CRM Solution Software

CRM Software Solutions

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An Executive's Guide to CRM Software

The Costs of CRM


There is no doubt, implementing a Client Relationship Management system involves expenses, and several of these are obvious, direct and measurable, or so it would seem. Outside of cloud computing software solutions, basic and most evident is the cost of licensing the software. To all appearances, this is a simple, straightforward and effortless exercise.

Think about it. Not so.

First, an organization must determine whether they will purchase the solution outright, lease it, or have it hosted and pay on a subscription (rental) basis. The variation between each of these options is further complicated by the vendor involved, the size and complexity of the purchasing company, and the internal expertise available for the project.

Purchasing CRM software normally involves a cost for the software, an incremental per user fee and a recurring annual maintenance fee. The user-based fee is either by named user or by concurrent users. Concurrent users are counted by the number of individuals using the software at the same time or simultaneous logins, while named users are a count of every user who will login to the system at any point in time. A software purchase involves these fees plus an annual support fee, and the total cost of ownership of the system over its anticipated years can be summed. A direct system acquisition is an capitalizable or expensible investment which can be compared to an ROI or Internal Rate of Return (IRR) for a predicted period. While life of software estimates vary, a general rule is four years. Don't plan to use the software beyond four years; history shows it won't happen.

In the long term, leasing is a more expensive option than procuring software, not simply because of the interest factor, but also the impact on the company’s bottom line. Most leases include a one-time buyout at the end of the term thereby limiting the recurring expense. A slight advantage of either leasing or purchasing a solution is that the entity can write the expense off against assets. With a hosted solution, this does not occur, and the company embarks on a repetitive, circular direct cost. However, several expense reductions occur as a result of instituting a hosted solution, such as, eliminating the need for an Information Technology Department, or the utilization of resources within this department. Intangibles associated with the latter also impact on the bottom line. Some of these include the expenses coupled with staying current with new CRM software releases, dependent software program upgrades such as operating systems and databases and the inevitable hardware upgrades. When Microsoft moves to Vista, for example, the IT department must devote resources to learning and installing Vista before new updates of the CRM solution can be installed. The outcome of this is a series of intangible costs related to productivity and deployment of limited resources.

Another overlooked expense is that of procuring hardware. New software purchases can require investment in new hardware due to minimum requirements of the current operating systems. If existing computers have insufficient capacity, then upgrades or replacements must be purchased, installed, and tested. All of these are additional costs associated with utilizing a Client Relationship Management solution.

No matter what type of environment the company gravitates to, be it leased, purchased or hosted, internal resources from each of the three departments, Marketing, Sales, and Service are required to ensure successful CRM software deployment. Indirect costs include salary for employees, loss of productivity realized by employees’ dedicated project hours, and the learning curve involved for personnel who are part of the implementation team.

Vendor consulting services contracted are a virtual necessity and the one area primarily responsible for budget overruns. Assistance from the CRM vendor is almost always given as an estimate based upon the scope of the project. Even highly experienced companies tend to overlook or misjudge the cost of implementing a Client Relationship Management solution. Should the purchasing company define the CRM project scope in absolute detail, the loss of productivity and direct employees costs associated with the required specificity may become too onerous to consider.

Absence of sufficient detail regarding the scope of the project produces knowledge gaps for both the vendor and the client, and can result in the CRM budget being significantly exceeded. The purchasing company must ensure there is adequate definition of the project scope to warrant the costs involved incurring them, and compare this against potential budget overruns.

The above costs are reduced considerably should the purchasing company have explicit procedures in place for all business processes related to Client Relationship Management. Even if this holds true, re-working of these processes occurs to an extent. Expenses are incurred in either scenario, and these are associated with any corresponding ROI analysis.

Most CRM systems require tweaking or customization to reflect a company’s environment, even if it is a ‘best-fit’ solution. Changes to the software must be considered for the lifetime cost of the solution. Each customization must be maintained over this period from version to version. If a new version is anticipated annually, then the correlating expenses of amending any software changes are part of the costs of the system solution for every year it is in operation. Changes or customizations are not limited to actual program code alterations, but also to report and screen modifications even if they are cosmetic in nature, and all of these must be taken into consideration.

A key area in Client Relationship Management solution costs is that of ongoing maintenance and support. These vary by vendor and by the level of assistance desired. Be aware that lack of training and/or support is a key factor responsible for CRM implementation failure or success. Again, these costs must be taken into account for the life of the solution.

Even smaller companies utilize some sort of system to run and operate their operations. Accounting and Inventory systems in existence must be incorporated into building the business case for a CRM system, particularly where there is actual inventory involved. No matter how productive and efficient a Client Relationship Management system is, if Sales cannot place a direct order without having to re-enter it, other expenses, both direct and indirect, are incurred. Examples of these costs are the costs of double entry time, errors which may occur in transposing orders from one system to another, unavailability of real-time information leading to product or resource shortages, or lag time between placing the order and fulfilling it.

If an integration between dissimilar CRM and Accounting systems is required, then there is the expense of the development of this customization, and the associated costs of maintaining this bridge over the lifetime of the software. Either internal or external resources must be utilized to preserve this integration over the life of the solution, and this must be part of the business case deliberation.

All of these costs impact each other. For example, a customized integration between a CRM and an existing Accounting system is impacted by operating system version changes, whether internal resources are utilized or not, as is the intangible expense of the learning curve involved with employee turnover.

The list of expenses goes beyond a simple Medusa’s head if the purchasing entity insists on detailing every single one, by the simple exercise of doing so. In defining and delineating the costs of implementing a Client Relationship Management solution, an entity must decide where to draw the line, and detail a process to manage all demarcated expenses.

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