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Measuring CRM ROI Is a Tough, but Necessary Task

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Confession: I go through life thinking "well, duh" a lot more than an adult probably should. This makes me wonder if I am too hard on people. (To my credit, I've at least learned to think this rather than saying it out loud.)

 

It was certainly my reaction in December, when I wrote about companies' desire to derive more value from their CRM investments, including the ability to justify the cost. It's a continuing theme with CRM and one that seems to challenge lots of folks.

 

So I was interested to in the thoughts on this topic from several prominent vendors (Salesforce.com, Microsoft and Sword Ciboodle) and Gartner analysts who attended Gartner's recent CRM Summit. As MyCustomer.com reports, when Gartner asked its analysts and the vendors how many organizations have measured ROI for their CRM expenditures over the past decade, they didn't get an answer higher than 30 percent. Now admittedly, doing so can be difficult. While there is obvious value in enhancing customer relationships, it's dificult to assign hard numbers to it. It can be hard to tie CRM directly to the cost of acquiring or losing customers. Still, not more than a third of companies measure ROI?

 

Salesforce.com executive Martin Woodson said many companies struggle so much with their CRM implementations that they can't even get to the point where ROI could be measured. (Not a surprising view, perhaps, since Salesforce and other SaaS vendors tout the ease of deploying their solutions.) A Microsoft Dynamics exec said that many companies don't begin with a baseline, which makes it difficult to determine costs and benefits. (Well, duh.)

 

I found a set of three IT Toolbox columns from 2005 that discuss the challenges of measuring CRM ROI, the typical costs associated with CRM deployments and some items that can be measured to determine ROI.

 

Among the challenges: The financial impact of CRM is likely to be felt throughout an organization, which makes it tough to measure. While determining ROI is a tactical exercise, CRM is often implemented for strategic rather than tactical reasons. Some of CRM's key benefits, including improved decision-making, are hard to quanitfy. CRM affects both revenues (improved sales) and costs (more efficient customer-facing processes).

 

Among the typical costs: software licenses, hardware such as servers, back-office integration, system configuration/customization, training, ongoing maintenance, telecommunications charges and hardware and software upgrades.

 

And the piece de resistance, items to consider when calculating ROI:

  • sales (overall increases, enhanced closure rates, growth in reveue per sale);
  • cross-selling (number of products sold across product lines per customer);
  • customer retention (reduction in customer losses and/or increase in re-order percentages);
  • decreased cost of sales (added productivity, reduced proposal generation time);
  • decreased cost of customer retention and service (fewer customer-service representatives required, lower telecommunications costs, fewer penalties associated with invoice inaccuracies)

 

I also like the suggestions offered for quantifying squishier benefits such as enhanced customer satisfaction, stronger brand equity and improved market intelligence. For instance, the author suggests administering periodic customer surveys to help gauge satisfaction.

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