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The ROI of CRM

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Businesses spent $3.9 billion on customer relationship management software in 2000, and are on track to spend $10.4 billion in 2001, according to New York-based consultancy eMarketer Inc. And eMarketer’s global CRM spending statistics show only a fraction of the total investment, as some analysts estimate that for every $1 spent on CRM software, roughly $3 more is spent to properly implement it.

To be sure, some companies have seen a significant return on investment from their CRM deployment. They’ve done so by focusing on CRM’s sound business premise: Using technology, learn as much as you can about your customers to anticipate their needs and keep them satisfied, and you will reap higher revenues and cut costs. Sharing of such data throughout the company allows all departments to coordinate their marketing efforts, from product development to tailoring of ad messages and promotions, to customer service.

But for many others, the CRM boom in the midst of the dot-com bust has caused only chaos and confusion. Businesses keen on retaining their clients instead of trolling for new ones through advertising have been spending (like fools, some analysts say) on anything purportedly CRM. Many don’t have a solid grasp on what CRM is or can do and often believe that the software alone will solve their marketing problems.

No wonder so many vendors have been lining up to take advantage of them.

Wolf in sheep’s clothing

Case in point: John Rueter did his best to convince potential clients that his recently shuttered company, Innovia Corp., was somehow a CRM play. After all, that’s what Innovia’s customers—and presumably, its financial backers—wanted to hear. Somehow incidental was the fact that the Norwood, Mass.-based company’s true business was focused on developing live Web-based seminars.

"We’re another arrow in the quiver of marketers, in that we are CRM-oriented, because we do targeted marketing," said Rueter, Innovia’s chief marketing officer, only days before his company went out of business, leaving several clients in its wake, including Microsoft Corp. and Adobe Inc.

Cautionary tales such as Innovia’s are becoming increasingly common, adding another layer of clutter to the CRM marketplace. As venture capital and corporate ad spending dollars shrivel, countless b-to-b software vendors—with products as diverse as supply chain software, e-billing platforms or real-time Web events—are touting themselves as CRM providers.

"One of the reasons there’s [so much] confusion is because a lot of vendors define CRM in a way that [best] suits their needs," said Brian Johnson, Accenture’s managing partner of marketing strategy.

Despite some successes, many CRM buyers are showing their first pings of buyer’s remorse. Nearly 60% of CRM projects aren’t meeting user expectations, according to recent Gartner Group Inc. research. Fifty-five percent of CRM projects, meanwhile, aren’t expected to deliver any measurable ROI. A typical CRM installation for a midsize company, including software, consulting fees and company labor costs, runs about $250,000 to $500,000, analysts said.

CRM doesn’t equal ROI?

Most CFOs who signed off on multimillion-dollar CRM investments did so under the presumption that attractive ROI would follow. Not surprisingly, companies have begun to downscale their CRM expectations—if not their spending.

"Many thought CRM was an immediate panacea to working better with customers," said Robb Eklund, VP-CRM marketing at Pleasanton, Calif.-based PeopleSoft Inc. "Now, there are lots of examples of projects out there that have gone nowhere."

Also conspicuously absent are major CRM success stories that other companies can model themselves after. "In the ‘80s, Wal-Mart did spectacularly well by mastering the art of the supply chain," said Adam Klaber, Americas leader of PricewaterhouseCoopers L.L.P.’s CRM Consulting Process. "But the master of CRM has not been invented yet."

That may be so. However, several top companies are showing that, properly deployed, CRM can provide a big boost to the bottom line. Their successes can be attributed to shrewd spending, a willingness to implement CRM platforms across the enterprise and a skill for setting realistic, measurable ROI goals. Just as important, these companies instituted a top-down corporate culture change to embrace a more customer-centric business philosophy.

For example, Alta Resources Inc.—a telemarketing company featured as a CRM success story in this special report—got its employees to buy into a CRM platform from PeopleSoft and then got its customers to buy into it, too. Alta’s client base grew 33% following implementation. Every new client gained was the direct result of the CRM system, said Bill Parry, Alta’s chief technology officer.

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