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A Negative ROI on CRM—Are you Kidding?
By Ellen Reid Smith, Reid Smith & Associates, Inc.
I see lots of reports stating most CRM programs are failures. Who are these CRM clowns? Were their failures caused by a technology solution with no strategy or did their fabulous CRM strategy get implemented using lack luster copy? For any good CRM strategist, schooled in direct marketing forecasting and measurement, a negative ROI on CRM would be grounds for dismissal. Hell, I’d probably fire myself!
I have three beefs with articles criticizing CRM.
1. Over spending on CRM software, isn’t grounds for bashing CRM as a whole.
Most companies think they have two CRM software options:
Option #1: Trash all customer contact systems in favor of one huge consolidated software system that “does it all.” Typically this option costs BIG bucks and most CRM programs can’t generate enough incremental revenue in the first few years to justify the expense. This consolidated solution also means you can’t pick and chose the best specialty software on the market because you opted for a do-it-all CRM provider. Implementation of these solutions is painful since all employees must migrate to new software solutions. This option is favored by Fortune 500 companies. And since Fortune 500 companies are more interesting to write about, the news is filled with failed CRM projects.
Option #2: Take only the most critical data from each customer contact solution and put it in a central database that existing systems can access. This approach may take more time, but less money and is frequently more cost effective because it augments specialty software systems rather than replacing them. The implementation is easier on staff, making transition and acceptance higher. This option is frequently identified with smaller companies that couldn’t afford option #1, and with more profitable CRM projects. Option #2 is not only cheaper, but avoids turning organizations upside down implementing all new customer systems. Lesson learned: sometimes simple is better.
2. Advertising and CRM should be treated the same.
Advertising isn’t declared worthless when it results in a negative ROI—not that most companies even know the ROI of their advertising. So, why do companies complain so loudly about CRM returns? If they had a negative ROI on advertising, executives would not publicly claim “advertising doesn’t work.” Nope, they’d fire their agency. But that’s hard to do with a CRM software vendor that controls all your customer data. Hummm…I guess companies should pick their CRM solutions more carefully and get a better feel for the ROI on advertising.
3. The ROI on CRM is typically miscalculated.
The common reason companies don’t believe CRM can be profitable is that they don’t know how to measure the true value of a CRM project or campaign. Eureka! In my CRM consulting practice, I regularly conduct ROI analyses for my clients. This work includes reviewing previous CRM audits, which has led me to the conclusion that few companies know how to measure the total value of CRM. It’s very likely that for companies who didn’t over spend on CRM software, their lack luster results are the result of poor measurement.
Let’s Change the industry’s view of CRM profitability.
Here’s how you can help. Improve your processes used to calculate the ROI on CRM. Start by avoiding the most frequently made mistakes in analyzing CRM projects.
Mistake #1: Putting the finance department in charge of the audit. This is a bad idea because CRM studies involve significant customer research and only minimal statistic analysis. Someone on your marketing staff probably has an MBA so use their financial training—they’ll thank you later.
Mistake #2: Not using a control group. Either compare pre-CRM to post-CRM data or compare registered versus non-registered customers. Good auditors will also segment by participating vs. non-participating customers.
Mistake #3: Limiting analysis to incremental sales. CRM benefits many areas of a company. Your ROI should audit all customer actions and assign a revenue value using purchase data or customer research. Below are a few customer actions you might not have thought about including:
• Signed-up for email or program
• Participated in program/promotion
• Visited website
• Opened and/or read email
• Responded to trial offer (include rate of conversion)
• Intends to buy more/less in future
• Cross purchases
• Referred a friend/colleague or provided leads
• Bought direct versus through retailer
• Provided personal data that enhanced marketing
• Contacted customer service more/less
• Increased advertising response rate
• Moved from mail to email statement/newsletter
• Bought from partners (include commission or value of partner support)
• Defected (decrease or increase)
• Perceived value of brand/company
Mistake #4: Your finance group tells you, “We can’t measure that stuff” and you believe them. Most auditors think CRM benefits can’t be measured or valued. This is a common misconception if the company is a manufacturer and doesn’t have customer data. I measure customer actions for retailers with data as well as manufacturers with no data. It can be done and done quickly with the proper customer loyalty research techniques. The key is to combine qualitative and quantitative research to accurately estimate the value of recent and future customer actions. The quantitative research estimates quantities and the qualitative research identifies “why” or “what” drove the customer actions. This two-part research also helps pin point which CRM initiatives drove actions or if there were other influencers.
Mistake #5: CRM software isn’t amortized correctly or allocated to all areas of the company that benefited. For example, an enhanced database typically diminishes the need for advertising, and decreases customer service and research expenses. Improved customer feedback results in better targeted products and fewer failed products. Did your ROI account for these savings?
Mistake #6: Analysis is limited to a macro view. Sure your boss’s boss wants to know if the department is profitable overall (the macro view), but the real value of an ROI is in the micro analysis. For example, your ROI should tell you the value of each additional member registered, each additional email sent and each customer moved from “average” to “high” value. A micro ROI is what makes the difference between an ROI audit that’s considered once a year and shelved, versus one that helps you make profit-based decisions every day of the year.
Mistake #7: You paid too much for your ROI analysis. A CRM company-wide analyses shouldn’t cost more than $100,000 and project audits even less. So don’t let the cost of the ROI analysis drive you into negative territory.
In 17 years, I have only measured one CRM program that didn’t have a positive ROI. Maybe the big CRM losers are afraid to call me? One program I’ve worked on for several years recently produced an 800% return. So I know there are cost effective ways to implement successful CRM programs—I just wish the press would report on more of them.
If you have an ROI story to share with this author, you can contact her at info@e-loyaltyresource.com.
Ellen Reid Smith, Reid Smith & Associates, Inc.
Ellen Reid Smith is author of the internationally acclaimed book, e-Loyalty: How to Keep Customers Coming Back to Your Website. Her consulting agency, Reid Smith & Associates, Inc. specializes in creating and measuring relationship marketing programs that integrate online and offline customer programs. For more information on measuring CRM initiatives, visit The e-Loyalty Resource
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