January 29, 2010

How to Measure the Value of a CRM Solution

By Heather Baldwin

Question: If your new CRM software yielded a 5 percent increase in revenues each year, is it a success or a failure? Would the vice president of finance agree? How about the head of customer service? That’s the problem many companies face. They haven’t laid out specific performance goals prior to implementing a CRM solution, and many times they’re not sure what those performance goals should be.

“Top management has the right to an effective, strong and viable CRM value proposition in the form of a business case that contains metrics,” says Barton Goldenberg, president of Information Systems Marketing Inc. (ISM) in Bethesda, MD, who recently developed such a yardstick in the form of a six-point value proposition. To measure CRM software success, says Goldenberg, look for the following indicators:

1. Productivity enhancements. Shoot for a 10 to 20 percent increase in productivity per user per year, says Goldenberg, but then reinvest those dividends back in the system. One corporation he worked with gained 24 man-days from its CRM system; if that time is not used to call on more customers, however, the productivity enhancements won’t translate into increased revenues.

2. Lower costs. Companies should see a 5 to 10 percent annual reduction in marketing, sales and general administrative costs following system implementation. A major publishing company, for instance, was able to slice $350,000 off its costs when its CRM program identified and deleted deceased professors from its mailing list.

3. Superior employee morale. Goldenberg says a 10 percent reduction in turnover in customer-facing positions is a reasonable expectation. At the same time, companies should see an increase in the number of qualified applicants applying to the company, lured by the state-of-the-art CRM application.

4. Improved customer knowledge. Companies should have a complete customer profile, with knowledge that can be used in a variety of different ways, within 24 months of CRM delivery.

5. Improved customer satisfaction. Per year, satisfaction should increase at least 10 percent of the difference between where you are now and perfection. In other words, if your customer satisfaction ratings are at 70 percent today and you’re aiming for 100 percent, the 30 percent difference means you should see a 3 percent satisfaction increase annually.

6. Improved customer loyalty and retention. Look for a 5 percent increase per year in the wallet share your customers spend with you versus your competitors, and expect a 10 percent decline in your current customer drop-off rate.