CRM Reading Lounge: CRM & General Articles

Make CRM Pay: Outlining Ways CRM Can Lead To A Significant Return On Investment - Article by Peter Wiggins, Founder & MD of Software Sculptors Ltd.

CRM ROI analysis – Universal Computer Supplies

Let’s suppose there is a company, Universal Computer Supplies, which sells office and IT equipment. For sake of
argument, let’s suppose turnover is steady and this company operates as follows:-

Average order value = £500
Leads left to go cold = 20%
Average length of time as a customer = 4 years
Average orders per customer per year = 4
Number of customers = 300
Leads converted into orders = 50%

Significant increases in this company’s turnover, which is currently £600,000, could be achieved in the following 5 areas:-

  1. Retain customers
    By pro actively managing the relationship with the customer, staying in regular touch with them, enhancing the customer experience when they phone and generally creating a feeling with the customers that they stand to lose something by purchasing elsewhere, it would not be unreasonable to expect customer retention to improve to an average of at least 5 years, rather than 4. Over time this could add £150,000 to the turnover.
  2. Stop leads going cold
    By ensuring that every lead is followed up in a systematic and timely fashion and at all times there is a plan in place
    to move each lead to a sale or not, it should be straightforward to reduce the number of leads going cold to zero. Bearing in mind that we are contemplating a 20% increase in the number of leads you can convert, as opposed to a 20% increase in orders you are currently getting, this could lead to £150,000 extra turnover.
  3. Up-selling and cross-selling
    Ensuring that appropriate consumables and additional optional items are offered to customers that purchase some
    equipment might add perhaps 10% to the average sale. This could add £60,000 to the turnover.Customers are inclined to put suppliers in boxes. By making customers aware of your capabilities you may be able to offer a better deal through greater order volume.In this business, some customers have bought computer furniture but never any IT equipment and vice versa. By presenting these additional products and services to such customers might yield an increase in sales of maybe 20%. Over time this could add £120,000 to the turnover.
  4. Repeat business
    Ensure that appropriate offers for consumable items are sent to customers at regular intervals. Sending targeted
    information relating to equipment approaching end of life could possibly create 10% additional sales revenue. This
    could add £60,000 to the turnover.
  5. Referrals
    In this business, each customer is going to be sent a customer satisfaction survey and will be asked who else they
    know who might benefit from a similar level of service. If, on average, each customer provides just one cold referral
    and if only 30% of these ends up as an actual lead for products or services then this would generate 90 new
    customers. This could add £180,000 to the turnover.

Other Probable Results

In addition to the above 5 common areas of significant improvement, there are many other areas where improvement
can be expected. Just a few of these are:

  • Improved lead conversion ratio
  • More effective marketing spend
  • Reduction in time-consuming manual processes
  • Less paperwork
  • Improved employee morale
  • Better informed decision-making
  • Less complaints
  • Better business planning

In summary, Universal Computer Supplies might expect, in the short to medium term, to more than double turnover from
£600,000 to over £1.3 Million while enjoying many other less tangible benefits. While many businesses might not expect to
see quite such impressive results, there are also many who could do even better.

Even if you think these figures are optimistic, use a lower percentage improvement and still see how for very little
effort, the business turnover could be improved. To calculate the ROI from implemeting a CRM system, take an average
gross profit on the increased business (your overheads have not changed) and see how the bottom line changes – then
weigh this against the few £k investment in CRM – it is likely to be an easy decision to invest.

Best wishes

Peter Wiggins

Peter Wiggins, Founder & MD of Software Sculptors Ltd., publishes ‘CRM Matters?’,a monthly e-mail newsletter to inform about Customer Relationship Management(CRM) and business improvement. Software Sculptors Ltd. market the innovative CRM software Flightdeck CRM