In my July column, I focused on the issue of how to get your arms around cost-justifying a CRM system. This seemed to be a hot topic, as I received a lot of e-mail from readers with follow-up inquiries. While their questions covered a number of topics, the one most frequently asked was "How much should I plan on spending for a CRM system?"
This is a critical issue to get right. Over the years, I have seen a surprisingly high number of CRM projects fail because they are under-funded in one way or another, so this month let me try to shed some light on what you should budget for your CRM investments and why.
Having reviewed more than 1,800 CRM initiatives over the past eight years, I have seen a wide disparity in how much companies spend. A manufacturing firm in Chicago, whose project costs averaged $2,874 per sales rep, achieved very solid results, while a telecommunications company's project was a huge failure, even though it spent nearly $20,000 per salesperson for its system.
So what is the right number? To understand the issue better, let's break your investment into the five major components you need to consider: software, hardware, customization, training and support. Software is clearly the most complicated piece of the puzzle. Here you have a wide variety of choices ranging from less than $100 to many thousands per user. If you have a small- or medium-size sales force primarily made up of individual contributors who only need to communicate or interact with a few others across the company to close deals, then a contact/opportunity manager from firms like FrontRange or Interact may meet the majority of their needs. Another alternative, if you want to minimize the impact on your company's IT resources, is giving these users access to a Web-based CRM application service provider such as mynetsales.com or UpShot. These services are offered in the $30 to $50 a month range.
On the other hand, if you have a complex sales process that requires input and help from multiple people in multiple departments located all around the company or around the world, an enterprise-wide system like Clarify, Oracle, Pivotal or Siebel might be required. When you add up the costs for various modules to handle opportunity management, product configuration, customer support, field service and the like, your price tag can run up over $5,000 per user.
Let me offer two pieces of advice regarding budgeting for software. First, don't buy a Winnebago when all you need is a Volkswagen for basic transportation, and conversely, don't ask your reps to ride in a go-cart when they need an Indy500 racecar to meet customer needs. Invest some time up front to understand the level of support they need to sell more effectively, and then find the right class of software to meet those needs.
Second, be aware that you are in a great position to negotiate. There are a lot of players in this marketplace vying for market share, some of whom want the business so badly they are offering their software for free. Because of this, you can cut a good deal. Don't get caught up by the size of the discount, though. Remember, your ultimate goal is to have a successful project, not a cheap one. I would rather a vendor give me extra consulting or training days, than just cut the software price, as the extra support will contribute more to ensuring the system meets my business needs.
To me, hardware is a much simpler budget issue. In 1987, Bill Machrone, then editor of PC Magazine, observed that irrespective of Moore's law regarding continual doubling of the power of the microprocessor, the PC you want will always be $5,000. Based on years of observation, especially when you add in each user's share of the central server that they will access, that prediction still holds true.
For users to take full advantage of the CRM systems available today, they need the fastest, most robust PCs you can buy when you start your project. This means lots of memory, a fast processor and the best baud rate for remote access you can get. This is not an area to scrimp on. Past experience has shown that if the box is too slow or unreliable, people will not use the system.
While a lot of the functionality that CRM systems provide can be used out of the box, many companies find that in order to maximize the usefulness of the applications, they need to do some level of customization. You may want to modify the system to support a specific sales methodology, produce a number of reports unique to your business, have the CRM program interface with other applications your company uses and so on.
Three or four years ago, we found many companies paying $3 to $4 in customization costs for every $1 they spent on software. Today, the products are much more robust and the architectures are more open than before, so the need for and cost of doing customization has come significantly down. Still, our general rule of thumb is mentally plan on at least a one-to-one ratio between your software and customization costs.
The easiest way to really scope the extent of changes you will need to make is to sit down with your vendor or system integrator early in the buying process and spell out exactly what capabilities you expect the system to perform to meet the needs of your users. Then ask them to bid that cost along with the software. Don't wait until after you have purchased to do this.
Continually, the two most under-budgeted parts of a CRM project are training and support. This can be a fatal error. If users are not given the right level of education on the applications or if they cannot call someone for help, they will become frustrated and will go back to doing their jobs the way they did before they got the system.
Our latest survey showed that successful projects spend $1,000 per user on initial training and $1,500 on ongoing support. There are a number of outside resources you can look to for help in this area. Systems integrators often offer these services as well as some specialty firms like C3i who do nothing but CRM project rollouts and help desk support. Again, get these firms involved early in the buying process, and educate them on exactly how and where the systems will be used, and you can get a more accurate bid.
The last budget issue to consider is that your expenses do not stop at the end of the first year. After your initial deployment, you will probably want to enhance your system by adding other components. For example, many of the firms we surveyed a few years ago that implemented opportunity management systems are now looking at adding sales coaching systems from firms like Conjoin, ShortCycles or Ventaso; interactive selling systems from companies such as MobilePoint or Thinque Systems, configurators from Trilogy or FirePond and more.
You will also want to replace your hardware every couple of years, train existing users on new releases of the software or new users as they join your company, continue to take hotline calls and the like. So build those costs into your initial budget.
In summary, take the time up front to figure out what the total cost is to do your project right. During our last user survey, we found that on average companies were spending $9,864 per user for the first year of operation, and just over $5,000 for each year following. The projects with the best ROIs were investing more than $17,000 for the first year and $6,500 plus from then on.
If these numbers scare you, then dig out your July 2000 issue of CRM magazine and read my column on how to calculate an ROI. These projects can easily justify hard dollar benefits to cover these costs. Remember, the only thing you can't afford is a failure.