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DSC Tech Library

CRM Software

CRM Customer Relationship Management This section of our technical library presents information and documentation relating to CRM Applications and Customer relationship management software and products. Providing customer service is vital to maintaining successful business relationships. Accurate and timely information provided in a professional manner is the key to any business and service operation. Telemation, our CRM software application, was built on this foundation. But the flexibility to change is just as important in this dynamic business environment. Telemation call center software was designed with this concept from the very beginning. That is why so many call center managers, with unique and changing requirements, have chosen and continue to use Telemation CRM software as their solution. Our Telemation CRM solution is ideally suited for call center service bureaus.

CRM Best Practices: TCO and ROI

By: Joe Outlaw

TCO and ROI are frequently misunderstood and misused metrics. They need to be used together in evaluating CRM projects. Don't focus too much on costs and too little on benefits. Don't look at point-in-time costs, but forecast, collect, and compare costs over the life of the project.

With CRM projects costing millions, even in some mid-size companies, it is no surprise CFOs are leading the charge to be sure the most important projects are first, that they are justified, and that they actually deliver on their forecast benefits.

Many financial metrics are used by businesses to evaluate opportunities like CRM. These metrics include net cash flow, cumulative cash flow, payback, net present value, and internal rate of return. But the most commonly used, by far, are TCO (total cost of ownership) and ROI (return on investment).

Unfortunately, misunderstandings about TCO and ROI, as well as sloppy accounting, mean that these two metrics are among the most misleading and misused in CRM.

Creating a Baseline

The intent of TCO for CRM projects is to create a complete view of project costs across the enterprise and over the project's life. TCO includes costs for people, processes and technology. Costs begin at the earliest stages of planning and do not end until well after execution stage -- for example, ongoing support costs for some period of time also must be included.

CRM technology costs include much more than the purchase price of the system. They also can include application licenses or subscriptions, hardware, additional software not supplied by the primary vendor, maintenance fees, implementation, application development or customization, network hardware and software, required upgrades to related I.T. systems, upgrades and version changes, I.T. training and support costs.

Therefore, one best practice for CRM-project TCO calculations is to be rigorous about collecting all of the appropriate and associated costs. Another best practice is to take a baseline (pre-project) measurement of costs -- what the costs are before the project -- to have a point of comparison.

"Many times, businesses will begin changing people's jobs before the baseline is set," says Cap Gemini senior manager Hal Harz. "Your analysis isn't worth much if you don't capture that baseline before changing business processes or the I.T. systems that support them."

Other TCO best practices include the following:
  • Build a TCO model for monthly budgeting and management review purposes.

  • Calculate TCO by CRM topic area (sales, customer service, marketing) or at sub-topic levels.

  • Create cross-functional teams with TCO-experienced members -- including financial analysts, if needed -- and do not hesitate to bring in external help in the form of experienced industry-specific consultants.

  • Use sensitivity analysis: Create best, worst, and most-likely scenarios, and assign probabilities to each.

  • Secure sign-offs on the costs and assumptions from business process owners and managers.

Forecasting Benefits

ROI is the complete financial analysis of the CRM project's costs and benefits. It is not just a list of expected benefits or a simple payback calculation. Theoretically, any benefit could be included, but in practical terms, the kind of benefits that can be counted -- and how they are counted -- varies from business to business. For example, some hard-nosed CFOs either do not allow the use of, or severely discount the use of, intangible or soft-dollar benefits.

Many of the best practices for TCO work apply to ROI, such as creating a cross-functional, ROI-experienced team to collect and estimate the benefits; bringing in consultants as needed; being rigorous; and obtaining sign-offs on benefit estimates from stakeholders.

In looking for CRM benefits, consider improvements in efficiency (doing more with the same or fewer resources, such as shortening sales cycles) and in effectiveness (working better, such as improving first-call problem resolution percentages). Also consider both cost savings, such as those from consolidating call centers, and revenue improvements.

If your project has them and your organization permits their inclusion, estimate forecasted improvements in intangibles, such as strengthening customer loyalty and growing brand awareness.

Use Them Wisely

TCO and ROI are frequently misunderstood and misused metrics. They need to be used together in evaluating CRM projects. Do not focus too much on costs and too little on benefits. Do not look at point-in-time costs -- but forecast, collect, and compare costs over the life of the project. Again, businesses often have their own standards for project time horizons, but three years is most commonly used.

Other common mistakes made with TCO and ROI for CRM include these:

  • Using inaccurate data;

  • Incomplete view and undercounting of costs due to incomplete planning (examples: internal staff time and "excess" I.T. capacity);

  • Ongoing user training frequently is not forecast;

  • Use of "average yearly" or "industry average" TCO or ROI multipliers supplied by vendors;

  • Failing to couple CRM planning with other strategic planning;

  • Failing to consider additional capacity required -- CRM projects frequently result in business growth; and

  • Mistaking achievement of benefits as achievement of ROI.
Most organizations have more CRM-related opportunities than they have funding or the will to work on -- so it is critical to use TCO and ROI carefully to be sure the most important and valuable initiatives are selected.

Joe Outlaw
Joe Outlaw is president of Outlaw Research, a CRM and call center industry analysis firm. Previously, he followed the CRM and call center industry for Gartner.