ROI for CRM
If you have been part of decision making process for CRM projects, you should have heard about RoI, or Return on Investment. All decision makers believe ROI for CRM is important, but do not get the teams to focus enough on that through the life cycle of projects. Let’s see a few basic facts about ROI as applicable to CRM projects.
Wikipedia defines ROI as “performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments”.
ROI is the quantified returns for direct and indirect benefits offered by a proposed CRM implementation or changes to an existing implementation.
To illustrate ROI with a simple example, consider the following scenario:
- Business invests ₹100 to develop a new CRM platform
- Over the year, maintenance & support of the platform requires ₹20
- Changes to the platform will need a further ₹10
- Benefits worth ₹150 are expected to be accrued by end of first year
A simple way to calculate ROI is: (-Investments + Returns)/Returns
ROI = (-100-20-10+150)/(100+20+10) = 0.15 by end of first year.
Quantified returns not only puts an objective way of looking at the investments at the start of any project, but also encourages an objective assessment of the project’s success.
Quantifying Benefits and Calculating ROI
This is where things get interesting. ROI reads like a cash flow calculation, but the reason it is not quite tracked as it should be is because of the difficulty to put a number on benefits. It is absolutely important to put in lot of thought for the business groups to do this through:
- Identifying key indicators of the business problems or process that is sought to be addressed through the planned IT system
- Identifying the measurement factors for the key indicators that can be consistently applied to a process throughout the project life cycle
- Iteratively measuring progress
Let us validate it with a simple example:
Scenario: An IT system is being planned for the call center for customer service department of a telecommunications provider.
Step 1: Identify key indicators that can help assess improvements. They could be:
- Quick resolutions to customer problems for calls received over phone
- Service effectiveness
- Effective usage of available call center resources
Step 2: Identify measurement parameters
|Effective usage of resources|
** Step 3**: Start measuring. Measurements help quantify the key indicators and make for an objective comparison.
When to Calculate ROI?
ROI should be embedded in the primary objectives of any IT project.
- At the start of a project, expected ROI will provide clear direction on what to expect from the project, and by when. This is crucial for business and IT to decide where to invest its resources
- During the course of the project, ROI can help teams to evaluate where they stand at specific phases as compared to the objectives of project. Design decisions can focus on how to equip users with the right set of tools, adequate system validations and automation
- Measurement at the end of project, and at the deployment of each of enhancements thereon will enable all stakeholders to compare the actual results with the expected ones
Though the benefits of ROI are apparent, we seldom see objectives and actions aligned around it. The lack of transparency on IT system effectiveness is only the first step in the journey towards its failure.