An entity begins the business case for a Client Relationship Management system for two basic underlying reasons; growing pains or because an employee, usually an executive, perceives a future need. There are several elements involved in making a business case for a CRM system.
These can be divided into two major components, quantitative and qualitative measures and benefits. Quantitative measures are composed of the traditional analytical and economic factors familiar to most executives such as Return On Investment (ROI), Net Present Values (NPV), and Internal Rate of Return (IRR). Qualitative measures on the other hand focus on facets such as customer satisfaction, customer intimacy, customer retention or quality of service. The majority of qualitative measures are difficult to measure. The state and stage of the business decides which type of measure should be used, and usually a combination of both types of measures is necessary to make a compelling case for a Client Relationship Management System.
Most businesses in existence today have some sort of enterprise resource planning (ERP) or financial software system in place. Most also have some type of contact management or Sales Force Automation system as well. When disparate systems are already in place, any proposed change increases capital expenditures and recurring costs and usually challenges corporate culture. However, these obsticles commonly fall when the impitus for change includes growing pains and the need for one enterprise-wide repository.
If the business is a startup, then the case rests solely on perceived future value.

Quantitative Measures

The business case for CRM includes all the factors listed above, but any CEO worth his salt will demand a combination of qualitative adn quantitative measures – likely with a bias toward traditional measures such as Return On Investment (ROI) or financial measures which principally impact on the bottom line and can be measured. Qualitative measures, such as increased customer loyalty and future business value are more perceptive, difficult to quantify and difficult to justify.
Most people are familiar with the traditional measures like ROI, and know smatterings of Internal Rates of Return, and Net Present Value. However, not all mid-size businesses have the necessary tools, resources or knowledge to put these together across the three departments of marketing, sales and service.
A simple breakeven or payback period approach can justify implementing a CRM solution. Instead of looking at the whole company, you may want to divide the projections into departments, and if they can be broken down further, such as marketing into email campaigns, print ads, television, for example, do so. Dissect each benefit to its lowest level and then do the analysis. This can provide a simple and clear projection.
Some businesses do a Total Cost of Ownership (TCO) evaluation. If you expect the life of the software to be four years, and aggregate all the multiple costs of the software, implementation, customization, etc., what is the TCO per year? Per employee? How much of a revenue gain do you expect?
Another option is to quantify the costs involved in reducing the time it takes to manually perform a series of processes and then compare the value of that work time to the cost reduction. It’s easy to ask a service manager, how long does it take your CSR to resolve a new issue going through the help manuals? Work out the amount of time spent on new issues, and calculate the value of that labor. Now you have a baseline measurement and you can assess how long it would take using a knowledge base in order to calculate the savings. Then it’s a simple matter of extrapolation.
If your return rate for your product is 10% higher than the norm for the industry, what target figure would justify reducing it to the norm or even improving on it? Return rate directly influences two factors, selling costs and customer satisfaction, which affects customer retention. How much will reducing the return rate lower direct selling costs? What’s the cost of capturing that new customer, as opposed to increasing customer loyalty by 10%?
Building the business case for CRM means taking multiple measures today and testing them against the impact of changes in those measures after a Client Relationship Management solution is implemented. Only by having baseline measures of where you were prior to the implementation can you compare quantitative measures after the implementation. Each vertical or horizontal industry has common threads, but the stage of development of the business, and the issues facing that particular firm decides which measures to use in building the business case for a CRM solution.

Qualitative Measures

An overriding factor in a business case for a Client Relationship Management system is having all the information at your fingertips, so when the market plummets, or the price of oil rises to $80.00 USD a gallon, or your particular market variables change, you aren’t reacting but can instead adapt a plan, shape it, and provoke the action you require. Well tuned CRM applications function like the New York Philharmonic, playing Beethoven’s Fifth, not missing a beat, with each instrument functioning to perfection.
Qualitative measures are comprised of many facets and are oftentimes impossible to quantify, however, can win the business case for a CRM, particularly if a visionary drives the case. It’s easy for a bank to justify a debit card acceptance rate increase of 20-25% using automated marketing tools, focused databases, and seasonality, but how do you attach a value to product quality, or customer satisfaction? How does spending marketing dollars on building the image of a brand translate into brand loyalty? What impact does that have on the bottom line?
For Harley Davidson, what value do you think the company attaches to branding, image, and quality? Do you know any motorcycle buff who doesn’t aspire to own a Harley someday? How on earth do you translate that to the bottom line?
There is an inherent risk in using qualitative measures to build the business case for a Client Relationship Management solutions – it’s difficult to prove success. Your gut tells you, that having one repository for all client data will provide the information on your most profitable clients and identify their preferences. Then you can target the right group for the new hot service or product you’re about to offer. You know if it’s successful, revenue will increase, but by how much? Some businesses take a leap of faith. Can a strategic decision to invest in a CRM solution based solely on future value be justified? That depends on the vision for the business.
For Starbucks, it was. It allowed them to refine best businesses practices and build in specific metrics, which allowed the company to make better business decisions. Howard Schultz, founder of Starbucks started the company with the vision that he would cap out growth at 30,000 outlets. He began with six stores in 1987. Today, Starbucks has over 12,000 outlets, either company owned or joint-ventured, worldwide. The company has increased its cap out to 40,000 outlets.
In tea drinking London, Starbucks has more outlets than Manhattan. The branding is now worldwide, especially with the opening of stores in China. Because Howard Schultz invested in strategic software systems early in the game, and designed metrics to make better business decisions, Starbucks was able to identify clearly the business processes for success. The company was able to grow without many of the accompanying growth pains.
Combining a series of qualitative and quantitative measures can sometimes prove useful in getting an idea of a percentage increase or decrease. Bundle a series of qualitative measures together, such as branding, customer satisfaction and/or customer retention and figure out the ceiling required to justify it. If you spent ten dollars per customer on brand and quality, and increase customer satisfaction five percent, how much could we increase revenue? If we could double the current revenue per customer, is it worth it?
Faced with a software justification, it can be helpful to break the decision down into multiple options. You can stay with the current solution, implement a Contact Management solution, or implement Sales Force Automation. You can stay with the current solution or implement a Client Relationship Management system. How much will each option cost? Obviously, Contact Management costs little or nothing; we get Outlook with Vista or Windows. SFA software is relatively inexpensive to purchase or lease, but implementation adds a spike cost if a consultant is necessary.
CRM can be an expensive solution to implement, principally because it affects nearly every single customer facing employee and requires the cooperation of the sales, marketing and service departments. You could choose to begin with only one of the three departments for a Client Relationship Management implementation, or possibly two departments. Is one of these options more justifiable than the others? Will one department provide the largest impact and pave the way for the other departments?
You can approach qualitative measures using another option; negativity. What happens if we do nothing and remain with the status quo? Is standing still an option? What is the competition doing? What do we stand to lose? If your salespeople don’t keep basic contact information in a shared database, what happens when they leave? Who knows the prospects, leads, clients and recent communications that each salesperson managed? What is the cost of that knowledge? In a small business environment, it could spell disaster. Specific qualitative measure components should be considered.
If the business case is for a large corporation, you should factor in the gain in productivity. Executives may expect to see some value attached to that. Larger corporations may also expect to see the costs of employee time on the project and the time cost of money.
Think of quantitative measures as impact on the bottom line. Think of qualitative measures as strategic decisions. Then ask – which is more important? Use that as a general guideline for building your business case for your Client Management Relationship solution.

This article was sourced from CRM LandMark