a read on the return on investment (ROI) of customer relationship management
(CRM) from analysts is near impossible today. Several 2003 reports claimed the
ROI from CRM implementations was dismal, with 8 out of 10 projects failing to
deliver on ROI promises, and 50-70 percent typical project failure rates.(1)
Some of this year's reports are more optimistic, with about 52 percent of companies
responding that their CRM initiatives generated an ROI between 51 percent and
500 percent, and 30 percent of respondents saying the return was greater than
the big difference in the results? Some have blamed the analyst researchers
for the lack of clarity.(3) But the biggest issue is that
only about 20 percent of the companies surveyed are able to demonstrate ROI
on their CRM investments, since most companies indicate that non-financial metrics
(often called intangible benefits) outweigh financial metrics as gauges of technology
investment value.(4) In addition, those that use either
financial or non-financial metrics are not quantifying key performance indicators,
which would provide clear guidance and proof of success.
need to implement serious yardstick work when seeking to evaluate CRM-software
investments. Metrics are essential, with a formal business-case in place before
the project begins, and an evaluation that quantifies the expected costs, tangible
financial benefits, intangible strategic benefits and risks.
to a February 2004 survey by IDC, 58 percent of companies that have measured
ROI-based CRM initiatives had a payback on their CRM projects within a year.
Another 35 percent received payback in one to three years. In the survey, the
median initial investment in a CRM application was about $426,000 (USD); this
covers all costs incurred before the CRM implementation began. The median total
cost over the first five years is estimated at $1.2 million (USD).
business case for CRM should include
Tangible Net Benefits—a clear and precise cost-benefit analysis
which tallies all of the planned project costs, quantifies each of the tangible
benefits and calculates key financial performance metrics such as ROI, NPV,
IRR, and payback period. Costs should be less than 50 percent of the benefits
(because of inevitable cost overruns and typical benefit adoption schedules)
and the payback period shouldn't exceed twelve months.
2) Intangible Benefits—a total of the expected intangible
benefits including key performance indicators (KPI) that will be
used to measure success or shortfalls.
3) Risk Assessment—a listing of the people, process, and
technology risks in order to proactively mitigate their probability and manage
its impact on project success. Getting a read on the return on investment
(ROI) of customer relationship management (CRM) from analysts is near impossible
today. Several 2003 reports claimed the ROI from CRM implementations was dismal,
with 8 out of 10 projects failing to deliver on ROI promises, and 50-70 percent
typical project failure rates. Some of this year's reports are more optimistic,
with about 52 percent of companies responding that their CRM initiatives generated
an ROI between 51 percent and 500 percent, and 30 percent of respondents saying
the return was greater than 501 percent.
- Maximizing CRM ROI, CRM Today
IDC: The Financial
Impact of CRM, February 2004
The Blueprint for CRM Success, CRMGuru.com, December 2002
CRM Quiz: Where's the ROI?, CFO Research Services and Saugatuck Technology
Creating a Cost-Benefit Analysis
three categories—implementation costs, benefits, and risk—helps establish a
business case for pre-project planning, and post-project success measurement.
Implementation Costs Implementation costs are often split between IT costs and
business unit costs, where the business unit costs are typically equal to the
software licensing and maintenance or support contracts
database, operating system and other software licensing and maintenance or
Hardware purchases and maintenance or support contracts including servers,
storage and network upgrades (as required)
Software integration and customization, including design, development, test
and ongoing maintenance
Ongoing administration and support labor
and requirements meetings
User training and learning time
Process change management
Tangible and Intangible Benefits
typically include increases in staff productivity, cost avoidance, increased
revenue and margin, and reduced inventory through the elimination of errors.
are a handful of areas of improvement that should be considered:
cost of sales
self-service sales channels, changing the mix of direct sales, tele-sales,
channel or agent sales, and self-service the most effective or least costly
channel in order to reduce costs and improve satisfaction
time spent on sales administrative overhead tasks such as commission calculations,
forecasting and reporting enabling increased selling time
to sales closure rates
percentage of leads which are converted to sales
churn rate and eliminate replacement expenses
satisfaction and loyalty
Instead, start with smaller, more focused CRM solutions, targeting a specific
sales or services business function or group of users.
Budget and behind schedule According to CIO magazine, 49 percent
of CRM projects are now targeted for completion in less than 12 months, and
70 percent within 18 months. Companies are significantly reducing project scope
and implementing projects with tighter schedules and more reasonable budgets.(5)
user adoption Ease of use and training are essential for users to understand
and adopt the solution.
Maintenance and Support Maintaining CRM applications can be 40 percent
of the original implementation's labor and services. Weak or incomplete training
almost always raises support costs.
Failure to use CRM data across multiple groups can severely hamper the achievement
of key benefits.
In/Garbage Out Because CRM systems require so much data entry, users
often put in placeholders, misguided estimates, or inaccurate information leading
to poor analytical results and decision-making errors.
needs tangible results? Lack of measurement is one of the clear ROI-killers
for CRM. Measurement of pre-project estimates and post-project standings is
essential for success.
2002 CIO magazine
The Bottom Line
solutions should focus on solving a specific sales issue, such as improving
response rates, implementing self-service, or automating forecasting and accuracy.
Projected benefits should be twice the expected cost, to assure success.
Solutions should take less than six months to deploy. If more time is needed,
phased roll-outs will drive a steady-state of success.
Solutions should provide a positive payback on the investment in less than
twelve months from deployment.
and post-project ROI analysis including net tangible benefits, intangible
benefits and risk measurement is essential to assure success.
Pisello is the president and CEO of Orlando-based Alinean, the ROI
consultancy helping CIOs, consultants, and vendors assess and articulate the
business value of IT investments. He can be reached at email@example.com.