How To Justify Any CRM Investment

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(This post originally appeared on Forbes)

David owns a twenty person landscaping business near me. Last week he bought a used Ford 150 pickup truck for his crew for $25K. It took him about three minutes to make that decision. David is also considering the purchase of a Customer Relationship Management (CRM) system. The cost of that would be about $6K, including services. He hasn’t done that. He’s been considering the system for more than two years. What’s the problem?

“I can’t figure out if I’m wasting my money,” he told me when I first met him the other week. “I know I can put the F-150 on the street with one of my crews right away. But a CRM system? I’m not sure I get it.”

This is not unusual. David is a smart guy. And as a business owner, he’s no romantic.  He watches every penny going out the door.  He’ll plunk down $25K for a used truck in a heartbeat and then throw a fit if there’s $25 missing from petty cash. For him, every dollar is earned with sweat. And if he’s going to spend it there better damned well be a return on investment. Which is what has been holding him back from buying a CRM system. He still can’t justify the purchase. He can’t see the ROI. But there is ROI.

A CRM system is nothing more than a database. In it you have every person who comes in touch with your business – prospects, customers, partners, vendors, suppliers, etc. And, if used the right way, every one of these people has a follow-up. Nothing falls through the cracks. Actions, emails, appointments, notes and tasks are scheduled, stored and completed there. It integrates with your accounting system and it is the first place everyone goes to when someone calls, if only to see who has last spoken with the person and what the issues are. A good CRM system is used for both sales and service. It tracks opportunities and it also is the go-to place for any problems, issues or complaints. It is automated to remind managers to check in with customers, follow-up on quotes and basically make sure no one in the company looks like a dope.

But how do quantify this value? How can a guy like David justify the $6K he needs to spend for a CRM system?  This is no different than a Ford truck or any piece of equipment. The secret to justifying a CRM system, any CRM system regardless of size, is having a black and white, quantifiable, easily-understood ROI. This is not hard. Here’s how.

For starters, take the total cost of the system over a five year period of time, a typical (if not on the lower end) period of ownership. David is considering Insightly, a popular cloud based CRM system (author’s note: I recently wrote about this same topic on Insightly’s blog – I have not been compensated by them to write this blog). Insightly’s most expensive version is $7 per user per month. A 10 person company like his would spend $70 per month or $840 per year or $4,200 over 5 years plus another $1,800 for some training and support over that period of time.  That’s about $6,000.  That, of course, doesn’t include the internal cost representing the time his people will need to invest in the system, which is another topic for another day.  So let’s stick to the hard costs.

Now, go back two years. Look at your spreadsheets. Talk to your salespeople. Review your old calendars. How many projects, deals, opportunities, quotes and bids were lost because they weren’t followed up timely? How many were lost because they were forgotten altogether? How many could’ve been won if there was more communication from you, more knowledge of the competition, more negotiation in price, more outreach by your team? Yeah, I thought so. Everybody loses deals because of this. Add up the value. Take the margin. Is it $5k?  $10K? $25k? That’s your lost profits. Compare that to your investment.

Still not convinced?

OK, take those same two years. Run a report of sales by customers back then compared to sales by customers now. Missing something? Lose some customers? Why is that? Not enough attention given to them? Didn’t respond to them fast enough? Did a competitor steal them away with better service, more attention, lower pricing? Next, look at your existing customers. Are you really getting all the revenue you can from them? Aren’t there more services and products you can be selling them? Why aren’t you? Isn’t this the same as throwing away money? It is.

David’s problem is that he can smell, feel and kick the tires of a Ford F-150. He can see it on the road, taking his crews and equipment to house after house so they can do their work and he can send out invoices. With a CRM system, like any software system, he can’t picture this. He can’t “see” quotes slipping through the cracks or bids getting lost in the shuffle. He can’t see lost opportunities from unhappy or underserved customers. Someone needs to paint that picture for him. And then associate that picture with cash. Because when a business owner like David knows there is a specific and significant ROI to be earned on a software purchase like CRM, he will spend the money as quickly as if it were a truck.

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