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Buyer Be Aware

Overbuying and elusive ROI measures plague CRM, yet customers continue to sign on.

ROI is similarly elusive when the software in question supports forecasts. Office-supplies giant Staples Inc. adopted SAS’s analytics software about seven years ago to handle weekly sales forecasts (which now come within one percent of actual sales, on average), and now uses the tool to make decisions about where to locate new stores, how to time marketing efforts, and even which products to place most prominently in stores.

“It’s hard to quantify all the good things that come from a good recast,” says Alan Gordon, director of sales forecasting for Staples. The company saw a 13 percent increase in first-quarter sales and is predicting a pro-forma 20 percent growth in earnings this year, but tracking those revenues back to the CRM tool fell by the wayside long ago, Gordon says.

Is it wise to be so cavalier about such spending? Gartner’s Eisenfeld says no. “There is no question in my mind that people are getting benefits with CRM,” she says. “But the question is, is the benefit worth the cost?” Eisenfeld believes companies should translate the efficiency and effectiveness gains they expect to get from CRM into potential revenues, and then continue to track returns over the life of a technology. With most annual CRM-maintenance fees ranging from 15 to 23 percent of the initial cost of the software, it may pay to switch.

Aberdeen’s Pombriant, however, sees little danger in the lack of rigor. “Who has the time and resources to constantly come back and measure?” he says. “What the marketplace is telling me is that they look at the benefits and impute ROI.”

In fact, in Aberdeen’s recent independent survey of 325 Siebel customers, analysts found that the difference in reported ROI was not statistically significant between those companies that measured ROI and those that estimated it. But that study came on the heels of a report from Nucleus Research, of Wellesley, Massachusetts, that found that more than half of the Siebel customers it surveyed (a very small base of 23 companies) believed they had not made back their investments after an average of two years.

One problem, of course, is that while CRM was initially sold on its revenue-boosting capacities, the weak economy made such gains difficult to come by even if the software adds value. As CRM continues to morph, its ability to drive better decisions and reduce costs now gets more play. That doesn’t ease ROI calculations, but it may help customers have more cordial relationships with the vendors that have sold them on the promise of CRM.

A CRM Scorecard
How customers rate three types of CRM on four key criteria:
CRM category Enhanced revenue Cost control Productivity Improved analysis
Sales 4 3 1 2
Marketing 1 2 (tie) 2 (tie) 4
Customer Service 4 1 2 3
Scale: 1-5, with 1 equaling best
Source: Aberdeen Group, February 2003

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