return on investment

I have a client who manufactures custom furniture. Last month he spent more than $150,000 on a specialized woodcutting machine. He needed about 10 minutes to make the decision. “It was a no brainer,” he told me. “I know for a fact that I can do a half a million of business on that thing alone in just the next year. The Return on Investment obvious.”

“How about a CRM system?” I asked him. “That will only cost you less than a thousand bucks a year.”

“Yeah, still thinking about that,” he said. “I’ll get back to you.”

Welcome to my world. As someone who recommends customer relationship management systems I’m always meeting smart business owners who are always looking to make money. They’ll invest when they can calculate a return on that investment. They take risks, but their aim is to minimize those risks. And buying a CRM system is a risk. These are smart people and many can’t figure out if it’s worth it. Do you have the same issue? Obviously, you’re not alone. So let me help you. It’s just math.

You’re probably reading this on Insightly’s blog so it’s only fair to use Insightly as our example. Forget the free edition – let’s assume you’re splurging and want to get the Standard version for your ten user group, which, at a whopping $7/user/month will set you back $70, or $840 for the full year. But you should never consider ROI for just one year. Good investments take a little longer to return that money. So let’s look at a five year return – a reasonable time frame considering that you’ll likely keep your CRM system that long. Your cost for Insightly over that period would be $4,200.

When calculating ROI you never just want to get your money back. You want to earn from your investment. Otherwise, why spend the $4,200? You can stick it in the bank at 5% a year (or even 1% at current interest rates!) and it’ll make you more money over five years then if you’re trying to get your money back. You want this investment to at least bring you back $6K at a minimum. Hopefully more.

So now comes the math. If you’re looking to bring in $6K over the next five years that’s $1,200 per year, or $100 per month. Your question is this: Will this investment earn me $100 per month over the next five years? Will it? Now comes the no brainer part.

If implemented the right way, CRM systems do three things. It ensures that nothing falls through the cracks, no customer or prospect gets ignored, no task is forgotten. It ensures that no one in your company looks like a dope, that they know all that’s going on with your customers and prospects, that the right hand knows what the left is doing. And finally, it builds an intangible value in a business, creating an asset of customers, partners, prospects and others that make up your community, an asset that’s worth something to a future buyer or investment.

Now sit down and look back over the past few years. How many sales were lost because customers were ignored? How many quotes and proposals were forgotten and not pursued? How many customers are being undersold because you are not considering additional products and services that they may be interested in? How many customers are not considering more services from you because they’re not hearing from you enough? How many customers just disappeared because an issue wasn’t followed up timely or even fell through the cracks? How many customers of customers (and friends, and vendors, and partners) could have been referred to you by your customer with just a little better communication?

You know this. You probably know this off the top of your head. But sit down, think, pull out some files, go through your accounting system and make a list of all these people. Forget five years, just do this for the twelve months. And then associate a dollar value – the dollars lost or opportunities missed. Add up that dollar value. Does it add up to more than $6K? And that’s just from this past year, right? Yeah, I thought so.

Congratulations. You just validated the ROI of your CRM.

About the Author:  Gene Marks is a small business owner, technology expert, author and columnist. He writes regularly for leading US media outlets such as The New York Times, Forbes, Inc. Magazine and Entrepreneur. He has authored five books on business management and appears regularly on Fox News, Fox Business, MSNBC and CNBC. Gene runs a ten-person CRM and technology consulting firm outside of Philadelphia. Learn more at genemarks.com