• August 1, 2005
  • By Jim Dickie, research fellow, Sales Mastery

Demystifying the ROI of CRM

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Undoubtedly, the most common question I hear from companies is "How do I cost justify my CRM investment?" While project costs have come down over the past 12 to 18 months, this remains a key issue. What surprises me now, however, is that this matter frequently arises for the first time in earnest near the end of the evaluation--sometimes right before the project plan is presented to management for approval. By this time the project team has the expense side of the equation nailed down: software license fees, maintenance, consulting support, hardware, administrative support, training, help desk, etc. The team can recite the dollars-out half of equation in its sleep, but what about the dollars back? Often what the team wants to hear from me is how other companies have dealt with ROI. CSO Insights has surveyed several thousand CRM projects over the years, and has compiled a wealth of case studies. For example, a manufacturing company reduced its order error rate from 23 percent to less than 0.5 percent; a distribution firm cut the time it took to get new salespeople fully productive from nine months to four; and a financial services group increased the number of leads generated per day, per telemarketing rep, from 1.5 to seven. These are all impressive numbers, but I caution the executive sponsors of a CRM initiative that the numbers only have meaning to the company that achieved them. In no way should sponsors infer that they will duplicate that level of performance improvement simply by buying a similar technology framework. CRM ROI is a personal experience--no two companies market to, sell to, or service customers exactly the same. So how do you go about finding ROI truth? Here's a simple framework: Start by calculating what it is costing your company to not implement CRM. CRM technology is a tool set designed to fix problems. You have to know what your problems are. The ROI calculation is the self-evident result of the process improvement that will take place through the implementation of CRM. We benchmarked the problem for a computer firm: 18 percent of the people calling its 800 number hung up before talking to a contact center rep. For a pet food manufacturer the issue was a 42 percent error rate in its sales forecasts, and for a distribution firm the issue was that voluntary rep turnover had soared to 48 percent. Having identified their pain point, each of these firms calculated the business costs of letting their respective problems continue to exist: lost revenue from customers hanging up and buying a competitive offering, excessive inventory from buying the wrong raw materials to match inaccurate product forecasts, lost territory revenue from continually ramping up new reps. Knowing the problem and the cost, the CRM evaluation goal was to determine if and how technology could help minimize or eliminate that problem. A company will gain X additional customers by minimizing prospects abandoning calls, will achieve Y dollars in savings by better managing inventory, and see Z dollars for having experienced reps stay in the territories longer. The case of business improvement should drive CRM projects from day one. If you cannot quickly list the top-three improvements you expect to achieve by implementing CRM, you are making the error of looking to buy a solution before you find the problem. Reverse the order--first identify the problem, then find the solution--and CRM ROI will then become a much simpler matter. Jim Dickie is a partner with CSO Insights, a research firm that specializes in benchmarking CRM and sales effectiveness initiatives. He can be reached at www.csoinsights.com
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