Assessing CRM Financial Success and Measuring Value

August 7, 2019 Andy Anguelo
CRMs have become one of the more important and valuable platforms companies can implement to deliver exceptional capabilities and experiences to customers and workers. Beyond an initial implementation or migration, most companies experience challenges in not only sustaining value but also achieving measurable ROI from CRM systems.
An African American businessman reading a CRM report standing in front of a building on a sunny day
Why aren’t organizations achieving financial success with CRM? Poor strategy, demand management, and ongoing value from CRM. The good news? Companies can take proactive steps to reverse and avoid these common pitfalls. 


Value Defined

Before looking into better ways of tracking and managing value, we must correctly define what value means. Far too often, CRM value is vague and confused with subjective notions of success. 
What is CRM value? CRM value is the key measure of how well a company’s CRM strategy is increasing efficiency, reducing complexity, and maintaining quality while enabling business outcomes within reasonable costs.

Composition of Value

Most companies strive to maintain value through CRM backlogs, initiatives, and projects but lack a model or structure for how to rationalize and maintain that value. The five criteria in the previous CRM value definition are what we can use to build a value and success model. Let’s break down the thinking behind these five and how they correlate to metrics that can be used to assess progress and value.

Reducing Effort

Anything done in a CRM or peripheral system (such as a community) should focus on making things easier for workers and/or customers. Reducing effort at work or making improvements throughout the customer journey should develop and add capabilities and strategic enhancements. 
When used as a measure to qualify requests, effort reduction really helps to sniff out shiny objects that don’t add value.


Eliminating Complexity

With growth comes complexity; however, effort must be invested in reducing (ideally eliminating) complexity to achieve value. Otherwise, what sense does it make to add capabilities and enhancements to a CRM system if they introduce extra effort without value? 


Maintaining Quality

Over speed to market, quality should be a key consideration when evaluating value. Think of times you may have experienced applying updates to your cell phone only to find that it created instability or broke several things. That’s frustrating, and as a consumer did you find the update valuable? Likely not. Similarly, an organization rushing to add new capabilities and features to a CRM can cause more disruption and pain than it is worth.  
The reduction of effort, addition of capabilities, and enhancements should drive specific business outcomes such as reducing costs, increasing revenues, generating leads, etc. Based on experiences in actual customer projects, we find that subjective outcomes of success are the number one cause of misused IT resources and investment opportunities. 


Reasonable Cost Envelope

While value needs to be tied to cost, it’s only one component of a complete model of success management. We see this on client engagements time and time again, where companies have actually increased their CRM operating costs and have no idea how that cost correlates to real value-driving outcomes.  

Poor CRM Financial Success Drivers

With the above insights in mind, let's cover a few common, but ineffective measures of CRM financial success.


Customers or workers using a certain capability or feature is an indication of something, but it’s not value. 
For example, poor utilization could be attributed to ineffective change enablement and training, that has left workers confused and unable to adopt new functionalities. Compensation directly or indirectly tied to opportunities in a CRM will usually force utilization, even if the system is riddled with inefficiencies that make life miserable for workers.


Speed and Agility

Over the years the agile movement has created a culture of misinformed expectations within companies. Granted that for companies to meet the competitive market pressures, they need to quickly shift gears, but not at the cost of disruption and creating new problems. More common than one thinks, companies increase complexity, costs, and introduce significant inefficiencies for the sake of agility. Speed of delivery for new capabilities and enhancements is more of an indication of team performance than actual CRM value. True business agility is achieved not through a ‘technology-first’ mindset, but in a business's ability to change processes that are enabled with technology.


Business Satisfaction

Measuring CRM value based on the satisfaction of business stakeholders is not an effective metric. Although the metrics behind a survey can show how happy people are with a platform or solution, that does not mean value has been created. For example, people may be happy with the graphical usability, but not thinking about effective processes, reducing complexity, or costs in a CRM usability survey.  Stakeholder satisfaction is a better indication of functional design and change effectiveness than true business value.


ROI Calculations

Return on investment calculations are also common forms of quantifying platform value for many companies, but these are more financial controls than true value indicators. Net Present Value (NPV) and Internal Rate of Return are the most common forms of ROI calculations performed within companies. These are good financial measures because they look at cashflows in relation to spending, which correlate cost efficiencies and revenue gains to specific projects or platform spend. This alone does not demonstrate actual business value, but does contribute to proving successful business outcomes when combined with other metrics.

Effective Financial Success Drivers

Many companies manage the accounting aspects of platform ownership but fail to manage actual value. Total cost of ownership (TCO) as a percentage of revenue, for example, does not indicate that complexity has been averted, effort reduced, or that real business outcomes have resulted. Although CRM TCO is a necessary measure, other areas are needed to effectively track and manage value.

Total Cost of Ownership

Companies bucket CRM operating costs into TCO differently, but usually the cost of software licenses, infrastructure, support, and day-to-day admin activities are common across most.
Often referred to as “normal run state” or “keeping the lights on,” TCO is a necessary and normal measure. Major changes, additions of capability, and transformation, for example, do not normally fall under TCO. TCO is an important accounting exercise, but alone it is in no way an indication of CRM value.


Total Business Value

This metric is not simple to implement. However, it is a fundamental building block for truly understanding and managing value. The first step is to clearly define business-enabling capabilities in terms of key outcomes that reduce the effort for a given business function, i.e. how IVR and CTI speed up call-handling times in a sales or support call center. During the design and architecture of capabilities implementations, there needs to be an exercise to weigh how the design will reduce or eliminate complexity while preserving quality. As an example, the implementation of a poorly designed IVR and CTI solution can actually introduce tremendous complexity and actually increase call times. 
Metrics must be developed to tie capability to a measurable business outcome. IVR\CTI decreased labor costs resulting from an increase in call handling throughput, increased revenues from prequalified leads through IVR. When quantified, the total business value is an essential financial metric in real-value management.


Cost of Maintaining Value

With TCO and total business value metrics in hand, the major constructs of value are in place to complete the CRM value picture, we must look at costs necessary in creating, and maintain that value. Labor costs for resources and contractors utilized in operating a CRM system are what most companies use as their primary driver of operating or “run state” costs, and this is usually in terms of day-to-day support, enhancements, and projects. Unfortunately, many companies do not look beyond activities associated with work intake and delivery when calculating CRM operating costs, and as a result, fail to account for a number of critical actions needed in the development and maintenance of value, but that's a topic for another time. For now, we can summarize that the costs of maintaining value beyond work intake and delivery are all the activities that enable proactive demand and innovation management, CRM strategy, change enablement, and CRM stakeholder community development.   


Getting the Most from CRM

Stemming from the wrong definition of CRM value, the status quo techniques and methods used by many organizations in calculating CRM value are for the most part either a partial picture at best, or grievously flawed at worst. Without reducing effort and eliminating complexity while maintaining quality within reasonable costs, there is little credibility that can be placed on justifying CRM spend. These elements of value need to be considered along with the total cost of ownership and measurable business outcomes to truly achieve CRM financial success.
Want to learn more about how to assess your CRM solution's financial success? Let's talk

About the Author

Andy Anguelo

Global Managing Consultant CRM Strategy at Appirio

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