Consider Total Cost of Ownership (TCO) of CRM deployments carefully

There’s good reason why industry analysts commonly use time horizons of at least three years when helping CRM vendors and customers set expectations for the total expense of a CRM project. Few organizations have unlimited budgets, and in most cases, CRM is not a one-time cost. It’s important to understand the full costs of CRM implementation to help plan, budget, and select systems appropriately.

Some software investments can be prohibitive because the majority of expenditures are “up front,” in license fees, services, and training, all of which are incurred before the software demonstrates measurable business results. In fact, it’s estimated that costs in the year one cost is typically 60% of the overall project costs. This can seem very risky to companies that want to see results before committing too great a sum.

In order to manage cost expectations over time, total cost of ownership (TCO) analyses should be conducted with a clear view of the overall strategic expectations for a CRM project. A sound framework for measuring results over the life of the project must be stated at the outset.

Given the complex of CRM deployments, TCO can be a difficult metric to obtain. Key CRM lifecycle costs are less about licenses and much more about the extended costs of owning the system. Leading industry analysts have estimated that up to 90 % of CRM lifecycle costs are associated with customization, integration, deployment, and on-going administration (support and maintenance) of the CRM system.

Industry-analyst research has shown that software costs typically account for between 30 and 38 % of the total first-year costs of owning a CRM system. Services costs, usually associated with customizing and integrating the CRM system, come in at between 34 and 47 % of the total first-year costs. Maintenance and support account for 7 to 10 % of first-year costs, and if required hardware costs make up the remainder at between 8 and 18%.

The up-front costs of implementing a CRM system have driven the popularity of on-demand and software-as-a-service (SaaS) models for CRM, which are often priced on a per-user monthly fee basis. While less prohibitive up front, research has shown that over the course of time, these solutions can prove more expensive than on-premise solutions. Furthermore, companies choosing on-demand and SaaS solutions often have to compromise on functionality and flexibility when they select this delivery method. Additional concerns for many companies include lack of control over the software and their customer data, as well as fears of outages and security breaches. As Gartner research notes, “It is also important … for organizations to be wary of great initial deals for CRM-on-demand services. Issues could emerge such as three-year lock-in, uncapped price hikes on renewals and hidden costs for increased numbers of registered users (for example, as in the case for partner relationship management), a reduced number of users which companies are still obligated to pay for under contract, or new, unforeseen premium services.”

Furthermore, given the importance of modelling a company’s unique processes within their CRM system, on-demand software, which offers less flexibility and customizability than traditional on-premise CRM, may not be able to meet the needs of mid-sized and large businesses, especially those with complex processes or requirements. Gartner Research notes “supporting complex business processes and cross-company tasks is beyond current products,” adding that “the functionality in the current generation of SaaS business applications offers little competitive value to business.” The analyst group recommends on-demand solutions for businesses with “simple to moderate” CRM requirements, advising that “businesses with complex requirements should not assume that they will be able to significantly lower their total cost of ownership (TCO) simply by moving to an on-demand model.” These and other factors contribute to Gartner’s strategic assumption that “through 2010 and beyond, 75 % of complex CRM-on-demand deployments will fail to meet company’s expectations.”

For many of our customers, only on-premise CRM software offers the confidence, flexibility, and control they need. Thus, instead of looking to eliminate up-front investments, most companies look at ways to minimize the total cost of ownership over time. This can include taking a phased approach to CRM deployment, rolling out the system in manageable stages and validating results before expanding. Another strategy is to look for a system whose features most closely match the company’s needs from the outset.

ProAptivity specialise in the deployment of CRM solutions into small and medium size businesses. They are the Northern Ireland solutions partner for Maximizer CRM which offers both on-premise and on demand solutions with full Mobile CRM capabilities. For more information contact 028 90735630

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