Calculating The ROI Of CRM A Business Leader’s Guide
According to Gartner (Customer Relationship Management Software, Worldwide, 2012), the global CRM market is growing three times as fast as any other element of the enterprise software sector. With businesses spending $18 billion a year on CRM implementations, expectations of a good return on investment (ROI) must be very high.
And the signs are that if you get it right, you can quickly realize a very attractive ROI. In a recent survey of CRM decision makers, Nucleus Research discovered that successful projects are generating a return of up to $5.60 for every $1 spent. This return is measured in various ways, particularly the improved productivity of users in key departments (up to 15% for salespeople, for example).
Why ROI fails
Unfortunately, however, some CRM projects still deliver disappointing returns or fail altogether. Business leaders coming new to the market can see the wisdom of buying a system, but without first aligning their purchase with specific business requirements – essential for accurately forecasting a return on their investment – the missing link can become a fatal flaw in the project.
Calculating your ROI
How easy is it to calculate your likely ROI? Certainly, there are a number of online tools that purport to make it straightforward. But in many ways, if you go straight to one of these, you are taking a risky short cut. The initial groundwork is crucial if you want to avoid some of the pitfalls that can lead to a project’s failure to deliver the anticipated ROI.
According to CRM Buyer, there are five common mistakes that regularly contribute to these failures:
- Businesses simply replace one set of information silos with a new set of CRM silos.
There is no reconciliation between the respective, often conflicting, goals of sales and marketing – two of the most important departments in any CRM project.
Managers demand reports for their own sake but never get around to studying them and translating their findings into meaningful consequences for the business – surely one of the primary reasons for investing in CRM in the first place.
Managers ignore what the CRM project reveals to them about their customers, and carry on trying to control the conversation – flying in the face of social media best practice.
Having implemented CRM, businesses continue on their merry way on the assumption that simply having a system in place will get them closer to their customer.
All of these can be avoided by careful planning, which should start before you even think about calculating your ROI. In many cases, what’s required is a return to basics. If this is your first venture into CRM, it makes sense to actually ask what you mean and understand by the term itself – and how it relates directly to your business’s requirements and ambitions.
Once you have the basic justification for your investment in place, you will be in a much stronger position to calculate your ROI – and ultimately reduce the risk of failure to deliver.
Forrester analyst William Bland has written a report, Quantify the Value of CRM, which includes some advice on using Forrester’s own Total Economic Impact (TEI) methodology. But before you apply this or a similar tool to your own CRM project, he has some strong recommendations for addressing specific issues when it comes to calculating ROI – all of which will ultimately help you cut costs and boost sales.
What objectives have you defined in relation to the expectation that your CRM investment will help you to achieve higher revenues? The more specific you can be, in terms of capturing customer spending on different products, working out the potential to increase higher-margin product sales, cutting out obstacles that threaten the continuity of customer relationships or assessing the impact of applying discounts to different customer groups, the more accurate your forecast is likely to be.
Set your target. Imagine that your CRM project will generate five additional sales per month – or 60 per year. If your average sale is worth £1,000, CRM could bring in an extra £60,000. How?
- Improved sales management makes salespeople more effective and productive at the customer face, because they have access to better information and can react instantly to client requirements.
New lead conversion rates improve as salespeople know more about their customers and make increasingly targeted sales.
Existing customers become more valuable as salespeople are able to target them with more informed and relevant offers.
Where will you be able to reduce your exposure to expenditure, and how much will you be able to save? Unprofitable customers, unproductive employee time and marketing campaigns, online self-service possibilities and marketing campaigns that wastefully target non-responsive customers would be typical targets here.
Time saving benefits
Your sales team is best employed in the field, selling and talking to customers – gathering more information and generating revenue. So why are they spending their time on manually capturing leads from your website? The chances are they are fitting it in random moments. But if six people are spending 10 minutes each just on this task, that’s a whole hour of potential selling time that could be saved using the automatic lead capture functionality of CRM.
Can you pinpoint specific efficiency goals? Reduced maintenance and licence management costs, more effective support for users and simpler development paths should all feature in your ROI calculations.
The real cost of your investment
Choosing the right supplier can be a minefield, with forced upgrades, the unexpected expense of additional features, varying licence costs, mysterious discount plans and the need to modernize the business’s IT infrastructure proving common stumbling blocks for the unwary. Be sure of your outlay before you make your calculations.
The price of disruption
What will the real cost be in terms of training, project team commitments, possible delays in implementation and impacts on productivity while CRM beds down in the business? You’ll need to make some firm estimates and factor contingency plans into your calculations.
Implementing CRM is just the start. What are the long-term cost implications for maintenance and management? Even Cloud CRM requires an internal commitment to ensuring that the data is up-to-date, and that the system is meeting the business’s needs.
The ripple effect
Integrating CRM with existing infrastructure and business systems will always have unexpected consequences. Have you accounted for the impact on the efficiency and productivity of departments beyond the immediate focus of the implementation?
Want to find out more about the financial value CRM can bring to your business? Then read this eGuide: Getting financial value from CRM.
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