How to Justify CRM Initiatives in a Changing Market
By Sharon L. Weaver
A number of changes have occurred in the marketplace over the past year that have put tremendous strain on an organization's capital investments. Employee layoffs, mergers and stock market drops all affect the amount of money consumers have to spend on products and services. Therefore, it is becoming even more important for organizations to both retain and deepen their relationships with existing customers.
Customer relationship management (CRM) is an overall strategy that allows organizations to more effectively manage and track customer contacts. CRM initiatives start with a vision of how to make the organization more customer-focused, but often require a substantial investment in software and infrastructure to execute.
While CRM initiatives in most organizations have been scaled back this year, it is essential, now more than ever, to gain substantial internal support to ensure the projects continue through completion. A well-developed and persuasive business case could save your CRM project and your job!
What's a Business Case?
A business case is a document that outlines a supporting argument to senior management to approve a specific project or initiative. Typically, a business case is used internally to gain support for a project, justify the expenditures, and show projected outcomes as a result of accepting the project. This article defines a standard outline that can be used in developing a business case, with a focus on useful CRM metrics and measures that can be incorporated into the case.
Keep in mind that each organization has a unique set of criteria for accepting business cases. Some organizations are logical and rational decision-makers that thrive on quantitative facts and financial metrics, while other organizations may be more persuaded by who is supporting the project and are comfortable making decisions based on qualitative anecdotes. Therefore, before any business case is drafted, be sure to understand what drives decisions in your organization so that you can focus the content of the business case toward that goal.
Why Develop a Business Case?
Do I need to create a business case for all projects? No, certainly not. If you spent all your time justifying project costs, it would be difficult to actually complete any of the projects!
Depending on the organization's culture, business cases can be developed only for projects over a certain budget figure, or they can be developed for multiple, shorter-term initiatives. In one financial services organization, every marketing campaign that was executed required a business case to justify the dollars spent toward that program. This structured approach, by default, required the marketing department to project response goals for each campaign, and then compare projected results to actual results once the campaign was completed.
Outline Your Business Case.
Now let's go through a proven six-step outline that can help you get started writing a business case that can be easily tailored to your organization.
1. Current Situation
2. Project Approach and Assumptions
3. Qualitative Projections
4. Quantitative Projections
First, start the business case by identifying the business problem that needs to be solved. How does this problem impact customer interaction with the organization on a daily basis? For an organization taking on a long-term CRM initiative, the most compelling information here may be actual customer experiences about how they were treated, and why they were not able to get their issue resolved in a timely manner. This can be especially powerful when the customer issue is a direct result of current system constraints, and can only be solved through investing in enhanced CRM systems or software.
For example, how many people have called an organization to ask a question, only to be required to enter their customer identification into the phone and then be asked to verbally repeat that same number when the customer service representative receives the call? This is a common problem across many organizations that directly impacts a customer's experience. Typically, this is a result of a system constraint that cannot pass customer information directly to the customer service representative, rather than an intentional process. After several hundred complaint letters about this issue, an organization soon realizes this minor system constraint can negatively impact the customer experience, which can send customers away.
Project Approach and Assumptions
Secondly, review the project approach that has been taken to determine the appropriate business solution. The purpose of this section is to highlight that the financial benefits are based on certain assumptions. If those assumptions change, then the projections may need to change as well. How many different options were initially considered? Was market or competitor research conducted to support this case? Has an external consulting group recommended the proposed solution?
Include all assumptions that were taken into account to develop the business case. These assumptions could range from assuming the organization is still in business, the market remains stable, the organization is on the same growth path, that revenue goals are met, to the project champion is still in charge, and so on.
The third section, qualitative projections, highlights significantly softer benefits to the organization or its customers as a result of the initiative. For CRM projects, typical qualitative benefits include reduced cost per customer acquisition, reduced churn rate, increased customer satisfaction, productivity gains, increased response rates for marketing efforts and more complete information on customers. For marketing departments that rely on these customer measures, this section of the business case should be lengthy and detailed.
Although this section focuses on qualitative measure, you can generally assign measures for best and worst case scenarios for each of these benefits, compared to a base line, to show projected improvements in customer activities.
Fourth, the qualitative projections show the costs and benefits associated with a given project or initiative. In the past, organizations primarily focused on the quantitative benefits to justify approving a project. However, this may not be true today as different organizational cultures focus on achieving different goals.
There are a variety of financial measures that can be used to determine whether or not a project should be accepted. Return on investment (ROI) is a common metric often used to determine an organization's return on assets invested. This measure is a ratio calculated by taking the total cost of the investment minus the total benefits divided by the total cost times 100. The result is then compared to an internal hurdle rate that each organization pre-determines is acceptable for projects.
Other financial metrics, such as Net Present Value (NPV) or Internal Rate of Return (IRR), take into account the time value of money and spread costs and benefits over the estimated life of those initiatives.
Another approach, the "break even" method, is a simplistic approach that is helpful for organizations that do not have the time or financial skills to dedicate to a thorough analysis. This method simply sums the cumulative revenue and benefits from the project subtracted from the cumulative costs to determine if the organization will break even. This method is not recommended for long-term projects with complicated cash flows, because the time value of money is not taken into account.
This section of the business case synthesizes all of the costs and benefits associated with the CRM project and recommends the proposed solution. This section combines both the qualitative and quantitative benefits listed above and highlights any risks involved with accepting the project. The business case should state facts that support the recommended solution and lead readers to the same conclusion.
This section should be brief and to the point so that readers clearly understand the recommended solution. Summarize the primary business problem, recommend the proposed solution, and show the benefits of that solution to the organization.
Today, organizations are being asked to pick and choose which CRM projects they want to support. With limited budgets and more emphasis on producing results, managers are asked to justify their CRM expenditures and to quantify benefits more than ever before.
Now you are prepared to start writing your own business case for your organization's CRM projects!
Sharon Weaver is a marketing consultant for Quaero (www.quaero.com), a CRM services provider, where she works with both traditional and dot-com clients to design and execute e-mail marketing campaigns, as well as help clients evaluate, select, install and employ campaign management software. She can be reached at email@example.com.