Last updated on September 1st, 2023 at 08:48 am
Gartner valued the CRM market at USD $36.5 Bn. worldwide in 2017 which increased to USD $63.91 Bn. in 2022. While you may be overwhelmed by all the hype around it, you would want to accurately measure the ROI of CRM and understand how much your investment will pay back.
ROI (Return on Investment) measures the efficiency of your investment. It is the ratio of the total income earned to the total cost invested for the CRM solution.
As per Nucleus Research, a company’s average earning is $8.71 for every dollar spent on a CRM soltution.
Another article from HBR mentions the success of an aircraft parts distributor that tripled their number of daily sales calls and grew their customer base by 33% within just four months into rolling out their CRM system.
A CRM initiative is a very strategic one with long-term implications to your business. It requires both time and cost commitment at an organization level to get the desired results.
This article will help you to take a calculated and informed decision before you embark on your CRM journey.
CRM Return on Investment (ROI) Calculation – Total Benefits v/s Total Cost
CRM return on Invenstion is a measure of the total return or benefits that you will accrue against the total cost that you incur towards the CRM project. It quantifies the true value or gain that you can expect from the CRM initiative.
So, when you are evaluating a CRM software and ROI of CRM, you have to measure the two most important factors –
- Total Benefits that you will gain from the investment, and
- Total Cost of Ownership (TCO)
You should not evaluate the worth or value of the project by considering only one of these parameters in isolation; which would be a very myopic view. It is very important to look at all parameters in a very holistic way.
Total Benefits from CRM – what metrics can you improve?
CRM is not just a tool. It is a very strategic and transformational initiative that can have very long-term implications on the success of your company. It has the power to transform the way you conduct your business, and manage your team performance and clients.
The value or impact of a CRM project depends on the way your CRM software gets deployed, adopted, and used by the users. You will get significant benefits from your initiative when it is optimized for all these aspects.
Let us discuss some of the benefits and metrics that you should measure.
Boost in Sales Revenue
A key indicator of a good CRM initiative is an increase in sales revenue. You can calculate how your revenue has increased over a period of time.
This is a factor of how effectively is your sales reps engaged with your prospective clients
It is important that you frequently measure this metric and take all the necessary steps to help your team grow this metric.
A good lead management system makes sure that all the leads get captured accurately in one place. You can have a very structured and organized way of managing your leads.
This will significantly reduce the possibility of any revenue leakage and has a direct impact on your business growth.
Increased Qualified Opportunities
A scientific and proven lead management system will help your marketing team qualify the right opportunities and assign them to your sales team without any delay.
This will increase your sales teams focus on the right kind of deals and they will not spread themselves too thin.
Better Deal Conversion Rate or Closure Win Rate
A good CRM when used efficiently can hugely boost sales closure. Sales reps have a clear picture of where the customer is in his buying journey and can engage accordingly. CRM can help them better qualify their deals and help them decide the right kind of deals to work on.
It can have a positive impact on the way your opportunities get managed and converted to deals. With a higher and faster closure rate, the number of deals closed in a given time period also increases. Higher closure rates increase sales revenue and the return on your CRM (CRM ROI) investment.
Faster Sales Cycle
A good CRM implementation helps everyone to work toward a common goal. Your marketing team qualifies leads better and your sales team members are completely focused on deal conversions.
Using the CRM, your sales team can efficiently manage the deal stages and the overall pipeline they are working on. With a better visibility into the deal progress, your management can also intervene at the right time to support the reps with deal closures.
This well-oiled machine has a direct impact on reducing your sales cycle, which is defined as the number of days it takes to convert a deal.
Higher Sales Productivity
An intelligent mobile app, like the one from HappSales, will allow your sales team to easily manage mundane operational activities with ease. Their valuable time can be spent more on revenue-generating activities.
Higher sales productivity will also improve your CRM adoption and usage. You can expect a lot of customer intelligence to get captured; which in turn can be used for better insights for improved decision making.
Faster time-to-productivity of new reps
Attrition among sales team is generally very high. You will expect a dip in your sales revenue when your sales reps leave. Many of the deals that they were previously working on do not materialize due to lack of follow-ups. Sometimes they join your competitors and pursue the same deals.
However, with the right CRM, your reps can have easy access to all the customer data, important client information and the history of all interactions. Armed with this intelligence, you can expect faster time-to-productivity of your new reps.
Improved Customer Loyalty & Repeat Business
A CRM system is essential to provide a scalable, consistent, and differentiated customer experience. A good CRM, like HappSales, provides you with a customer success module to manage and improve customer satisfaction with existing customers.
Your entire team works in-sync to improve this important parameter. Your happy and loyal clients will give you more repeat business. They will also recommend your product or service among their connections and help you generate referral business.
Decrease in Customer Acquisition Cost (CAC)
Many of the above factors contribute immensely in reducing your cost of acquiring new clients. It is also referred to as cost per lead.
Aligning sales and marketing teams through a common platform helps in better communication between both departments. This will improve deal conversions and minimize revenue leakages; thereby reducing the overall cost per lead. You will also be able to further optimize your cost in-terms of effort, time and resources.
Acquiring new clients become easier, cheaper, and faster.
Improved Sales Forecasting
Sales forecasting is the foundation for running a predictable business. CRM can help you with an efficient methodology and process for sales forecasting.
Improved sales forecasting has many benefits. It can help to optimize your inventory cost, improve your budgeting & planning process, and increase your operational efficiencies.
Reduced Daily Sales Outstanding and Improve Cash-Flow
A few CRMs, like HappSales, offer the capability to efficiently manage your Accounts Receivable operations. It can help you streamline and run a tight cadence around this function to expedite your collections.
This will improve your cash-flow position and provide you with better working capital to run your business.
Higher Service Revenue through Efficient Service Operations
An integrated Service Management capability in your CRM can have a huge impact on your service revenue as well as service profitability.
Efficient service operations improve customer loyalty, repeat business and lower operational costs.
Many factors discussed till now can directly and indirectly improve your bottom-line with the use of the right CRM.
Some of the direct factors include – lower cost of customer acquisition, reduced cost of sales, better sales forecasting, higher repeat business with lesser efforts, enhanced business processes coupled with better operational efficiencies and team productivity, optimized inventory through better predictability, increase in service revenue, faster time-to-productivity of new reps, lower sales outstanding (DSO) etc.
Improved Decision-Making & Reporting through Actionable Data
We all know that data is the new oil. Reliable and structured data has the power to give you unparalleled advantage.
A CRM software can help you manage multiple types of data. These include data pertaining to your clients, leads, opportunities and pipeline, sales activities, key stakeholders, sales forecast etc.
With all this data in one place, a CRM can help you in making the right decisions for your business.
Also, you will no longer have data scattered across multiple spreadsheets. Your team can easily fetch the required reports and you can reduce the cost of operations involved in preparing complex excel sheets.
Total Cost of Ownership (TCO) – what cost elements to consider?
Total cost of ownership (TCO) of a CRM is the sum total of all investments required to be made to procure, use and maintain the software.
While considering the investment cost, people often do the mistake of considering only the software cost and ignore many other aspects. TCO being the denominator in the ROI calculation, a mistake here could lead to wrong analysis and judgement.
For the right decision, it is imperative to consider all the below elements when arriving at the total cost of ownership of a CRM –
Software Maintenance Cost – Upgrades & Updates
Cost of Implementation & Customization
Infrastructure Cost for Hosting
Cost of Storage
Cost of Training
Cost of Scalability
Cost of Human Resources
Cost of Data Governance & Security
ROI of SaaS CRM (Cloud CRM)
The TCO calculation of Cloud CRM (or SaaS CRM) is very different from that of an on-premise CRM software. This article details the difference between the two types of CRMs and how the TCO varies in both the cases.
As mentioned in the article, the TCO in the case of a SaaS CRM is drastically lower than that of on-premise software.
As a result, given that the benefits are nearly the same in both the cases, the ROI in the case of SaaS CRM will be much higher compared to that of the on-premise CRM software.
HappSales CRM, one of the leading providers of SaaS CRM software, helps its clients quantify the ROI based on a powerful metric called Sales Velocity. Sales Velocity is a single number that considers the four most critical factors – No. of Opportunities, Average Deal Value, Deal Conversion Rate, and Length of Sales Cycle.
You can use the Sales Velocity Calculator to calculate this metric and understand its ROI impact better.
You can reach out to email@example.com if you need help with the ROI calculation.
When you are planning a CRM investment, it is important you set your eyes on the expected business impact from the investment. It will help you set up some benchmarks for you to measure the success of the initiative and optimize its performance based on expected results.
At the same time, while comparing the cost of different CRM vendors, you should consider all the cost elements listed in this article to arrive at the correct total-cost-of-ownership before arriving at the return on investment (ROI of CRM).
For a sales team member, companies generally budget for assets like laptop, mobile phone, communication expense, infrastructure cost, stationaries etc. A CRM being a much more strategic one with long-term business impact, it definitely deserves a bigger budget than these operational expenses!
At the end of the day, growing your business and having happy and satisfied clients (and of course reps!) is all that matters. So choose a CRM partner wisely based on their understanding of your business and their ability to closely work with your team to make the initiative a success.
Once you have the right CRM software in place supported by the right vendor, there will be no stopping henceforth!
Author Name: Navin Nair
Navin is the Founder & CEO of HappSales. He comes with 25+ years of industry experience in sales and key account management.
Armed with vast experience, insights and a great team, he is on a mission to help companies and customer-facing teams in getting their jobs done faster & better, while maximizing their happiness quotient!