CRM Article

 How to calculate the ROI of your CRM, from a smaller business perspective.

CRM Tips Series 2

23th March 2023

Customer Relationship Management (CRM) is a strategy used by businesses to manage interactions with customers and potential customers. CRM software is a popular tool used by businesses to organize and track customer data, sales interactions, marketing efforts, and customer service. However, investing in a CRM system can be expensive for smaller businesses. Therefore, it is important to calculate the return on investment (ROI) of a CRM system before investing.

The ROI of a CRM system is the ratio of the net profit gained from the investment to the cost of the investment. The calculation of the ROI can be done by using the following formula:

ROI = (Net profit / Cost of Investment) x 100

To calculate the ROI of a CRM system, you need to determine the net profit gained and the cost of investment.

Net Profit Gained:

The net profit gained is the total amount of revenue generated from the investment minus the total expenses incurred during the investment period.

Revenue generated from the investment can be calculated by measuring the increase in sales or customer retention rates after implementing the CRM system. To determine the increase in sales, you need to compare the sales revenue before and after the implementation of the CRM system. Similarly, to measure the increase in customer retention rates, you need to compare the number of customers retained before and after the implementation of the CRM system.

Expenses incurred during the investment period include the cost of the CRM software, implementation costs, training costs, and maintenance costs. These costs can be calculated by adding up the total costs of each of these items.

Cost of Investment:

The cost of investment includes all expenses related to the CRM system. These expenses include the cost of the software, implementation costs, training costs, and maintenance costs.

Calculating the ROI of a CRM system is an essential step for smaller businesses because it helps to determine whether the investment in a CRM system is profitable or not. If the ROI is positive, it means that the CRM system is generating more profit than the cost of investment. On the other hand, if the ROI is negative, it means that the investment in the CRM system is not generating enough profit to cover the cost of the investment.

Here are some steps to help calculate the ROI of a CRM system from a smaller business perspective:

Step 1: Identify the objectives of the CRM system

  • Before investing in a CRM system, it is important to identify the objectives of the system. This will help to determine the expected benefits of the system, which will be used to calculate the ROI.

Step 2: Identify the costs of the CRM system

  • The costs of the CRM system include the cost of the software, implementation costs, training costs, and maintenance costs. It is important to identify all of these costs and estimate the total cost of the investment.

Step 3: Identify the benefits of the CRM system

The benefits of the CRM system can be categorized into two categories: financial benefits and non-financial benefits.

  • Financial benefits include increased sales revenue, decreased marketing costs, and increased customer retention rates.
  • Non-financial benefits include improved customer satisfaction, improved communication, and improved customer service. It is important to identify all of these benefits and estimate the value of each benefit.

Step 4: Calculate the revenue of the CRM system

There are a few ways to calculate the revenue generated from a CRM system:

  • Increased sales: Compare the sales figures before and after implementing the CRM system. The difference in sales can be attributed to the CRM system.
  • Increased customer retention: A CRM system can help a business retain customers by providing better customer service and communication. By tracking customer retention rates before and after implementing the CRM, you can calculate the revenue generated from retained customers.
  • Improved sales efficiency: A CRM system can streamline the sales process and make it more efficient. By tracking the time it takes to close a sale before and after implementing the CRM, you can calculate the revenue generated

Step 5: Calculate the ROI of the CRM system

To calculate the ROI of the CRM system, use the following formula:

  • ROI = (Net profit / Cost of Investment) x 100

The net profit can be calculated by subtracting the total costs of the investment from the total benefits of the investment.

Step 6: Evaluate the results

After calculating the ROI, evaluate the results. If the ROI is positive, it means that the investment in the CRM system is generating more profit than the cost of investment. If the ROI is negative, it means that the investment in the CRM system is not generating enough profit to cover its costs.

However, the ROI alone may not be enough to determine the overall success of the CRM system investment. It is important to consider other factors such as customer satisfaction, employee productivity, and operational efficiency.

If the CRM system has led to an improvement in customer satisfaction and loyalty, increased sales, and streamlined business processes, then the investment can be considered a success even if the ROI is not as high as expected. On the other hand, if the CRM system has not had a significant impact on these factors, then the investment may not be worth the cost even if the ROI is positive.

Therefore, it is important to evaluate the results of the CRM system investment from multiple angles to determine its overall effectiveness and whether it has achieved the intended goals and objectives.