CRM Best Practices Explained: ROI

Another thing you hear all the time when looking for CRM systems is "ROI."

Sometimes vendors sound like used car salesmen when they discuss ROI, although they're usually more tastefully dressed: "This baby'll give you ROI in… four months, guaranteed, ah kin give you a list as long as my arm of satisfied customers, lookit here" -- shoves piece of paper under your nose -- "Satisfied customer Mr. Wile E. Coyote of Acme Anvils said our product gave him ROI in four months. Works for him it works for you, am I right? Whaddya say, chief?"

So what is ROI? Very simple -- return on investment. You invest, i.e. sink, money into something because you want something back. So while you can always tell how much you paid for something, if you don't know what you wanted back, it's pretty hard to tell if you made a smart investment.

Papa Razzi's or Bangkok Orchid?

So defining the return you want is key. Let's say you pay -- invest -- $187.50 on dinner for two in a fine restaurant. The food arrives, you eat, pay the check and leave. Was it a good investment? Did you get your ROI?

Let's say it was a really, really good dinner. The tastiest fettuccine alfredo you've ever had. Gorgonzola bread to die for. Veal saltimbocca which could have come out of the finest kitchen in Italy. A 2004 Cavalchina Bianco di Custoza Sup. The best panna cotta in town. A better Italian dinner couldn't be had for love or money.

But you wanted to show your Thai girlfriend how much you appreciate Thai cuisine so she'd marry you. That was your goal when you got in the cab: By the end of dinner, as you're strolling arm-in-arm along boulevard, you wanted her to turn to you and say "I'm glad you like Thai food, I saw how much you enjoyed that dinner. That was really my one major concern, so let's set a date and get to the church on time."

In light of that goal, how did the expensive, top-quality Italian dinner perform? A total waste. Well, except for the Cavalchina, she liked that. But what you needed to accomplish your goal was a Thai dinner, and you didn't get it. She said "Thanks for the dinner" and went back to her place.

Your return on your $187.50 investment? Zilch. How much the dinner cost or how good it was is irrelevant -- a decent $50 dinner in a Thai restaurant would have given you a far better return. Had you determined your goal -- your desired return -- and then researched out which restaurant would give it to you before you splashed out the cash, you would have taken her to the Bangkok Orchid, not Papa Razzi's, and your investment would have accomplished your goal.

And If You Guess Wrong, It's McConnell's Pub.

Because here you sit in McConnell's Pub complaining to the guy on the next barstool "I told her how much it cost, and that it was the finest Italian dinner in town, but she still said it wasn't right. Ah, women," as Mac slides another Guinness down the bar. At least you'll get your desired return on the Guinness.

There's no point in reading reviews of Italian restaurants, calling around for average dinner tabs or asking for personal recommendations of The Tuscan Olive and Café Roma when the most humble dish of Thai green curry in town takes you closer to your goal than the priciest bistecca alla Fiorentina.

So how do you know what you want in CRM, how do you know if you're going to get it, and how do you know if you've gotten it?

Step One: Define Your Objective. No, Really.

First, define why you're getting CRM technology at all. Don't throw around meaningless terms like "increased customer satisfaction' or "increased opportunities" and think you've said anything. If a Thai dinner is needed you don't look for "fine dining experiences" or "four-star Michelin" restaurants, you immediately focus the conversation on Thai restaurants only.

All any CRM technology is, is a tool. If you need a tool to reduce the wait times your customers have on the phone you don't want a tool to improve sales time your reps get with customers -- even the best one available. You focus the conversation on IVR, say.

Of course this assumes you have a goal, i.e. a good reason, i.e. a defined way to either cut costs or increase revenue, in mind. If you can't write that goal in one sentence on a whiteboard -- "We need to give every call center agent the complete view of any customer's purchase history with us, since we find that we can upsell on 25 percent of the calls we get if the agent knows everything the customer's ordered." -- then you don't have a goal and you shouldn't be thinking of buying anything.

But you have a goal -- you need to decrease wait times, or increase the amount of customer information available to call center agents, or increase field agents' remote access to centralized databases so they can make more sales calls a day.

Step Two: What's the Number, Kenneth?

Now can you put a number to that goal? Can you say "We expect to be able to see $15,000 in additional revenue per month if our sales reps can make seven calls a day instead of five?" Can you say "If we can offload 2,500 calls per month to the Web site FAQ and help page we'll save $35,000 a month in call center agent costs?" Can you say "If we can decrease the number of orders requiring changes by 15 percent and cut the number of orders sent back for clarification by half we expect we can increase order transactions by 20 percent?"

Step Three: Read the ROI Off the Screen.

You can? Great. There's your Return On Investment sitting on the computer screen in front of you. A 20 percent increase in order transactions. $35,000 less on call center agents per month. Seven rep calls a day instead of five. If you don't have a number you don't have an ROI you can measure, you have no way of telling if you made a good or bad investment and you need to keep working to get that number.

But you have that number. Here is where you talk to people outside of your company for the first time. Here is where a consultant draws her first billable hour. Here is the first time any vendor has any inkling you're maybe possibly interested in seeing what their product can do towards this specific task.

Because you do not call a consultant or a vendor and say "Hey, we'd like to get some CRM in here to cut costs and increase revenue" any more than you hand your teenage son your credit card and say "Hey, go have a good time tonight, okay?"

No Transitive Verb With Direct Object? No Goal Yet, Bub.

No. Before you pick up the phone you know why you want CRM -- you can write it on a cocktail napkin. You may have done so. You know what you need a CRM tool to do for you -- exactly and specifically what you want it to do for you, using transitive verbs and direct objects, a la "reduce our wait times."

You have a ballpark figure for how much money you're planning to save or how much extra revenue you think you can generate with the proper CRM tool, because if you think you can get an extra $45,000 you're not in the market for a $75,000 tool.

You are, in fact, ready to enjoy a return on your CRM investment. After which you can celebrate with a nice Italian dinner.

Article originally appeared in the author's TMC archive.