Real Cost of CRM
pop quiz time. What is a surefire way to infuriate your company's
chief financial officer? No, the answer is not presenting an urgent
request to purchase a six-figure CRM package that the company desperately
needs if it wants to stay competitive, or at least afloat.
correct answer is presenting the CFO with said six-figure proposal
that eventually turns into a seven- or eight-figure project.
that tends to happen with many CRM implementations.
is not new anymore and so there have been a couple of different
approaches to estimating costs that have become accepted,"
Rob Rose, principal with Deloitte Consulting's
CRM practice, told CRMDaily.com.
as CRM becomes more complicated, these accepted approaches don't
work anymore," Rose added.
the reason for these unexpected costs -- and we will get to them
in a minute -- it is clear that there is a problem. A Gartner
Group (NYSE: IT) survey released last month showed that a majority
of businesses will underestimate the costs of CRM projects by as
much as 40 to 75 percent over the next five years.
Such Thing as Average
offered some suggestions, including better use of project management
expertise, calculating total cost of ownership over the life of
the project, and completing an ROI (return on investment) assessment.
while these steps are certainly essential, they just begin to scratch
the surface. Other costs, such as integration and training, often
sucker-punch the most vigilant of budget departments.
problem is scope creep -- as a project gets underway, people suddenly
realize that more capabilities or applications are needed if the
project is going to work as originally envisioned. Or, people take
advantage of ongoing IT work to tack on a few extra applications
that they always wanted their department to have.
these are common problems of many IT projects. With CRM, a more
fundamental issue is also at work, Rose said.
are basing the cost estimates of their projects on such metrics
as average cost per seat," he noted. "Trouble is, there
is no such thing as average -- each project is different depending
on the level of complexity involved. But these industry metrics
are throwing clients off, and they ask us to explain why they are
under or over the industry average when the industry average never
meant anything in the first place."
project's level of complexity is key, Deloitte Consulting said in
a recent report, "How to Eat the CRM Elephant."
company grouped CRM projects into roughly three categories:
High complexity, which covers sales, marketing and customer service
processes; major application customization; any application with
more than 70 screens; and any project that requires more than 10
Moderate complexity, which includes two of the three categories
of sales, marketing and customer service; moderate application customization;
and 30 to 70 screens.
Low complexity, which means sales or marketing or service; little
application customization; fewer than 30 screens; and two or fewer
Deloitte report also offered some figures to help companies see
if their budget falls in the ballpark. As the report said: "There's
nothing revolutionary here. Just some hard-earned knowledge scraped
off the scar tissue of our consultants."
to the report, per-seat costs for high-complexity projects that
have 1,000 users start at around US$50,000 and slowly drop to about
$15,000 as the number of users increases to 5,000.
costs for projects of moderate complexity range from $30,000 for
about 500 users to a little over $10,000 for 5,000 users.
finally, per-seat costs for projects of low complexity should range
from $15,000 for a user group of 100 to $10,000 for 5,000 users.
CRM implementation bogeyman is the integration component of a project.
"It is difficult to completely identify all the integration
costs at the beginning of a project," Louis Columbus, a research
analyst at AMR Research,
for a CRM project to be effective, it usually has to leverage off
the overall inherited technology and databases of the company. Unfortunately,
the integration costs usually wind up underrepresented or overrepresented,"
are many reasons why integration costs can spiral out of control.
Data standardization and cleansing, for example, is a large and
often underestimated cost.
a transportation application. It might refer to shipments in terms
of weight, cube, pickup point, destination point and freight class.
A fulfillment application, however, might label the same shipment
or customer order as SKU, quantity, ship-from, ship-to and value-based.
data must be reclassified in a uniform manner -- before an integration
project begins. Too many companies make the mistake of thinking
this can be done after the project is implemented. This usually
happens when IT is pressured to complete a project on time. An IT
person might know the data being loaded into the system has problems,
but with a deadline looming
you get the picture.
integration issue is the best-of-breed versus end-to-end suite application
analysts -- and most smart companies, for that matter -- will flat
out tell you there is no such thing as an end-to-end application
outside of the marketing world. Except for smaller companies that
are better served by an all-in-one package, most companies tend
to buy best-of-breed applications and integrate them.
compromise that many companies are making is choosing a CRM module
offered by their ERP vendor. As the thinking goes, it will be easier
and cheaper to integrate mySAP into SAP's R/3 monster application
than, say, Siebel or Kana or E.piphany.
Employees on Board
cost that often catches companies unaware is the expense and effort
of getting employees to use the system once it is implemented. Training
costs can be included in this category. So can the time required
to convince reluctant employees to use the application all the time
-- and to use it correctly.
Columbus said, "The cost of rollout can be unexpectedly high
if no one is using the application."
that is another story altogether.