AnalyticsROI MarketingThe Myth of ROI, Part 2

The Myth of ROI, Part 2

In the CRM industry, ROI is like the weather -- everyone talks about it, but no one seems able to do much about it.

In the first part of “The Myth of ROI,” I discussed the truth behind the customer relationship management (CRM) package myth: Installing a CRM software package doesn’t generate ROI. Successful business practices do — specifically, those that use software in conjunction with people and process.

In this, the second of two parts, we’ll look at the shortcomings of using return on investment (ROI) as an operating performance metric for CRM.

ROI for a Standalone Project

Despite lectures and seminars, news stories, books, white papers, and research studies — not to mention hundreds, if not thousands, of tools and consulting services offering to develop metrics and track ROI — ROI is not used to measure and manage standalone projects. One reason for this is that no established, standardized, broadly accepted way exists to track and interpret financial return and impact on productivity by investing in technology.

Tracking ROI for a project can be difficult and expensive. Some of the more elaborate methodologies involve active-based costing, including time/motion studies of front-office personnel and processes to establish a financial baseline or snapshot of the current state. Establishing and maintaining this tracking can be prohibitively costly. It’s next to impossible to create a standardized process that accurately measures incremental profit contribution that can be irrefutably attributed to implementing a CRM package (or any technology package, for that matter).

Then, there’s the sticky issue of objectivity. Given that much ROI calculation is based on projections, ROI studies can become a vehicle for political constituents in an organization to use to justify a predetermined decision, either to move something forward (by goosing the projected estimated numbers) or to kill a project (by inflating the costs surrounding the project and minimizing the expected return).

A Jupiter Media Metrix report addressed the internal bias of employees evaluating the benefits of their own CRM initiatives. The report found 59 percent of in-house ROI studies generate a positive result, and only 17 percent of surveyed companies hired outside firms to conduct or oversee their ROI studies.

Here’s my take on the whole issue: Given the strategic nature of CRM, it is usually folly to assume the massive investment required to track and measure the ROI of CRM as a standalone project. In other words, don’t look at the ROI of your CRM project. Look at the ROI (or return on equity) of your business instead. Manage accordingly, using CRM as a strategic discipline and enabling technology.

CRM is most successful when implemented as an organic ingredient of an organization’s competitive strategy. I would go so far to make this bold claim: Show me a successful CRM implementation, and I’ll bet CRM is an ingrained discipline in the organization (though they may not call it “CRM”). Conversely, show me a spectacular failure in CRM implementation, and I’ll show you an IT-specific and/or fragmented development effort isolated from the heart of the organization’s strategy, culture, and core competencies.

What should you use to measure the operating performance of a CRM system if not ROI? That should be determined by your business objectives and what your system is designed to produce. A good starting point is customer metrics: revenue and cost impact arising from the acquisition and defection rates within different classes of customers.

Related Articles

6 ways to increase your conversion rate using behavioral data

Analyzing Customer Data 6 ways to increase your conversion rate using behavioral data

4w Mike O'Brien
Influencer marketing: Eight tools to identify, track and analyze your brand's next biggest fan

Content Influencer marketing: Eight tools to identify, track and analyze your brand's next biggest fan

1m Tereza Litsa
Tools and tips for calculating the ROI of social media

Conversion & ROI Tools and tips for calculating the ROI of social media

1m Clark Boyd
How machine learning can help you optimize your website's UX

AI How machine learning can help you optimize your website's UX

1m Chris Camps
Why banks are becoming customer-centric organizations

Analyzing Customer Data Why banks are becoming customer-centric organizations

2m Al Roberts
How to achieve true omnichannel relevance

Analyzing Customer Data How to achieve true omnichannel relevance

2m Clark Boyd
How to use behavioral data to enhance your website's conversion rate

Analytics How to use behavioral data to enhance your website's conversion rate

2m Chris Camps
Big data in the travel industry: How can travel companies do more to collect and use customer data?

Analyzing Customer Data Big data in the travel industry: How can travel companies do more to collect and use customer data?

2m Clark Boyd