When a company is considering the purchase or upgrade of a CRM system, there is often a disconnect between the perceived value and the real value of CRM solutions. Because CRM does not directly lend itself to easily quantifiable analysis, it is often difficult to determine the ROI from using CRM software.
Let’s look at a simple example first. The return on investment (ROI) calculation is quite popular and done frequently in businesses. Marketers always want to check their effectiveness. Let’s assume that a marketing team used $15,000 for a digital advertising campaign, and within a month, that helped them gain 30 new customers with $30,000 of recurring annual revenue.
Looking great, right? Well, it is a favorable result that every business expects from a time-limited advertising campaign. But, is it so simple to put together the ROI for CRM using these basic numbers and formulas? Not really!
The true ROI for the use of CRM software is not always readily apparent and must be measured over a span of time. It cannot be measured by a standard cost analysis alone. Nor can it be thought of in purely mathematical terms. That being the case, what are some factors to consider when trying to calculate ROI for CRM solutions? Let’s find out!
In this blog guide, we will be discussing:
What is CRM ROI?
As with any ROI calculation, the basic premise is to consider the gain of an investment divided by the cost of investment.
CRM ROI = (Gain from investment in CRM – cost of investment in CRM) ÷ cost of investment in CRM
But, what exactly is gain? First, you must define a way to measure the gain of your potential investment in CRM software. In order to understand your ROI, you must clearly define measurable financial objectives and then design a method of assigning value to each defined objective.
Everyone in the organization must have a solid grasp of what it takes to find, acquire, and retain a customer. To do this, you must establish a baseline to measure. Once that baseline is established, you can compare overall results prior to CRM implementation with those after CRM implementation. This will at least give you an idea whether your CRM software is working for you as anticipated. Let’s check out what you can expect!
How Much ROI Should You Expect From Implementing a CRM?
Time for some dollars and cents talk! The price tag and effort required to implement a CRM system across your organization might raise some questions for business owners. Is CRM worth the time and investment?
As per research, every $1 invested in the CRM systems returns around $8.71. So, that sums up how much can business owners expect after implementing a CRM. The initial cost, timely maintenance, training cost, development resources versus the increase in productivity, performance, and sales speaks for themselves.
Apart from this average calculation, the ROI always varies and one can expect higher returns if they choose the right solution and take complete advantage of their CRM software. Now, let’s see the different factors to consider while calculating your CRM return on investment.
5 Things to Consider While Measuring the ROI of CRM
Some of the key factors for comparison of pre-CRM implementation and post-CRM implementation are:
- Overall revenue
- Revenue per lead
- Cost per lead
Based on the key factors, you can consider certain things for your CRM ROI formula.
1. Increase in Conversion Rates
The most crucial metric that determines the success of your CRM system is conversion rate. Is your team converting leads into customers? This doesn’t need to be as high as 50-60% or more. Even an increase of less than 5-10% in conversions can yield thousands of dollars in revenue.
Based on the reports generated by your CRM software, you can easily track the amount of sales revenue before and after the implementation. You can even check the individual performance of your employees to monitor the effectiveness of CRM across your organization.
You can track and monitor various communication channels like emails, calls, online meetings, etc. The analytics about the conversions according to different channels will let you know about the top-performing sales channels.
2. Time Saved
When we mentioned gain from investment in CRM, time is another crucial factor as time saved in one task means time invested in another. As the CRM system automates multiple actions, it potentially saves a lot of hours daily that your sales reps can spend on revenue-generating activities like reaching out to prospects.
So, while calculating the ROI, you need to consider the amount of time saved and how your team members spent that time in closing new leads. CRM gains like these are harder to measure objectively.
For instance, one goal for using CRM software is to increase the productivity of your sales force. It is difficult to assign a number value to increased productivity because it is hard to prove what affects the speed with which a person completes a task. Though you may have a system in place for measuring productivity in some way, using that metric for the calculation of ROI for the CRM solution is problematic at best. Some measurable productivity standards might be:
- Number of sales calls made
- Number of sales calls made to close a sale
- Amount of time it takes to close a sale
- Incidence of cross-selling or up-selling
- Customer retention rates
Measuring these to calculate a part of your ROI will give you a good idea about the effectiveness of your CRM.
3. Increase in Revenue Per Lead
Revenue generated from each lead contributes to the overall revenue of the organization and CRM definitely helps to boost the revenue. By keeping the sales database organized and segmented according to new and existing customers, CRM offers relevant information to sales reps. They can target the most responsive group of customers and leads to maximize sales, contributing to the CRM ROI.
Another major factor here is how flexible your CRM system is and how businesses can customize it as per their requirements. The integrations with third-party apps make it easier for your teams to sync data and get complete insights on your leads. All this drives to generating revenue and when you calculate it per lead, evaluating CRM return on investment becomes pretty simple.
4. CRM Cost & Service Metrics
You need to consider the actual money and dedicated resources you are using for your CRM operations. The cost of CRM includes:
- Cost of hardware, software, and subscriptions
- Cost of implementation itself
- Cost of any ongoing maintenance
- Cost of any administrative functions
- Cost of employee labor while using the software
- Cost of any recurring fees associated with the system
To get a real picture of ROI, you must also set a consistent time span to compare your estimate to actual expenses. The true ROI calculation is a continuing process. And using any actionable intelligence you receive from the metrics you capture, you can increase the profitability of your business by a wider margin, thus affecting your ROI positively.
5. Collaboration & Productivity
Beyond cost reduction & revenue growth, consider the intangible benefits that come with a CRM system. Even with a marginal improvement in different areas, the ROI will increase. For that, look at how a CRM proved to deliver a collaborative platform to your employees.
With enhanced information sharing and efficient communication, organizations can put together the business intelligence into a collaborative ecosystem, helping team members in making informed decisions.
The integrated task management further makes the job easier for team managers to track their members’ progress and this accountability leads to productivity and success. All of it significantly contributes positively to your CRM ROI.
Give Wings to Your Business With the Right CRM
Looking at the entire picture of how your CRM is impacting your business includes measuring differences in key areas that you have designated before initial implementation begins.
When all is said and done, however, the real ROI for CRM software is determined by looking at the bottom line of your business. Your CRM should be working to benefit your clients by giving them a better customer experience and improving communication across your entire enterprise. This, in turn, will lead to increased revenue, sustained customer loyalty, and reduced operational costs.
With the help of the perfect CRM software, you can boost your business in many ways. If you would welcome further discussion about the advantage of CRM solutions for your business, please contact us. With years of experience in customer management software solutions, we will be glad to demonstrate how CRM software can work for you.