How To Calculate The ROI Of CRM
My clients ask for help quantifying the financial impacts of implementing a CRM technology solution. CRM initiatives must not only be technically sound but must answer the question “What will we get for our money?”
In my new report, Quantify The Business Value of CRM, I provide an overview of Forrester’s Total Economic Impact (TEI) methodology and how to use it calculate whether the benefits to be derived from investing in a CRM solution will be greater than the costs.
The first step is to estimate how investing in a CRM solution will help grow revenues, cut operating costs, and boost IT efficiencies:
- Power up the revenue engine. You need to define the objectives associated with increasing revenue. Can you capture more of our current customers’ spending on your product category (capturing larger wallet share)? Can you improve your product mix value by encouraging more sales of higher-margin products? Can you improve price realization by better matching discounting policies to the appropriate customer groups? Will your CRM initiative help you increase the average length of our customer relationships by reducing irritants that cause attrition? Will you be able to attract profitable new customers?
- Cut the cost of generating and servicing revenues. You need to estimate how expenditures to capture and service revenue will decrease. Will you reduce exposure to unprofitable customers through more accurate analysis of customer profitability? Can you reduce your direct selling costs, for example, by reducing unproductive administrative time spent by salespeople? Is there an opportunity to cut back on marketing expenditures, for example, by decreasing expenditures on campaigns to nonresponsive customers? Can service costs be slashed by encouraging more self-service via the Web?
- Improve IT efficiencies. There are several areas in which to look for efficiencies when replacing an old IT tool with a modern one. Ask these questions: Can you achieve efficiencies on your vendor contracts to lower software license costs? Can you reduce ongoing CRM application customization, support, and maintenance costs? Will this system be easier to use for end users, and will it promote adoption? Will training times for end users come down?
On the cost side of the equation, estimate the costs of software, deployment, maintenance, and support:
- Dig into hardware, software, and subscription costs. These costs are often the most visible to decision-makers but are only the tip of the iceberg. What is the initial purchase price for server and software licenses? What hardware is required? Will there be ongoing subscription fees charged for using the application? What extra data and file storage fees will surface as usage grows? Are there specific license fees for individual user types (i.e., mobile)? What are the costs for upgrades? What discounts are available from the vendor, under what conditions? What happens to our costs if we add or reduce the number or users?
- Dissect deployment costs. The biggest costs associated with CRM, or any software-centric business improvement initiative, are often the expenditures associated with selecting, configuring, and deploying the new technology. What are the costs for internal and external staff to deploy the software? How many integration points require consideration? Can integration work be staggered or delayed? What are the costs to maintain and support users during the initial evaluation period? How do we account for the out-of-pocket costs of training users to use the system? How do we account for the lost employee productivity associated with the training time required? How long will it before users are fully proficient and fully productive using the new system?
- Factor in ongoing maintenance costs. Given the often-steep upfront costs associated with deploying on-premises perpetual licensed software, the ongoing maintenance costs for the software can be overlooked. What is the annual vendor maintenance fee associated with the license? Is there adequate support built into the vendor subscription fees, or are there extra charges for premium support? What ongoing application maintenance and user help desk support is required? How will maintenance costs grow over time? What is the cost of internal staff to maintain the solution on an ongoing basis? Is third-party maintenance a viable alternative?
- Don’t get blindsided by administrative and infrastructure costs. Implementing technologies and solutions into an existing IT infrastructure can spawn hidden costs you should account for. What is the impact of deploying new CRM capabilities on the costs of your firm’s enterprisewide IT infrastructure? Do hidden effects lie outside the primary user group sponsoring the project? What is the impact of the new project on the budget and resources of these other groups?
Check out the CRM Playbook for more information.