CRM ROI 101

A carefully laid out ROI methodology can help you avoid the notorious CRM failures that so many companies have suffered. Here's some advice on setting your ROI game plan.

SAN FRANCISCO -- A CRM conference wouldn't be a CRM conference without someone mentioning the word "failure."

And, as you might expect, the dreaded word crept up again at the recent Smart CRM West event.

When it comes to overcoming that fear of failure and convincing skeptical senior executives that CRM can pay dividends, a well-planned ROI strategy can make all the difference. That was the message from Rebecca Wettemann, vice president of research at Nucleus Research in Wellesley, Mass., who mapped out an ROI game plan at the conference.

"With CRM, or any technology solution, it's not about coming up with a number, it's about coming up with a methodology," according to Wettemann.

CRM has featured some spectacular and well-documented failures. Few will forget the dire 80% failure rate reported by researcher Gartner Inc.

If you're not getting a return in three years from your technology investment, you're way out on a limb.
Rebecca Wettemann, vice president of research, Nucleus Research

The two key pitfalls that lead to this disappointment, according to Wettemann, are high initial and ongoing software costs and long deployment times. Those long deployment times often come from companies spending too much time tweaking applications, a sure sign that they bought the wrong software in the first place, Wettemann said.

Her first piece of advice: Keep it simple and focused.

Many organizations begin deploying CRM and then change the project's scope. Target a particular area, such as a regional sales team. Start a CRM project there, Wettemann suggested.

Then set measurable goals. For example, determine that you want to reduce hourly costs by a set amount in the first year and then drop those costs even further in years two and three. Keep ROI calculations to a three-year study, Wettemann advised.

"If you're not getting a return in three years from your technology investment, you're way out on a limb," she said.

Prioritize a CRM project in terms of potential ROI and the length of time it will take to deploy it.

When setting out the costs of the project, consider everything associated with the project -- from a new server to new employees. Do not count items not associated with the project. For example, if you're using an existing Web server, don't apply it to the cost of the project. If the company is buying a server for the CRM project and two other projects, count only a third of the cost.

Gains cause ROI pain

Cost is the easy part, benefits are harder to measure, Wettemann said.

Determining productivity gains, particularly the transfer of time, can be an inexact science. Two hours shaved off data entry time does not necessarily translate into two extra hours to work on another task.

"Simply put, people goof off," Wettemann said. "[However,] salespeople who are highly commissioned are likely to transfer their time well."

For more information

Find out why research firm IDC says CRM is delivering returns

Peppers & Rogers Group shares some ways to measure ROI on CRM investments

Get some good resources on ROI from around the Web

When outlining potential benefits, place the gains in order of believability, Wettemann suggested. So, direct savings, such as cost cutting associated with reducing personnel or avoiding regulatory fines, should rise to the top of your list; management productivity gains should fall to the bottom.

An ROI process similar to what Wettemann described worked well for Avery Dennison Corp., an office supply company in Pasadena, Calif., that recently devised its CRM roadmap.

By mapping out the ROI, Avery Dennison determined the value of marketing in new promotions and in shifting customer behavior, said Bruce Bauman, marketing director for consumer experience management at the company.

"It's been a fairly smooth road," Bauman said. "It could be a huge competitive advantage for us."

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