The hidden costs of CRM software and why you need to understand them

by Richard Boardman on February 8, 2011

Photograph courtesy of kevindooley

One of the biggest mistakes I see organisations make when implementing CRM software is failing to set a realistic budget for the project. Not only is this a frequently fatal error, but as it occurs so early in the implementation process it’s a bit like false-starting a marathon and getting disqualified at the finish – a lot of wasted effort with no tangible end results.

A common approach to costing a CRM project involves sketching out a set of requirements and then inviting potential vendors to quote, and using these figures as basis of the budgeting process. This doesn’t work very well however for a number of reasons:

Firstly, it’s virtually impossible to determine accurate estimates without undertaking a detailed requirements definition phase. High level requirements leave too wide a margin for error.

Secondly, vendor quotations based on a loose set of requirements will tend to err substantially on the side of optimism. Knowing that they are likely to be a competitive situation and not wanting to discourage a potential client from purchasing CRM software, vendor figures are likely to reflect a best case, rather than the most likely case.

Thirdly, what’s often misunderstood is that the costs set out by the vendor may only be a fraction of the overall cost of the project. There are a variety of ‘hidden’ costs which often only become apparent as the project progresses. These include:

Infrastructure costs – these are primarily specific to on-premise rather than cloud based offerings and include the costs of servers, laptop and PC replacements and upgrades, database software, operating system and other software upgrades that may be required to run the system.

Missing pieces – every CRM package has its strengths and weaknesses. Some things it may do well, but others not at all. Purchasing third party add-on products to fill gaps in functionality can sometimes prove to be a significant unforeseen cost.

It’s not in this edition – any CRM package that’s offered in different flavours, such as the professional and the enterprise version, or is highly modular, is a source of potential additional expense. It’s all too common to find that a key piece of functionality isn’t, as you had assumed, in the version you’ve bought, and requires you to upgrade to a more expensive edition.

People – any sort of high return CRM project will be time-consuming and demanding on internal resources. Often significantly more than organisations expect. Those resources will have to come from somewhere. If they are to be internal, then there’s an opportunity cost to shifting them away from other potentially valuable other activities. If they’re bought in from outside the company there’s obviously a more visible cost. Key roles that will need to be filled include: project management, system configuration and set up, data preparation, report-writing, project team time, project board time, training, administration, help desk, and user adoption support.

It’s in the small print – not all costs are immediately apparent without studying the detailed contractual terms. Storage costs, the right to use the system for training or testing purposes, and maintenance contracts that escalate rapidly in future years, are all examples of very real costs that can be hidden away in the contractual terms.

Support and maintenance – once upon a time CRM support and maintenance contracts were pretty straightforward and generally costed as a set percentage of the value of the software. In recent years things are rather more blurry with many different favours of contract offered both by the system vendor and the implementation partner, with widely differing, often expensive and sometimes unpredictable pricing models.

Vendor services – as mentioned earlier, the extent and cost of vendor services will often vary (upwards) from the initial pricing estimates. Another issue is that many purchasers of CRM, particularly cloud based solutions, underestimate how much external help they may require and come unstuck with more complex tasks such as data migration, integration, or system development.

Ongoing costs – the costs discussed above relate to the initial implementation of the system. What’s also significantly underestimated is the cost of running a system over time. Hidden ongoing costs include system administration, training for new staff, upgrades, adapting the system to meet new requirements, and data quality management.

As I’ve noted above, some of the hidden costs apply solely to on-premise solutions, though most are common to both deployment models.  I don’t want to enter into a cloud versus on-premise debate in this post, but would note when considering costs it’s wise to ignore the conventional industry wisdom that cloud based services are cheaper to begin with but more expensive over three to five years. In my experience it’s much less clear cut. I’ve seen software as a service (SaaS) pricing proposals that are way the most expensive option on the table even in year one, but others that would be the cheapest no matter what time-frame you analysed it over. It’s wise therefore to examine each situation on its own merits.

Budgeting accurately is an essential element of success. Insufficient can mean embarrassing trips to the board for more funding, or fatally cutting corners to try and deliver against too tight a budget, so it’s critical to get this right up front.  If you are going through the budgeting process it’s important to research carefully to ensure you pick up the ‘hidden’ items outlined above. Alternatively, and without wishing to be unduly self promoting, independent consultancies like Mareeba, and others, can help manage the CRM planning and budgeting process.

Without dwelling too long on a common theme in this blog, it’s also important to get your CRM requirements documented in detail up front, and budget figures should be viewed as provisional until this process is completed. Effective initial planning and requirements gathering are the foundation for a successful CRM project, and help remove the risk of nasty surprises, budgetary or otherwise.

In concluding, one final cost that should be considered when evaluating any project is the cost of doing nothing. An organisation with the right strategy backed with the right supporting technology can quickly turn a market on its head. Electing to spend nothing can sometimes be the most expensive option of all.

Footnotewe recently published a free ebook which goes into a lot more detail about how to approach the CRM requirements gathering process and how to document the outputs. The ebook can be downloaded from here.

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