Hidden costs

What are the hidden costs of CRM?

21st Mar 2017

In a previous chapter of the MyCustomer CRM guide, we collated the cost of CRM systems, per head, per month.   

However, there are several caveats to answering the ‘how much does CRM cost’ question in its entirity. Namely, that you can only truly establish the full cost of CRM in the latter stages of an implementation project.  

“You go out, look at the software, talk to the consultants, scope what you’re going to do and as time goes on, you refine your costs more and more and have usually worked out the cost; but before that it’s an exercise in flexibility,” says Ed Thompson, a distinguished analyst at Gartner

“The bounds of what it can cost can be anything between £20,000 and £100m – that’s the range. Clearly most people aren’t spending that much. The average is about £3m and the average length of project is about 17 months.

“We usually tell people to pick a low end and a high end, in terms of budget. This allows you to start with a range, and then as you get better information, you knock the top end and the bottom end until you get closer and closer to your real budget. It’s extremely dangerous to go to your board with any kind of cost set in stone.”

The reason budgeting for CRM can be so arduous is due to a number of ‘hidden costs’ that CRM leaders have to unearth during the course of a project. OnContact highlights four key expenses that often get overlooked:   

  • Importing data: “Unless you’re a start-up company, it’s very likely you have contact data you’d like to import into your new contact management software or CRM system. But you’re probably not expecting to spend time manually importing all these contacts. However, having a vendor or consultant do that for you will likely end up costing you extra money. Most CRM or call centre software packages do not include the process of migrating existing data.”
  • Support: “Many standard CRM subscriptions include only limited or basic support. If you want a premium support package, you’ll have to pay for it.”
  • Customisation: “It’s in your best interest to limit the number of customisations and find a CRM or contact centre software that meets most of your needs right out of the box. This may mean sitting through more product demos, but it is well worth it in the end.”
  • Contract Terms: “Many CRM vendors make you commit to one year without a refund if you back out early. Instead, you may want to consider a vendor who can offer shorter trial periods or (better yet) free trials.”

With such variance in the requirements from business to business, CRM is rarely seen as a straight out-of-the-box solution:  

“The only way to determine an exact price for many vendors is to speak with them directly, often at great length,” says Daryn Reif, for CRM Switch.

“For someone doing preliminary CRM research, who just wants to get a basic idea of CRM cost, that investment of time can be irritating.”

Time costs

Time is often the CRM project’s silent assassin, with delivery periods ranging wildly – from 10 days to five years, depending on their complexity.

Thompson uses the example of a multinational agricultural company, with multiple countries to take into account during implementation, each bringing with them different political leaders, country leaders, brand leaders making decisions in conflict and customer service operating at a regional level.

“You end up with a hideous and complex picture of political power between sales, marketing and customer service. A project like that can take over four years – a timescale that is not often easy to justify or outline in detail to your board.  

“Most people don’t take internal costs into account. They don’t say ‘we’re taking 20 people and making them work part time for 6 months’, they just write that off as internal time,” adds Thompson.  

“Time matters more than function now, whereas a while back that was never the case. Budget was probably the third most important part behind these two. If a consultancy is going to cost a multiple of the software, it’s time and people-related costs. But that’s ignoring all the internal costs associated with time. Time is really the big measure.”

One infamous victim of this is Siemens, which, in the early 2000s, tried to get a grip on its use of over 500 different CRM tools across its global divisions.

The electronics giant chose to build its own CRM, but ran into major time constraints, failing to agree a common sales process across the business, and only eventually managing to get 3,000 of a projected 40,000 users onto the system after two and a half years at a cost of 10m euros, only to scrap the scheme and call on the consultancy of major vendors to seek alternative routes.   

“Some instances are just too complicated for a central team to define a common set of processes,” says Thompson.

“You end up with every division taking a step back to avoid being the first to take the hit, and then a catastrophic meltdown because no one wants to own a project or take responsibility.”  

Consultancy costs

Consultancy is a lynchpin for most CRM deployments; validated by the fact that, according to Gartner research, around 20% of CRM projects involve no technology implementation at all. However, budgeting for consultancy is another cost that can be difficult to ascertain.  

Thompson states that the rule of thumb necessitates that consultancy is “always a multiple of the software”; the range being somewhere between a multiple of 1x and 10x, but on average, around 3.5x the cost of the purchased technology.

Most people don’t take internal costs into account. They don’t say ‘we’re taking 20 people and making them work part time for 6 months’, they just write that off as internal time,    

What makes it 1x vs 10x? Thompson explains:  

“If you came to me and said, we’re buying this CRM software for 50 users and we’re going to integrate it with email and nothing else; no pipeline, billing systems or anything else, just bog-standard out of the box from the vendor, and we’re going to train everyone for two days on using it, load old data into it, and that’s it’, well that’s a 1x and you’ll spend the same amount on the consultancy as the software, as there’s a fair bit of time required to do all of the implementation work.

“10x would be 20,000 users, in 50 countries integrating with 20 different backend systems, change 30% of the functionality and we’re going to train everybody for a week. You’re looking at the number of integration points, number of users, different languages, the customisation, the workflow – those are the main variables.

“3.5x would be to change 10-15% of the system as it doesn’t work for our industry. Change the user interface, the workflow, add a dozen custom objects, integrate with 3-4 applications other than email, EPR, billing, something like that. Some degree of change management as part of the project…you can see how this easily becomes the average.”

Cloud costs

The rise of cloud computing has made implementations quicker (the average cloud project lasts 17 months, whilst on-premise is around three years), but not always cheaper. Despite cloud increasingly becoming the standard, many companies still have to weigh up the pros and cons of project time vs delivery when it comes to choosing between cloud and on premise CRM.  

“The out of the box is often a small part of the overall cost,” explains Thompson. “There’s a couple of factors – if you imagine a chart with time along the x axis in years and then on the y axis you had total accumulated cost of the entire project, then a traditional on-premise project starts high up because you pay for a ton of stuff upfront, and you have installation and consultancy and you’re heavily frontloaded. The cloud project starts pretty much on the axis, because you don’t pay for an awful lot at the start.

“After that, the on-premise solution has a very gradual rise, whereas the cloud project goes at almost a 45 degree angle. That means the cloud project will eventually overtake the on-premise cost after, on average, about 5 years. Why do the cloud? Well, it’s quick and it’s easier and it upgrades. So the payoff is early but there is a question that you have to ask.

“Depreciation on a CRM is usually a minimum of 5 years, but you’d hope for 10 years of use.”

Replies (4)

Please login or register to join the discussion.

Peter Strohkorb
By pstrohkorb
23rd Mar 2017 11:10

Hello Chris,

i don't know whether you have covered this elsewhere but in this article at least you have left out the largest cost item of all:
User time opportunity cost
Users (usually sales reps) have to enter their data manually after each call to update their records. This time is spent away from selling activities and thus represents a forgone benefit to the employer organisation.
The other major cost item is fixing up or living with dirty data. I don't know many reps that love filling in forms, so they only do it under duress. Which creates incomplete or wrongly entered entries that are collectively known as dirty data. Fixing it up is a huge cost o the business.
Voila, two more high cost items to add to the list.

Thanks (2)
Replying to pstrohkorb:
Chris Ward
By Chris Ward
24th Mar 2017 14:04

Hi Peter,

I think you're absolutely right in stating the time incurred for data entry as a cost, however I omitted this information as, in my view, this is an ongoing cost post-project delivery, as opposed to an implementation cost.

I'd be interested to know your opinion on whether these opportunity costs you've highlighted are perhaps circumvented by the opportunity 'profits' you foster as a result of using the CRM itself. Strikes me that the insight CRM offers balances these costs out, but I have no statistics to back this argument at the moment. It is something I will look into.

Thanks (0)
Replying to pstrohkorb:
Chris Ward
By Chris Ward
24th Mar 2017 14:08

On the topic of dirty data, I agree this is something that should've been highlighted in the article.
Indeed, during interview Ed did discuss this very topic, and mentioned a case study around Nationwide Building Society, and the time they gave to not only cleaning up their data but also establishing how many data points they felt were required from their customer data. That topic is, in itself, something we've written about regularly on MyCustomer but should certainly have been given some lip service within this article, so thank you for highlighting.

Thanks (0)
By markwilliams
27th Mar 2017 15:16

Excellent post, CRM is one of the Excellent aspect for every business.

Thanks (0)