Justifying a CRM system financially often hinges on demonstrating a strong return on investment (ROI). By understanding and calculating ROI, you can highlight both the tangible and intangible benefits of a CRM system, making it easier to support its adoption. Below, we discuss methods for calculating ROI, examine the costs associated with CRM systems, and emphasize the importance of having a dedicated project champion for success.

ROI Calculation: A Standard Formula

A commonly used formula for calculating ROI in CRM projects is:

ROI = R + C + P + I – CRM costs

Where:

R = Change in revenue
C = Change in the cost of doing business
P = Change in productivity
I = Change in intangibles
CRM costs = Total costs incurred throughout the project’s lifecycle

Measuring increases in revenue or profit is relatively straightforward using financial statements or accounting systems. However, evaluating intangible benefits like enhanced customer loyalty or satisfaction can be more difficult. To effectively assess these, you need baseline data on these metrics—information often unavailable unless prior measurements were established.

Your estimates may depend on assumptions or educated guesses if you don’t have reliable baseline data. While this isn’t the ideal approach, it can serve as a starting point for illustrating potential ROI.

ROI Through Customer Lifetime Value

Another method for assessing ROI centers on lifetime value (LV), which looks at the value of new customers gained and existing customers retained due to the CRM system. This formula is:

ROI = Total LV – CRM system costs

To calculate lifetime value (LV):
LV = Average sale value × % Gross Profit × Purchase Frequency × Time Period

Where:

Average sale value = Average revenue per sale
% Gross Profit = Percentage profit margin for the average sale
Purchase Frequency = Number of purchases a customer makes in a specified period
Time Period = Expected duration of the customer relationship
While this method is theoretically effective, it can become complicated in practice. Each customer’s purchasing patterns, behaviors, and relationship dynamics can vary significantly.