Basics of ROI
Return on investment (ROI) is a key metric that measures the ratio between the net return (or loss) and the cost of an investment. When implementing a CRM system, these costs include the acquisition, implementation, and operating costs. Revenue often manifests itself in the form of increased efficiency, increased sales and cost savings.
Calculating the ROI of a CRM
The general formula for calculating ROI is:
ROI = ((Total Revenue from CRM- Total Cost of CRM) / Total Cost) x 100
To determine the ROI, the total costs and total returns must first be determined.
Determining the total cost of a CRM system
To calculate the ROI of a CRM system, the first step is to break down the total costs in detail. The total cost of a CRM system is made up of various components and doesn’t just include the obvious software license fees. Here are the main cost factors to consider:
Software costs: This category includes both one-time acquisition costs and recurring costs for using the CRM software. One-time costs can include, for example, license fees for the initial purchase of the software. Recurring costs include monthly or annual subscription fees incurred for the continuous use and updating of the Software.
Hardware costs: Depending on the requirements of the CRM system and the existing IT infrastructure, additional hardware costs may be incurred. These include necessary purchases such as servers, additional network equipment or other hardware components that are required to operate the CRM system effectively.
Implementation costs: Implementing a CRM system is often a complex process that requires professional support. The costs in this category cover consulting, system integration and customizations. Consulting costs may be incurred for the initial needs analysis and strategy development. Integration costs arise from the integration of the CRM system into existing IT structures and business processes. Customization costs may be required to customize the system to meet the specific needs and requirements of the business.
Training: For the CRM system to be successful, it is crucial that employees are trained accordingly. Training costs include spending on internal or external training programs that aim to provide employees with the necessary knowledge and skills to use the CRM system effectively. These trainings can take the form of workshops, online courses as well as hands-on training.
Maintenance costs: To ensure the smooth operation of the CRM system, regular maintenance costs are incurred. These include costs for software updates, technical support, and troubleshooting if necessary. Regular updates are necessary to keep the system up to date and close security gaps. Technical support may be required to provide quick assistance if any issues or questions arise.
Yield measurement after CRM implementation
To quantify the financial gain of a CRM system, the changes in different business areas should be measured before and after the implementation of the system. These measurements provide insights into the effectiveness of the CRM system and make it possible to calculate ROI precisely. Key areas where such changes can be observed include:
Increased sales efficiency: Improved lead management through the CRM system can lead to faster sales cycles and higher close rates. The CRM allows for more effective tracking and prioritization of leads, which speeds up the sales process and increases the likelihood of converting leads into paying customers. An efficient sales process saves time and resources and directly contributes to sales growth.
Improving customer service: A CRM system allows employees to have instant access to all relevant customer information. This results in faster and more accurate handling of customer inquiries and issues. Increased customer satisfaction is often the result, which in turn leads to repeat purchases and referrals.
More efficient marketing campaigns: With a CRM system, marketing campaigns can be made more targeted and thus more cost-effective. By analyzing customer information and behavior, personalized marketing campaigns can be developed that are precisely tailored to the needs and preferences of customers. This increases the success rate of the campaigns while reducing marketing costs.
Data-driven decision-making: A CRM system offers extensive analytical tools that allow companies to develop a better understanding of their customers’ needs and trends. These data-driven insights support informed decision-making processes and make it possible to better identify and exploit market opportunities. Precise data analysis helps to make strategic decisions that ensure business success in the long term.
To measure performance in these areas and assess the success of the CRM system, the following KPIs (Key Performance Indicators) are of particular interest:
Win Rate: The win rate indicates the ratio of opportunities won to opportunities closed. A win rate of over 40% is considered good, while a rate of over 50% is considered excellent. This metric helps evaluate the effectiveness of the sales process and the quality of leads.
Sales Cycle: The sales cycle measures the time from the creation of an opportunity to its completion. This metric is crucial to assess the efficiency of the sales process. A shorter sales cycle indicates that the CRM system has made the sales process faster and more efficient.
Deal Size: The deal size analyzes the volume of opportunities based on real offer values. This metric helps make informed decisions about discounts, cross-selling, and upselling strategies. By looking at the average deal size, companies can optimize their sales strategies and maximize revenue per customer.
Example calculation ROI of a CRM system
Suppose the total cost of purchasing and implementing a CRM system is 300,000 EUR. After 1.5 years of use, the company notes that improved sales efficiency and customer acquisition have increased sales by 470,000 euros. In addition, 30,000 euros were saved through more efficient work processes. The total prize is thus 500,000 euros.
The ROI calculation would then look like this:
ROI= (500,000 EUR – 300,000 EUR / 300,000 EUR) × 100 = 66.66%
In our calculation example, this would mean that the entire costs would be recouped after only 1.5 years. The average useful life of a CRM system is about 8 years. In fact, a high percentage of our customers use CRM software for significantly longer. An investment in a CRM system is therefore definitely worthwhile.
When is the ROI reached?
The point at which the ROI is achieved, i.e. the investment costs are fully covered by the added value generated, is referred to as the “break-even point”. The time it takes to reach this point depends on many factors, such as the type of business, market conditions, and the effectiveness of CRM usage.
Rapid CRM implementation and efficient training can significantly accelerate the time when ROI is achieved. Equally important is a careful selection of the CRM system that fits the exact needs and processes of the company to ensure maximum efficiency.
Factors that affect ROI
Customization and integration: The better the CRM system is adapted to the specific needs of the company, the more effectively it will be able to exploit its advantages.
User acceptance: User adoption and engagement are critical to the success of a CRM system. Regular training and support can improve the user competence of employees.
Quality: High-quality, up-to-date data is a prerequisite for the effective use of a CRM system. Maintenance and regular updating of the data stocks are therefore essential.
Calculating the ROI of a CRM system is a crucial factor in determining the profitability of a CRM system. Companies should conduct a careful cost-benefit analysis to determine the true value of a CRM system and determine when it will break even. With efficient use, the CRM system will become an indispensable tool for the growth and success of the company.
