September 23, 2015

Simple CRM ROI Calculation

What is CRM ROI?

Being in the CRM business, we are obviously challenged with questions regarding CRM ROI on a regular basis.  As easy as the question is to ask, providing an honest answer is actually a little more challenging than you might think. For example, let’s say you deploy CRM in January and by the end of the 3rd quarter, sales are up 10%.  Can you legitimately say that CRM is responsible for the increase in sales? Sure you could, but it may not be completely accurate. The increase may have been product related, salesperson related, or a combination of both. Of course to say CRM had no impact on that growth could be equally incorrect. Perhaps there was in increase in demand for your products or services and because you were so well organized, you were able to capitalize on the opportunity. You may have grown your business without CRM, but it is very likely it would not have been as much.

Expense or Investment

Another challenge with calculating CRM ROI is directly related to CRM being both an investment and an expense. Your monthly software and support bill is definitely an expense, but shouldn’t you also look at it as an investment in the future? Ask yourself, would a well organized business with good systems, data, and process be more valuable than one without?  Could you sell more if you were better organized, had better processes, and had a more accurate data source? I guess you could compare it to fixing up your house. You make improvements that you enjoy today, but fully expect those improvements to increase your home’s value in the future. The same works with CRM.

Breaking Down the Numbers

Enough with the small talk, let’s look at the numbers.  Let’s say your organization has 100 users in the sales and customer support departments. To really make the most use of CRM, all users should ideally have a license. Let’s also assume you plan to taylor the product to your exact needs and will need the Enterprise version of Salesforce.com at a rate of $125 per user per month to do that.  Now before you blow your stack at $125 per user per month, stop and compare that amount to other amounts you spend growing sales. I don’t think you would blink an eye at investing in one lunch per month if you thought it would help close a deal. By the time you expensed time, milage, and the meal, it is probably a little more than $125. Remember the ultimate purpose of CRM is to save you money via efficiency and get you more deals.

Doing the math for 100 users at $125 per user, your software cost would be $150,000 per year. As that sinks in, you will need help configuring, deploying, and training.  If you think you have the skill in house to do this, think again. The chances of you really seeing success are very very low. CRM is simply not a plug an play product.

A general rule of thumb for calculating services is 1:1, meaning you will spend one dollar in services for every dollar you spend in software.  That works out to be about $150,00o in services.  Combining $150,000 for the software and $150,000 for services, you are looking at a $300,000 investment.

That’s a Lot of Money!

Now, you might immediately think that is a bunch of money, so let’s put it in perspective.

A business with 100 people in the sales and operational departments is going to be generating a fair amount of revenue. If you looked at a low average revenue per employee, you should be looking at about $10 MM in revenue. Of course, we are conservatively forgetting about any other employees.

Looking at it from an investment point of view, $300K is actually only 3% of total revenue.  Sure that’s still a lot, but let me ask you, is book value of a company with good data, processes, intelligence, and structure worth $300K more than one without?

If you look at it as a monthly expense, can you generate $300K in additional business or reduce total organization expense if you had better data, processes, intelligence, and structure?

If the answer to both those is no, then I would be the first to tell you to stay away from CRM, the return is simply not there.

For the majority of companies however, CRM ROI is very easy to calculate and justify using the model above.

Conclusion

I am a huge believer in value based technology spending.  I do think companies can get lost in the allure of automation, process, and technology. Just because it is cool and new, does not mean it is going to be a good thing for your business. Always ask yourself what the return is going to be, but keep in mind the ROI may not be a simple calculation. Calculating CRM ROI is certainly not a simple equation.

I hope this post is helpful for you in your CRM efforts!

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About Kip Smith

In each of his leadership roles, Kip found his success was directly tied to his ability to effectively and efficiently manage sales and operations with technology. Never losing the desire to find success as an entrepreneur, Kip abandoned the stability of the corporate world to pursue his entrepreneurial dreams. He started Alternetics in 1999. Fifteen years later, the entrepreneurial spirit is alive and well in Kip.