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Focus Research Insight: How do you measure ROI when you're researching new CRM systems?
In a recent survey, 27% of buyers aimed to improve their organizations efficiency through better forecasting. In our ongoing studies, buyers are always emphasizing the ROI and the real cost benefits of a CRM system as they evaluate different solutions. Whether your goal is to automate processes, increase response rates, improve accuracy, attain greater forecasting, or something else, how do you measure ROI before purchasing (i.e. tangible returns? intangible benefits?) How long is too long to expect a return?
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6 Answers
ROI? What is ROI and what does it stand for?
In my thesis on "How to make CRM FAIL" I wrote...
What is ROI?
Random Operational Information?
Rubbish Office Information?
Ruthlessly Officious Inculcation?
Retro-engineered Organisational Invention?
Reversed Organic Intuition?
Rasputin’s Offspring’s Intrigues?
Reckless Opinion Incarnation?
Requires Open Imagination?
Whatever it is it’s important as the CFO won’t sanction anything it until he’s bought a black hat and sat and looked at some very busy but nicely presented spreadsheets. The more ingenious the elements of the spreadsheet and the bigger the number they are the more credible they are.
Numbers are based on costs and returns and are necessarily and obviously very approximate. No matter, let’s get them in there. Remember investments can go up or down but preferably not in a straight line and best to be annualised. When these two meet that’s when ROI occurs. Software be praised; and from that he can work out how much of the net worth of the company can be invested. Costs are of course more important than the ability to raise revenues, they are also more comfortable as estimations so we need to err on the conservative side in ROI. Let’s make sure that we don’t focus just on the opportunity to drive up revenues.
Likewise so called Soft Benefits, things like “It’s just the right thing to do”, “we need it” or “our customers will like it”, or “it’ll enable marketing” or “the Salesmen will like it” can’t be easily turned into numbers, unlike the guesses we have made for IT infrastructure, configuration and customisation costs, so we’d best just ignore those softer things.
Apparently a number of other colours of hat were available but black suits the seriousness of the mood and anyhow it matches the CFO’s Mercedes. The CEO’s secretary suggested that he should try the other hats, in particular the yellow one before going for the black hat but that’s not his style.
Also the concept of confidence intervals was frowned upon as it looked very much like real maths.
Time for some creative number creation, and box filling, it’s all very simple a bit like colouring in but with sexy numbers and not with crayons. After we have a ROI we can then quickly produce a Business Case which is a narrative to the ROI.
At the end of the programme there will also be an opportunity through the complexity of the ROI calculations to make them look accurate.
ROI is a very personal metric, full of actual data that can support improvement and sunshine factors that talk about efficiency.
In reality, ROI in a CRM system usually ends up a victim of fuzzy feelings and fuzzier math. You can state a case that a properly strategized and implemented CRM system enables management of a larger pipeline with no additional effort. However, when sales increase you will likely hear from many reps that their performance was the reason for increased sales, and that the CRM system was only incidental to the improved sales performance.
Intangibles - like saving time (I hate that phrase) - becomes even more difficult to quantify. While it may be true that automated touches reduce the need for staff to do some administrative work, it can also be seen as a detriment because many times you lose the social aspect of managing relationships - both with your customers and your co-workers. Sure, we can design CRM that will enable sales people to be heads down working deals all day, but if we systematize sales too much, you lose the creativity of the individual.
There are other intangible factors that affect perceived ROI - user adoption and change management, to name 2 of them. In my experience, perceived ROI is as important as actual ROI, because it's a much more accurate gauge of the attitude of the group toward the system and culture they work in.
Sorry that I'm not able to provide a more concrete answer to your questions. ROI - like CRM - is a very personal thing that is quite fluid and dependent on the situation at hand. Which makes it virtually impossible to provide a blanket answer to your questions.
A CRM system is an investment in technology, period and end of story. It is used to manage marketing programs and therefore does not contribute to the bottom line, it should be looked at as a capital expense and NOT a source of revenue.
CRM Is Not a Software Purchase. It’s a Strategy.
Before a company even considers assembling lists of requirements or evaluating available solutions, it should take the time and effort to clearly articulate its CRM strategy and goals.
A Customer-centric CRM strategy aims to obtain a 360-degree customer view and to automate and manage sales-related processes. Common goals include reducing cost of service, improving collaboration and efficiencies, accelerating the sales cycle, managing leads more effectively, and deriving greater insight into sources of value and opportunities for cross-selling and up-selling within the customer base.
To determine the impact of CRM on your organization, goals and baselines for key business measures need to be established - metrics must be quantified and benchmarked as a starting point. Established metrics will enable you to determine whether your CRM strategy is working, and how effectively. These measurement systems should be used to recalculate costs and benefits during pilots, rollouts, and throughout ongoing life-cycle support for any CRM implementation.
A recent trend in many organizations is the creation of a customer relationship management officer (CRMO). The job of the CRMO is to keep the CRM project on track and to ensure that all the project components combine seamlessly into a total CRM application. The CRMO"s responsibility is to maintain and manage the entire CRM strategy.
Talk to other companies who have gone down the intended path before you. Ask vendors for contactable reference sites.
Warning: Some claim the biggest purveyors of CRM untruths are the CRM vendors. These vendors offer an overly optimistic picture of CRM - the vendors "are hearing what they want to hear—and no body of data, no matter how substantial, will deter some from saying what they’re motivated to say in order to sell their wares."
Well to keep things simple, if we are talking about SFA then we would measure the conversions before and after the implementation meanwhile if we are talking about Service Management, we are talking about up selling, cross selling and customer satisfaction (all of these can be measured before and after the implementation).
I generally find that most companies *can't* accurately measure ROI of a CRM, because they don't have a BI system in place which allows them to get the baseline measurements in the first place.
Assuming you do, I think you have to make your business case on both hard "tangible" and soft "less tangible" benefits. Of course, CRM itself is just a set of tools - without creating/changing/updating your processes accordingly, you're not going to get any of the intangible ROI - so you need to factor in the process management costs & returns.
I disagree that it's impossible though, and with the comment above that it can't help generate revenue. I think Mark is spot on, and the point is that if you don't have goals for a CRM in the first place, don't implement one - you're just throwing your cash out the window.
Set some goals, modify and/or create processes to support them, find ways to measure them, create a CRM competency centre, and test your efforts. ROI is achievable.
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