Benefits realisation in CRM: when does the investment pay off?

The cost side of a CRM investment is relatively easy to budget. The benefit side is harder, so it often ends up as a general estimate. This article shows how to build the benefit side with the same precision: which benefits exist, when they arrive, how they are measured and how large they need to be.

Scope: The method applies to any CRM solution. The figures build on the worked example in What does a Dynamics 365 implementation cost?, with 20 users on Dynamics 365 Sales Enterprise. All amounts and maturity percentages are illustrative assumptions, not benchmarks or a quote.

Four sources of value

The value of a CRM solution comes from four sources. They arrive at different times and carry different degrees of certainty.

Cases built on efficiency alone often pay back slowly. Saved time is capacity, and it does not turn into money by itself. Cases that hold up usually rest on at least one retirement or revenue benefit. State clearly which driver carries the case and which ones are a bonus.

Include the disadvantages as well. A transition has costs that are not in the budget: periods with two systems running, training time and a slower pace while new routines settle. The Norwegian Agency for Public and Financial Management (DFØ) writes for public projects, but the advice applies just as well to private companies. DFØ points out that benefits work has to include both the positive and negative sides of a change. Source: DFØ guide to benefits realisation.

Freed-up time is not money saved

One hour saved per salesperson per week is a real gain, but it only gives capacity. It becomes a financial gain only when someone decides what the hour is used for: more customer meetings, less contract staffing, less overtime or a position that does not need replacing.

The DFØ guide places that decision with management, which can delegate it to the person responsible for the benefit. Freed-up time can go to better quality, other tasks or a lighter workload. All three can be right, but only some of them produce money.

So label each benefit as money, capacity or quality. Only the money belongs in the payback calculation. Capacity and quality belong in the decision basis, but as separate points.

Measure revenue year on year against the old solution

The revenue gain often has the largest potential, and it is the hardest to prove. Total revenue is affected by the market, prices and staffing. So use the year before the switch as the baseline, and then compare year by year for the first three years, not just the year after go-live.

Also follow the metrics the CRM solution actually influences:

• the share of quotes that are won
• the time from lead to order
• how many agreements are renewed
• how much is sold to existing customers

If these move in the right direction while the market stands still, that suggests the solution is working. If revenue moves without the metrics moving, it is probably the market.

Microsoft recommends wording the targets concretely, for example "improve the opportunity conversion rate from X% to Y% over Z period". Source: Microsoft's implementation guide. What the targets should be about is covered in How to build a CRM strategy that creates measurable growth.

Count revenue as contribution margin, not turnover. One million kroner in extra sales is not one million in gain. What pays for the investment is the contribution after cost of goods and direct costs.

Expect the gains to grow over three years

A new solution does not deliver full effect from day one. The organisation has to learn it, the data has to build up, and ways of working have to change. Revenue gains also only arrive after at least one sales cycle has run through the new solution.

This applies especially when the solution is a broader digitalisation platform that several departments will adopt. The gains then arrive as each department starts using the solution, not all at once at go-live. So build in a maturity curve instead of a flat gain. How to bring the organisation along is covered in Change management for CRM.

Work backwards: how large a gain is needed?

In the worked example in the cost article, the budget frame for the first year is NOK 1,536,000. After that, we assume licences and management cost around NOK 436,000 a year: 256,000 in licences and 180,000 in management, excluding further development and integration operations.

Assume the solution goes live after six months and that the gains start then. The table shows how large the gain has to be for the investment to pay back after three years:

If you use the lower figure together with the maturity curve, the investment does not pay back until after about four years and five months. The difference shows why maturity time has to be part of the decision basis. It can decide whether the case holds.

The costs in the example cover the whole budget frame, including the value of internal time and a contingency reserve. If you leave internal time out, the requirement with a flat gain drops to around NOK 883,000 a year (73,600 a month). Pick one rule and apply it to both sides of the calculation.

The question is not how long the payback period usually is. It is whether each salesperson or case handler can realistically create four to six thousand kroner more value a month, and who is responsible for making it happen.

Cartagena, from work on CRM investment cases

A hypothetical example

A hypothetical wholesaler with 20 salespeople, NOK 150 million in revenue and a 25 percent contribution margin uses the requirement with the maturity curve: about NOK 1.4 million a year at full effect. Management sets out the gains like this:

• The old CRM system and two spreadsheets with their own integrations are retired: NOK 200,000 a year. A certain gain, and easy to document.
• Reporting becomes automatic, which means a planned part-time contract hire is no longer needed: NOK 300,000 a year. Labelled as money because the decision on the hire has been made.
• The rest, about NOK 900,000, has to come as contribution margin. With a 25 percent contribution margin, that requires around NOK 3.6 million in additional revenue per year that can be linked to the solution. That is about 2.4 percent of revenue.

The maturity requirement is applied to the whole amount. This is a cautious estimate, because the retirement gain usually arrives in full as soon as the old system is switched off.

Management now has a concrete question to decide on: can a higher win rate, fewer lost renewals and more sales to existing customers realistically deliver 2.4 percent? If the answer is yes with a good margin, the case is robust. If it is tight, the scope has to come down, the rollout has to be split into stages with the most certain gains first, or the gains have to be made concrete before the decision is taken.

Give each benefit an owner

The gains do not happen by themselves. They are realised in the line organisation after the project has finished, and they need someone responsible there. DFØ recommends that ownership is in place before delivery starts, and that the current state is measured before the solution is introduced. Without such a baseline measurement, it becomes difficult and laborious to document what the solution has delivered.

A simple benefits plan is enough for most CRM projects. It has one line per benefit:

Follow up yearly in the management team, and adjust the plan when the assumptions change. Why this rarely happens by itself is covered in why CRM implementations fail.

You will find the cost side of the same calculation in What does a Dynamics 365 implementation cost?. If you need to compare solutions before you calculate, What to consider before choosing a CRM system is a good place to start.