Customer relationship management (CRM) systems help businesses organize contacts such as customers and prospective clients within a single database. The CRM industry has grown significantly over the past decade and more and more features have been popping up such as improved usability and functionality and a better user experience, all of which have increased the value of CRM systems as a whole. But even with the CRM market booming at $27.5 billion globally in 2015, how much has it helped companies and is it worth the investment? How do you determine the effectiveness of your CRM and your return on investment (ROI)?
Several factors go into determining the ROI of your CRM.
However, before you calculate the ROI of your CRM, make sure you clearly define your business goals and keep in mind that ROI can refer to both financial and non-financial factors. Once you understand the goals that are driving your investment you’ll be able to calculate your ROI much more effectively.
The first step is to identify key performance indicators (KPIs) and weigh their influence to determine your ROI. Then focus on the ones that benefit your business most. The key factors that go into determining your ROI include the following:
Annual Revenue Goals
CRM systems help to improve new lead conversion rates, improve sales management, and increases the value of existing customers. After installing a new CRM system you’ll be able to compare your annual revenue growth against previous years and determine whether you’re seeing an increase or decrease in revenue, and whether you have a positive or negative ROI.
Cost Reduction Rates
Cost reduction figures can help you determine your ROI for a CRM system. If you’ve seen improvements in customer service or a decreased need for administrative activities, you’re most likely looking at a positive ROI. Performing regular reviews (quarterly or annually) and creating targets in these areas can help you determine your ROI.
Customer Retention Rates
If you’ve chosen the right CRM for your business, you should see an increase in customer retention rates. CRM systems are designed specifically to help businesses maintain relationships with clients, so if you see an increase in customer retention rates, you’re doing something right.
Specific Financial Metrics
By tracking the number of sales per customer, the total revenue per sale per customer, and the changes in the number of orders per customer, you can measure precise and dependable financial ROI metrics.
Other Things to Consider
When measuring CRM ROI, you need to consider the cost to install the system, the cost of the software itself, training costs, and the time it takes your team to get it integrated into your business. Increases in sales, marketing campaign performance, and customer satisfaction are all indicators that your company’s performance has improved.
The Simple CRM ROI Formula
The CRM ROI calculation formula may seem simple:
Gain from investment – cost of investment / cost of investment
But when it comes to accurately determining what is a “gain from investment,” that’s where things get tricky. That’s why it’s important to be as specific as possible.
When it comes to measuring the cost of investment, you’ll need to include the cost of ownership, upgrade fees for corresponding software, maintenance fees, and hardware fees. You’ll also need to factor in productivity loss for training and implementation. Make sure to stick to a certain time frame so that you can easily estimate expenses.
When it comes to measuring gain, compare your metrics from before you purchased the CRM software to metrics from after it was implemented. Make sure to start measuring your company’s performance beforehand so that you have something to compare the new data to. The metrics you need to measure include:
- Cost per lead
- Revenue per lead
- Overall revenue
Before You Buy
Before choosing a CRM system, think about the needs of your business. Will you require a multi-purpose CRM solution that comes with other features like project management and accounting? Or are you in the startup phase and only require the basics? Do some research to see what’s out there so you can make an informed decision about any CRM software you’re considering, and subsequently, determine whether the system is beneficial to your business operations by calculating the ROI effectively.
Keeping up to date on the latest news and developments regarding your company’s CRM is highly recommended. Not only will it help you maximize the effectiveness of your CRM, but it’ll also help you get the best value for your investment.