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Quantifying soft ROI vs. hard ROI for CRM

Read Tom Pisello's advice on defining soft ROI and hard ROI for CRM in this expert tip.

Can you define soft ROI vs. hard ROI? I hear both terms often, but some examples would be helpful. Also, is there...

a way to quantify soft ROI for CRM?

Hard and soft ROI usually refers more specifically to various benefits which can be included and used in an ROI analysis. The hard benefits are also called direct benefits, as they are typically directly tied to the impact of implementing the proposed solution – a first order, cause and effect. Some examples of direct (hard) benefits are:

1. Consolidating the existing system to avoid having to continue to pay support contracts on the replaced assets.
2. Automating specific tasks and eliminating the manual effort.
3. Moving the task from a highly-skilled, expensive resource to less expensive resources.

The direct benefits are often easy to quantify, and as such there is usually little risk in considering 100% of the expected cost avoidance or productivity improvements in the ROI calculation (ROI=net benefits/cost).

Soft benefits are less easy to quantify and rely on in a business case. Soft benefits are often referred to as indirect, because they rely on a number of steps in order for the benefit to be realized. Improved up-sell/cross-sell is a good example of an indirect benefit from a new CRM system that helps the call center improve its interaction with customers. In order to realize the up-sell/cross-sell benefit, the call center staff needs to use the solution as expected, this changes the relationship with the customer, and the customer reacts by purchasing more – a complex set of cause and effect in order for quantifiable benefit to be achieved. Some other examples of indirect (soft) benefits include:

1. Most revenue benefits, like improving lead conversion rates or reducing sale cycle length.
2. Productivity benefits where there is not a direct automation or elimination of a process step or task.
3. Reducing the business risk from implementing new security systems, compliance management or disaster recovery solutions.
4. Reducing downtime by improving server or system availability.

Because indirect benefits are harder to quantify reliably, and cannot be counted on the same way as hard benefits, they should be discounted before adding them up in the ROI equation. We typically only include 10-40% of these indirect benefits in order to create a more reliable – take it to the bank – business case. In many instances the indirect benefits are very important at achieving goals and in some cases are the reason for implementing the proposal in the first place, so we feel strongly that they should always be included, they should be quantified, but need to be substantially risk adjusted. Visit http://www.alinean.com/ITexecs.asp for free access to a CRM tool which can help to quantify both the hard and soft benefits.*

* Editor's note: Registration required to access these Alinean resources.

This was last published in June 2006

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