The CRM Investment Primer: How Do You Make the Right Technology Investment In CRM?

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Divining Rods … have been used since ancient times … they simply measure energy patterns that occur naturally.

—Sherry Sims, RealMagick

Before investing in CRM technology, consider how it will impact the customer contact center, the activity hub of your company’s customer connections. Sales and service representatives interact with customers every day: face to face, on the phone and using email, web and instant messaging. The technical support staff for the contact center operations, the quality managers and contact center supervisors can see what is working in the customer relationship and what is not. To improve CRM, follow the patterns of customer interactions that occur naturally. The divining rod for investment is:


Return on Investment
To calculate ROI for each opportunity, follow this formula. The result will be the Net Present Value. The larger, the better! Let I be the investment required. Let Rn be the incremental Revenue in Year n. Let Cn be the incremental Cost in Year n. Let r be the discount rate. Total Return will be the sum of discounted (Rn – Cn ) for n=1, 2 and 3. To get the Net Present Value Return, you must subtract the amount of the investment. I recommend counting out only two or, at most, three years.

(See my article, A Primer: Here’s How To Calculate Customer Lifetime Value, to take into account customer retention impact.)


Net Present Value Return =
(R1 – C1) + (R2-C2)/(1+r) +

(R3-C3)/(1+r)2 – I





Will it improve the capacity of our customer contact center to service prospects and customers …

  • Faster, better or less expensively?
  • Sooner or later?

With this in mind, once you have a budget for CRM technology, here are the right steps to make sure you make the best investment for your business:

  • Identify the opportunities.

  • Classify the customer impact of the opportunities using RFM (recency, frequency, monetary) analysis.

  • Calculate the improvement on a balanced scorecard.

  • Establish your action plan.

Identify the opportunities

At the very beginning, it pays to investigate your customer contact center opportunities with those people who know it the best. Interview your top performing sales representatives and customer service agents. They know how to make the best use of their tools and opportunities, and a few will be especially helpful in telling you exactly what could really make a big difference in their effectiveness with customers, either in increasing revenue, decreasing costs or improving service quality.

The rest of the preparation involves analyzing the interview findings. Classify each item in your findings on one of three categories:

  1. The good. Improvements in existing products, services or operations or new products or services that complement your current offerings

  2. The bad. Complaints, product returns and people who don’t want to pay for products or services received—those necessary evils of doing business that must be reduced to a minimum

  3. The ugly. Things that should not be happening, are usually hard to fix or are not in a high-profile area, including known problems that have not been fixed and recurring problems that result in customer defection or dissatisfaction.


RFM classification

Even if you’ve already been compiling a similar list, run it by the folks in your contact center and turn the results into a master list. For each item, make a rough estimate of the revenue impact by using time-tested marketing concepts: recency, frequency and monetary value. For each item, consider the following and break it down into one of three categories:

  1. How many customers are likely to be affected?
  1. Five percent or more
  2. Less than 5 percent but at least 1 percent
  3. Less than 1 percent



  • How recently were the customers affected?
    1. Within the last month
    2. Within the last six months (but not the last month)
    3. More than six months ago




  • How frequently or often have they been affected?
    1. At every purchase
    2. At least every month
    3. At least annually



  • What is the monetary impact?
    1. Good opportunity: revenue realized in months or years
    2. Bad opportunity: lost revenue forecast and projected costs
    3. Ugly opportunity: a major loss in revenue increase in costs projected



    Now to apply RFM, follow these steps:

    Test for recency and frequency. Remove all the items that haven’t occurred in the last six months, which will leave you with two groups.

    Test for monetary impact. Separate the items into two categories, either top monetary impact or bottom monetary impact. Be sure to multiply the monetary impact for a single customer by the number of customers affected.

    Chart the remaining items. Put them into a cube like this, depending on their impact. The ones in the cube are top candidates for investment to improve customer experience.

    Balanced scorecard for improvement

    Now you’ll examine how much each of the opportunities in the cube delivers relative to your investment.

    Use the balanced scorecard with its four quadrants (see the diagram below). For the financial quadrant, use the formula on the right to estimate the return on investment for each opportunity.



    The investment required should include all up-front expenditures required to improve the capacity of your business to achieve the revenue and cost savings from the opportunity. Complete the balanced scorecare for the remaining quadrants, and create a dashboard for each of the top 10 opportunities. Because you are comparing the 10 opportunities against each other, you need only determine relative scores on customer satisfaction, mission alignment and organizational learning and growth for each opportunity.

    Action plan

    Finally, you are ready to present your case! Here’s the template to adapt to suit your situation. I recommend you include the ones scoring highest on the balanced scorecard sectors of most interest to your management.

    Execution and implementation
    Taking this approach, you’ve now built up support and communication networks required for execution and implementation and definitely increased your chances for a successful CRM investment. PS The Good, Bad and Ugly are gone but should not be forgotten! Use your track record of successful implementations to knock them off one by one.

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