Buying CRM - Determining ROI
With CRM, you’ll never have a vendor tell you that the return on investment (ROI) for your CRM investment is going to be 7.5 months. The ROI on CRM implementations can be difficult to quantify ahead of time. Fortunately, there are multiple approaches to determining potential ROI for your company.
The sooner in the process that you begin to think about the value justification for a CRM investment, the sooner that you will get management buy in for a solution.
The Cost of Doing Nothing
The first thing that you should consider is the cost of maintaining the status quo. Are you losing potential sales opportunities due to untimely follow up? Are you losing customers due to not being able to properly service them? Is your staff productivity suffering because of high levels of frustration and lack of appropriate tools?
What is all of this costing your company and is this cost acceptable?
Empirical, Intuitive ROI
Often, a company that has successfully deployed CRM will state a gut feel ROI. If you look at CRM testimonials and case studies on various Web sites, you’ll see comments such as:
“[since we deployed CRM] fewer opportunities are lost, and our customers receive better service - our definition of CRM success."
“…we've been able to tailor our CRM solution to respond to the demands of our extremely dynamic industry."
“the market reacted favorably to the higher levels of customer satisfaction that were linked to our CRM deployment.”
Empirical, Calculated ROI
Some companies can provide actual ROI figures or solid ROI estimates from their having deployed a CRM solution. By looking at companies that have business issues similar to yours, you might be able to relate their actual ROI to your potential ROI.
Coming up with these figures usually involves an analytical approach, which includes benchmarking before the CRM deployment. The areas normally addressed with are:
- Increased revenue (shorter sales cycles, more sales to the customer base)
- Reduced costs (increased efficiency in sales, marketing, customer service and other departments)
- Cost avoidance (avoid hiring additional personnel to handle additional workload)
Statements that can be found in industry literature include:
“We’ve been able to save our sales agents about four hours per week… When you multiply that by our 90-plus member sales force, it comes out to about 360 hours per week we’re saving on average. And that is the equivalent to having 9 extra salespeople…”
“[Our financial services] firm realized a 62% increase in new account openings.”
“[Our CRM system] has accounted for at least an incremental million dollars in sales.”
Predicting ROI for Your Company
So how can you predict what your ROI will be from implementing CRM? Developing a complete, predictive ROI model is an elaborate exercise, but we will outline some of the fundamental concepts of predicting ROI based on ideas from ROI4Sales.com and the related book “ROI Selling”. If everyone in the company is eager for a CRM solution, but the CFO has stepped in and said, “show me the money”, this is an approach worth examining.
Incidentally, the book “ROI Selling” can help you to create an ROI model for selling to your customers.
In order to build an ROI model for CRM for your company, you will need to first build a value matrix. The value matrix is normally the first step in a process that ultimately results in a quantitative, ROI financial view or dashboard. However, the value matrix alone may provide sufficient impetus for you to move forward with a CRM solution as it will help you to answer the question “Why buy?”
The following are the components of the value matrix. Each of these components represents a separate row in the matrix.
Why buy statement A why buy statement articulates a reason that you would purchase a CRM system. “We need more accurate forecasting” is an example.
Business Issue Business issues are the specific needs or problems you seek to solve through implementing a CRM system.
Stakeholder(s) Who is the stakeholder or who are the stakeholders tied to the specific business issue?
Desired Outcome What specific result does the stakeholder expect?
CRM Feature What is the specific feature that will produce the desired outcome?
Value Metric Which of the following three categories will the ROI address: cost reduction, cost avoidance or revenue increase?
Value Statement The value statement synthesizes all of the above information into a single, summary statement.
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Why Buy?
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Stakeholder
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Business Issue
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Desired Outcome
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CRM Feature
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Value Metric
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Value Statement
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Our software maintenance contracts, which have to be renewed annually, are often not being renewed on time or at all
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Installed Base Sales Manager (or the equivalent role)
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Inside salespeople do not have accurate information about upcoming maintenance contract expirations
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A way for salespeople to view upcoming maintenance contract expirations for our customers
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The ability to track maintenance contracts and ensure that the correct person knows when maintenance contracts are about to expire.
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Additional sales to our customer base
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We could generate additional maintenance renewals with a proper tracking and alerting system
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Our manual sales forecasting process is time consuming and inefficient
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Vice President of Sales
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It takes too much administrative time to roll up forecasts and by the time they’re all rolled up, the information has changed
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A centralized, real time view of the sales pipeline
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Opportunity management and forecast reporting
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Cost reduction
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We could reduce the administrative time to produce sales forecasts and also have more accurate, up to date forecasts which will save sales management from chasing down reps for information
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Copyright © 1998 – 2008 ROI Selling
What are the quantifiable value metrics for the above examples?
First Value Metric If we were able to renew additional maintenance contracts on $200,000 worth of software and the annual cost of maintenance is 20%, then we will generate $40,000 in additional revenue.
Second Value Metric By centralizing our sales forecast, we can save 12 hours per week of administrative time and sales department time which equates to $35,000 in expenses.
Consider what the results might be from a value matrix that contains ten to twenty rows.
Exercise: Create Your Own Value Matrix
Get together with a team internally and build your own value matrix of ten or more line items. Based on your value matrix, quantify the benefits to deploying a CRM solution.
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