount rate). The more uncertainty in your assumptions, then the higher the risk.

What this means is that the overall valuation is run hand-in-hand with the strategic vision and definition, as well as tactics. To Wim Rampen's comment (in Lawrence's article)

"[A]ny business cases should not only be measured against financial ROI, but against strategic-outcomes too."

If you perform your valuation properly, then the (financial) ROI is directly tied to the strategic outcomes. The strategic definition is the verbal expression of what you want to accomplish while the valuation is the numerical view of the strategy.

Featured Research
  • 8 Reasons SMBs Should Invest in a CRM

    Adopting a CRM platform early offers many advantages, including the fact that it increases the odds of long-term success. While the cost of CRM software used to be prohibitive for most small businesses, this is no longer true. Cloud-based solutions have made the pricing much more competitive, and as many as 87% of companies now rely on them for their CRM software. more

  • 7 Ways Your CRM Helps Convert Leads

    Failure to convert interested leads can impact your bottom line drastically and simultaneously increase your operational costs and decrease your profits. The most common reason for this failure is lack of follow through from a sales team. Did you know that 74% of CRM users said that their CRM gave them improved access to customer data? And that by properly implementing a CRM, a business could shorten the sales cycle by 8 to 14%? more

  • Is Your CRM a Liability

    Is your CRM a liability? Before you answer too quickly with a no, just think about all the advancements that have taken place over the years regarding this technical solution. In fact, just in over the past decade there has been a dramatic shift away from on-premise systems to cloud based solutions. more

  • 12 Must-Have CRM Features

    Having a CRM is absolutely essential to any modern day business's success. In fact, 91% of companies with 11+ employees now utilize a CRM solution in their business. When making the decision to purchase or upgrade your CRM solution, it can be quite overwhelming determining which features are essential to your success versus those that pack more fluff than punch. more

  • Making the Case for a New CRM

    Did you know that having an outdated CRM is just as bad as not having one at all? Do you find yourself working even just a little too hard to make your current CRM work to maintain your contacts and relationships? While it is increasingly more difficult to reduce customer churn, modern CRM tools are much more powerful and provide much more opportunity to develop stronger relationships with your clients that can provide more stability and revenue to your company and bottom line. more