Posted by David
A question that is increasingly asked by law firms is “how can we demonstrate that our new CRM system is providing value to the firm?”
This next series of posts will recognise that assessing return on investment for CRM initiatives can be a difficult task and will attempt to offer a framework in helping practice managers measure return on investment of CRM systems. We'll start with identifying the challenges in assessing return on investment and in our next posts attempt to build a framework that can be used to assess return on investment.
Getting a read on the return on investment of CRM from analysts is near impossible. There are many reports that claim the return on investment from CRM implementations has been dismal, with 8 out of 10 projects failing to deliver on promises, and 50-70 percent typical project failure rates. Some more recent reports are more optimistic, with about 52 percent of firms responding that their CRM initiatives generated a return between 51 percent and 500 percent, and 30 percent of respondents saying the return was greater than 501 percent.
Why the big difference in the results? Some have blamed the researchers for the lack of clarity. But the biggest issue is that only about 20 percent of the firms surveyed are able to demonstrate return on their CRM investments, since most firms indicate that non-financial metrics (often called intangible benefits) outweigh financial metrics as a gauge of technology investment value. In addition, those that use either financial or non-financial metrics are not quantifying key performance indicators that would provide clear guidance and proof of success.
Law firms need to implement serious yardsticks when seeking to evaluate CRM-software investments. Metrics are essential, with a formal business-case in place before the project begins, and an evaluation that quantifies the expected costs, tangible financial benefits, intangible strategic benefits and risks.
According to a survey by IDC, 58 percent of companies that have measured return on investment-based CRM initiatives had a payback on their CRM projects within a year. Another 35 percent received payback in one to three years. In the survey, the median initial investment in a CRM application was about $426,000 (USD); this covers all costs incurred before the CRM implementation began. The median total cost over the first five years is estimated at $1.2 million (USD).
The Challenges in Assessing Return on Investment of CRM Systems
There are many reasons why CRM systems defy easy return on investment calculation, most of them stemming from just how vast and far-reaching the benefits of CRM are. Listed below are six key reasons why assessing return on investment is so challenging.
A CRM system has firm wide impact
The scope of CRM initiatives touch anything a law firm does that impacts the client. As a result, the breadth of the impact of CRM across the firm will likely be unprecedented relative to any previous project undertakings, and, accordingly, the financial impact will be similarly broad, increasing the complexity of assessing return on investment.
CRM affects both a firms’ revenue and its costs, thereby increasing the complexity of the return on investment analysis
CRM is a driver of: (1) improved marketing and business development effectiveness, (2) increased client communication and team building and (3) greater efficiency and productivity across all client-facing processes. The result: If it offered just one benefit, it would be simpler to calculate, if less worthwhile.
The impetus behind CRM is often strategic instead of tactical
Determining the return on investment of a tactical action, like closing an office or adding a new practice group specialisation, is much easier than attempting to calculate the benefits of more nebulous strategic goals like, “truly understanding our clients.”
One of the best outcomes of CRM is competitive advantage
An excellent benefit, but attempting to predict the amount or degree to which the CRM-enabled law firm will gain market share relative to competitors is a tricky exercise.
Another benefit is improved decision making capability - again hard to quantify
Having better and broader information about clients is clearly the basis upon which partners can make better decisions, however, how can one quantify that?
Timeframe for assessment?
Most CRM systems take some time to implement and are envisioned to provide long range benefits for the firm, what timeframe is appropriate for measuring the return on investment for the CRM system?
The META group in their interviews with Global 2000 companies found that 64% of the respondents lacked techniques to measure the business value of CRM, and less than 10% have a tangible return on investment measure for their CRM!
In our next blog post we'll look at a framework for assessing return on investment… stay tuned and let us know your thoughts.
