The Business Case for CRM
Summary:
- Research shows CRM technology increases sales win rates by 6 percent and accelerates company revenues by up to 29 percent.
- CRM automation reduces labor cost by improving staff productivity and business process cycles. Multiple studies show CRM increases productivity by 15 to 34 percent with those cost savings flowing directly to the bottom-line.
- Analyst research shows CRM delivers a technology ROI of 2-8X. Where adopters fall in that broad range is based in largest part on user adoption.
For most companies, Customer Relationship Management software sounds like a good idea. But good ideas are a dime a dozen. For a technology purchase to be approved it generally must demonstrate a reasonable return on the company's investment.
Even if the company is committed to purchasing a new CRM, without a rock-solid financial payback the decision is likely to be based on cost more so than value. That's not a good place to start.
A better place to start is with a business case for CRM that forecasts the financial upside in clear and compelling hard numbers.
CRM software is the customer system of record. It's the source for customer and sales data which makes it the number 1 technology for driving business growth. But just how much revenue and profit growth are attributable to this application? Below are research findings that answer these important questions.
CRM Business Case Based on Revenues, Profits and ROI
CRM Increases Revenue Growth
CRM technology can accelerate revenue growth with marketing software that grows the pipeline with new leads, sales force automation software that converts more of those leads into customers, and customer service software that promptly resolves customer issues and improves the customer experience.
Below are some data-driven findings that demonstrate how much revenue growth is attributable to CRM technology.
- According to the CSO Insights Sales Operations Optimization study, teams with a CRM adoption rate of 75 percent or more increase sales win rates by 6 percent. That figure may seem small, but multiplied by all the company’s sale opportunities delivers a very big revenue impact.
- At a more macro level, a Salesforce released a CRM business study that found CRM applications increase revenue results by up to 29 percent. A TrackVia survey found similar results and reported that CRM increased revenue by 41 percent per salesperson.
- Finally, according to a Forrester study, 4 out of 10 organizations see their revenues rise 11-20 percent after implementing CRM.
- The Forrester study noted that 74 percent of salespeople affirmed that the CRM positively impacted their conversion rates. Even better, the study advised that about 3 in 10 respondents increased sales win rates by 11-20 percent after implementing CRM.
- Sales acquisitions are important, but companies must also grow existing customer share and lifetime value. The Forrester research found that 8 in 10 sales reps reported that CRM had grown their customer lifetime value between 1-10 percent. 24 percent of the respondents advised the new software increased customer lifetime value between 11-20 percent.
CRM Reduces Costs and Increases Profits
CRM software reduces costs, primarily labor costs, with workflow tools that increase staff productivity and decrease business process cycle times.
System automation also reduces errors, increases efficiencies, improves service levels and support scale.
- The prior referenced Forrester report found that 9 out of 10 CRM adopters said their companies realized measurable, significant cost savings improvements after implementing the technology.
- A study commissioned by Innoppl found that staff productivity increased by 15 percent while the previously referenced Salesforce study found improved productivity by up to 34% percent.
- Nucleus Research found that CRM productivity increases and additional 14.6% when salespeople have mobile access to their CRM application.
Labor is often the company's single highest expense, so those double-digit productivity improvements deliver a big impact to the bottom-line.
But there are two caveats you need to know to achieve this financial benefit.
First, you cannot automate a process before it is streamlined. Otherwise, you automate an inefficient process which just incurs the inefficiencies faster. Business process redesign is a prerequisite to achieving process automation benefits. You want to simplify, streamline and then automate, in that order.
Second, your productivity improvement will be directly proportional to the staff buy-in of the system. You must achieve wide scale CRM user adoption to realize labor cost savings.
CRM ROI
Revenue uplift and cost takeout are important drivers in the business case for CRM. But CRM ROI is the measure that shows the extent and timing of the company's payback.
- Data compiled by Forrester and published in a report titled, The Total Economic Impact of CRM, demonstrated that properly implemented CRM software can produce an astonishing 243 percent return on investment.
- Even more impressive, a report by Nucleus Research found that successful CRM pays back $8.71 for every dollar spent. That report was a second version on this topic, and demonstrated an increase from the prior version which found that CRM earned $5.60 for every dollar spent. Analysis suggests more innovation from publishers has increased the payback.
- According to G2, CRM ROI advances with time. Their customer reviews found the following time-based results.
- 55% of buyers see an ROI in 6 months or less
- 24.5% of buyers see an ROI in 7-12 months
- 6% of buyers see an ROI in 13-24 months
- 5% of buyers see an ROI from 24-36 months
- 7.5 %of buyers haven’t realized a full payback yet
- Finally, the CRM ROI research performed by Johnny Grow found that the ROI of CRM is, on average, 211 percent.
- And there’s a further upside. When the application is fully utilized and widely adopted, the payback increases by an order of 3 times. The research was clear that ROI improved not so much based on time, but more so based on user adoption.
71-80 percent user adoption was the breakpoint where ROI went from incremental to linear growth.
One more caveat to recognize. CRM doesn't start delivering productivity or growth benefits immediately after the go-live event. Most consultants will share that there is an initial productivity lapse following the cut-over while staff become familiar with the new system. The best way to speed through that learning curve is with a change management program.
The Point is This
There are many CRM benefits. Some clearly measurable, some less tangible. Three decades of CRM implementation experience have taught us that the intangible benefits are real, but executive stakeholders such as the CEO and CFO will focus almost entirely on the top and bottom-line financial impact when choosing to approve the investment or allocate the company's limited funds to another project that demonstrates a better financial return.
Based on that reality, give those stakeholders the hard numbers they seek.
Skip the difficult to measure benefits such as customer segmentation, 360-degree customer view, voice of the customer, customer self-service, and so many others, and instead focus your CRM business case on the top-line and bottom-line financial impact to assure an approval.