The Importance of calculating ROI
The potential business benefits of a CRM implementation are widely recognised. CRM can help drive revenues from both existing and new customers; it can reduce costs right across a business; it can enhance the customer experience, in turn cutting attrition and increasing advocacy. Finally, it can deliver the insight that enables better decision-making throughout an organisation. In a recent survey of CRM decision makers, Nucleus Research discovered that successful projects generate a return of up to $5.60 for every $1 spent. It is the potential to achieve similar returns that is leading businesses to invest money and time on CRM implementations. Yet some CRM projects still deliver disappointing returns or fail altogether. One of the crucial elements of a successful CRM implementation is to gain, at an early stage, a clear understanding of the expected ROI and then, when the system is in place, the actual ROI. Get this right at the outset and your purchase will be aligned to specific business requirements. You will be able to share realistic expectations throughout your organisation. You will also be able to scale your initial budget up or down and understand the likely impact. Then once you have the calculation in place, you can check it periodically, either ensuring your CRM is delivering to expectations, or making necessary changes. We’ve identified 7 key steps to calculating the ROI of CRM…
Step 1: where are you now?
The first step is to set out figures in three areas:
- Your anticipated new business sales this year
- Your expected value of renewals this year
- The percentage of your renewals that historically have actually renewed each year
Step 2: How well do yours sales and marketing functions preform now?
Next, score your sales and marketing function on a scale from one to ten across key areas such as new business generation, upselling and cross-selling, sales execution, and sales management (including renewal). For example, when you drill down into your new business generation activities, how well do you segment and profile your existing database to identify potential prospects? Or, looking at upselling and cross-selling, how easily can you target existing customers based on previous purchase history?
Step 3: How well could you preform in those areas with a new CRM platform ?
In this step you go back across those key areas, estimating how well your sales and marketing could function, again on a scale of one to ten, if it had in place a fully functioning CRM platform. So, it may be that when you looked at sales management you scored yourselves a five for your current ability to measure the performance of individual salespeople, but with a CRM system in place delivering the necessary information that would leap to a nine.
Step 4: What impact would this have on your financial performance?
The figures detailed in steps two and three, provide a percentage by which your organisation could improve its sales and marketing effectiveness and its renewals performance. From this you should be able to assess the impact this would have on both your top line growth and your renewals rate. By applying this to the figures on existing sales and renewals this allows you to see your expected revenue growth figure.
Step 5: What savings could you make by streamlining business processes?
You begin this calculation by entering the salaries, loaded costs and hours worked of employees across your key functions, for example, sales, marketing, administration, finance, and customer service. This gives you an hourly cost in each of those functions. You then work through each of the activities in those functions, such as creating customer service tickets or entering orders into Sage. You look at how much time is spent on those tasks currently and by how many people. You estimate how much time could be saved, say by automating service tickets and Sage entries. This produces figures for hourly savings in each department which can be tracked through to cost savings using the hourly costs calculated above.
Step 6: What is the cost of your implementation?
The cost of a CRM implementation involves more than the annual licence fee. With the right vendor you should expect to include the initial implementation cost and to set aside a budget for further improvements you will want to make. Beware vendors that will force upgrades, surprise you with unexpected additional features, vary licence costs, confuse you with complex discount plans, and require you to adapt your existing IT infrastructure. All are unnecessary and can add significantly to your costs. Other costs you may want to factor in are time for training, project team commitments, possible delays in implementation and impacts on productivity while CRM beds down in the business.
Step 7: What is your ROI?
You now have figures for benefits and costs. These should be multiplied by five, as when you incorporate implementation costs and you allow time for the full benefits to be realised, it is only sensible to assess a CRM implementation over a five-year period. Dividing costs into benefits produces your ROI multiple.