Successful CRM implementations can - and do - drive market leadership. Customer-centric companies consistently...
By submitting your personal information, you agree that TechTarget and its partners may contact you regarding relevant content, products and special offers.
increase loyalty, average order size and profitability, because they know what their customers value, and entice them to spend more.
However, with increased scrutiny of enterprise applications across-the-board, it pays to examine the assumptions underlying any proposed benefit. Here's a hypothetical business case that tabulates gains and risk- the two key components for an accurate assessment.
- Average customer order = $120
- Average number of customer orders per year = 1.5
- 30 percent increase in orders = $54 per customer
With regard to the revenue gains, it is important to consider more than overall revenue against expenses. It's more effective to compare the projected profit to calculate the net benefit. To do this, multiply revenue by the profit margin.
For instance, in the simplified CRM example noted above, it would be a mistake to integrate the entire $54 gain into the business case. Only the profit from the increased revenue should be considered; if there's a 25 percent net profit margin, only $13.50 should be added. However, if the company fills 2 million orders yearly, gaining $13.50 on each one will drive $27 million to the bottom line.
For some organizations, revenue growth is of utmost importance. For other companies, competitive advantage, market share, and collateral benefit may be sufficient incentive to undertake certain projects, and weight should be given to intangible benefits in these cases.
There is always a risk that the predicted business benefit gains won't directly translate to increased profitability. To take this into account, scale back projected business benefits by a reasonable risk factor; conservative estimates may hover at 50 percent. The resulting gains will be realistic, and achievable/
Dig Deeper on SAP ROI and TCO
Related Q&A from Tom Pisello
Looking for a definition of IRR and ROI? Read advice from ROI expert Tom Pisello on how these two different metrics can be used to measure ROI for a ...continue reading
Learn how to calculate ROI for VoIP in the call center in this expert tip from CRM ROI expert Tom Pisello.continue reading
Which metric will provide a most effective cost evaluation for a CRM project: payback, discounted payback, ROI, NPV or IRR? Tom Pisello offers his ...continue reading
Have a question for an expert?
Please add a title for your question
Get answers from a TechTarget expert on whatever's puzzling you.