March 23, 2006
 

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Posted: 12.03

Crafting the ROI Case for Wireless CRM

Listening to conventional industry hype, you might get the impression that all you need to do to be in ROI heaven is slap some code onto a CRM application that enables PDAs to wirelessly access data in that app.
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By Craig Settles




Listening to conventional industry hype, you might get the impression that all you need to do to be in ROI heaven is slap some code onto a CRM application that enables PDAs to wirelessly access data in that app. Many of you no doubt know better.

But you do have a sneaking suspicion that there’s gold in them thar wireless hills, if you could just figure out how to mine it without going broke. Well, grab yer picks and shovels, pilgrims. I’m gonna show ya how to find the mother lode—or at least how not to lose your shirt chasing fools’ gold!

Let’s cut to the chase. The bottom line goal of any CRM effort is to retain customers longer, increase the frequency and amount of orders per customer and, to really hit the jackpot, get customers to refer new customers to you. So right off the bat, you have the starting point for any discussion with anyone trying to sell you a wireless CRM app.

Feet to the Fire

When a vendor starts talking about platforms and extending the enterprise, look them in the eye and ask: “How is your product going to increase our customer retention, increase the dollar value of each customer and facilitate our efforts to get customer referrals?” Hold their feet to the fire for specifics on how their product accomplishes those tasks. Keep in mind, however, this is just the first cut to weed out vendors you really don’t want wasting your time.

To build the ROI case for wireless, you need to do some homework. You need to put numbers on those CRM goals. First, how long are you currently retaining the average customer? Six months, 18 months? This becomes a baseline number. You’ll need it a little later in the process.
Equally important to know is how long you would like to retain that customer. I know, I know: forever. Well, somewhere between 18 months and forever is a reasonable timeline to draw in the sand. Maybe it’s three years, maybe four. This becomes an ROI goal that you want a wireless app to help achieve. Don’t worry, you can always adjust it later. But you need to have a milestone for your internal staff and any vendors you engage.

The next important number to nail down is how much your average customer is worth per month or annually in terms of gross dollars they spend with you. Maybe you have a sliding scale of value in which level 1 customers are worth x dollars and level 2 customers are worth x-y and so forth.

However you choose to break it down, the value of the customer becomes another baseline number. After you establish this, estimate how much you would like to increase the worth of each customer. Maybe it’s 10 percent, 25 percent or a specific dollar amount. The key is that this number must be reasonably attainable. It’s another ROI goal.

A third baseline number is the amount a customer spends per order. You can divide orders into categories, such as purchases of your main product, accessories and services. Whatever works for you, as long as it provides a baseline from which to measure success later. Your ROI goal becomes the amount by which you want to increase the spending per order. It should reflect or be the same as the previous ROI goal.

A fourth baseline is the amount of money you spend on average each month or year communicating with, wining, dining or otherwise working the client relationship to keep good customers doing business with you. The relevant ROI goal is the amount by which you want to reduce this figure that you spend.

Finally, a fifth baseline is the average number of new customer leads you generate per existing customer. The corresponding ROI goal becomes the amount by which you want to increase the number of customer-generated referrals.

Start to Probe

With these baseline numbers and ROI goals in hand, start probing vendors to find out if these goals are reasonable and which vendors have the potential to help you reach or exceed these goals.

Tell vendors how you currently go about retaining customers and increasing customer spending and referrals. Tell them your baseline numbers (or mask them with generalities if you’re worried about confidentiality) and what your ROI goals are. Insist that they tell you as specifically as possible how their products and services will help you meet your goals. How might this play out once you and prospective vendors start working the numbers? Here’s an example.

You determine that level 1 customers buy $10,000 per month in accessories. A vendor might suggest giving your customers’ lead buyers $300 PDAs preloaded with your accessories catalog, and installing software at $500 per customer so those buyers can wirelessly access your order-entry Web server when they aren’t at their desks.

The vendor estimates, based on their previous experiences, that you will increase monthly purchases by $2,000 per month. As a bonus, because you don’t have to send out printed mailers and call buyers so often, you can save $25 per customer per month. And, oh yeah, because you now have a direct wireless pipeline to the buyers, you can send promotional ads that generate a 100-percent increase in new referrals that are more qualified and faster to close than the ones your current ads generate.

So in the course of 12 months, an investment of $800 per customer produces a $24,000 increase in the value of each customer, along with a $300 reduction in communication costs per customer and double the number of qualified referral leads.

Laying the Foundation

The numbers are not the important issue here; it’s the process. Only by doing these types of calculations before a vendor walks into your office will you be able to lay the foundation for a business case for wireless. These calculations not only help establish baselines for measuring success along with ROI goals for quantifying what success means, but they also give you a yardstick by which you can evaluate vendors. What’s more, they also make it easier for vendors to recommend the best products to meet your objectives.

There are, however, important additional elements that you need to account for in the ROI equations. One is total cost of ownership (TCO).
What often gets lost in these ROI exercises is how much it will cost you to install the software. Do you need extra servers? How much customization will you have to do that is not covered in the license fee? Will you have to buy, install and support new security features? How much time will go into deploying software on mobile devices? Not too much (hopefully) if you buy software and hardware at the same time. It could be significantly more if you have to deploy software to devices that are already in the field.

There are also support costs. Don’t forget to include the disruption in productivity while people learn how to use the new software, or learn how to do things differently if you’re adding wireless to existing CRM applications. Does the vendor help you minimize these costs? You also have monthly charges from wireless carriers.

This doesn’t mean that the costs outweigh the benefits. But that $800-per-customer outlay in the aforementioned example could bring a $2,000 TCO cost. A $2,800 investment still isn’t bad if you generate more than $24,000 in benefits. But problems often arise when people don’t know or don’t anticipate the extra expenses. This is what sours people on the whole wireless experience. This is also why you have pilot projects.

Straighten Up and…

For pilot projects to be an accurate gauge of the TCO of full deployment, you still must be pretty clear on your baseline figures. You must test the assumptions behind your ROI goals (what if the people I give PDAs to start burying my service staff with e-mails because now it’s easier to do?). The main flaw with many organizations’ pilot projects is that they’re based on faulty or incomplete financial assumptions. So, what might some of these wireless CRM apps do for your bottom line if properly scoped out and piloted?

There are apps that allow you to send wireless alerts to customers based on events (your inventory levels are too high, so promote specific items). Other tactics include customer requests (“tell me when xyz ships”) or when marketing decides to give a new product launch an extra boost. These can increase frequency and dollar value of customer orders.

Giving your inventory management, warehouse and shipping staffs mobile devices enables them to immediately input data into CRM apps so the sales people can more accurately determine product availability, shipping status and other details important for effective CRM. Conversely, the immediacy of data delivered from the field helps internal workers make better purchasing and production decisions.

If you integrate your CRM app with software or research services that track market trends, industry news and the like, senior executives, sales directors and others who work with customers can quickly access reports that helps them be better customer advisors. By giving customers a heads up on opportunities or pitfalls in the market, you help them make better decisions, which in turn could help you sell more products.

There ya go, pilgrim. Good luck finding your own mother lode.

A Business Case Checklist

Craig Settles, author of Wireless, Inc., suggests that any discussion of wireless CRM solutions begins with an examination of your potential ROI. But where to start? Settles advises running down a checklist of questions you should answer. Then present the answers to your potential vendors and ask them how they would help you meet these goals.

1. Determine how long you are currently retaining the average customer.

2. Set a goal related to how long you would like to retain that customer.

3. Determine how much your average customer is worth per month or annually in terms of gross dollars they spend.

4. After calculating step 3, estimate how much you would like to increase
the worth of each customer, either by percentage or a specific dollar amount.

5. Determine the amount a customer spends per order, and set an ROI goal to demonstrate the amount by which you want to increase spending per order. (It should reflect or be the same as the ROI goal in step 4.)

6. Determine the amount of money you spend on average each month or year working the client relationship to retain good customers. Set an ROI goal based on the amount by which you want to reduce these expenditures.

7. Determine the average number of new customer leads you get per existing customer. Set an ROI goal based on how much you wish to increase the number of customer-generated referrals.

8. Finally, tell your potential vendors how you currently go about retaining
customers and increasing customer spending and referrals. Tell them your baseline numbers (or mask them with generalities if you’re worried about confidentiality) and what your ROI goals are. Insist that they tell you as specifically as possible how their products and services will help you meet your goals.

Craig Settles is the author of Wireless, Inc. and president of Successful.com, an Oakland, Calif.-based consulting firm.
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