How much CRM costs and how to set your budget

CRM costs need to be clearly evaluated before deciding on how to implement a new CRM.

Some costs like license fees are transparent whereas others are hidden away in wasted time, debugging and the worst of all - opportunity cost. It is so rare that CRM costs come under budget and most companies are naive to the true cost of setting up a new CRM system.

When deciding on the best CRM to use, organizations are bombarded with vendors, configurations and slick sales pitches. This article is designed to help you navigate some of these challenges to create a workable CRM selection and implementation budget that your team can stick to.

We'll cover:

• Identifying CRM costs as components of a budget
• Justifying the cost of a CRM investment
• Choosing a deployment model, and its effect on how you budget
• The effect of feature decisions on your CRM budget

1. Identify your key CRM costs as components of a budget

The main costs of a CRM budget are listed below - but beware as these are only the transparent costs. The hidden costs of CRM implementation are potentially much bigger.

• Needs analysis and vendor selection
• Baseline system cost
• Training 
• Migration 
• Customization and dashboard setup
• Storage 
• Integration

These are typically the bare minimum costs, even if you’re using a CRM out of the box you will need to set up the fields and operating protocols for your organization. What we suggest is to add an hourly rate for internal time spent on the project. This normally quadruples the setup cost at least.

Our CRM pricing guide has pricing info from a wide range of vendors to help you forecast baseline CRM costs

You should also understand the CRM pricing models that exist, as some companies will tie you in into long contracts whilst others will allow monthly contracts - more on that below.

In fact, a recent CRM report found that most businesses pay, on average, $1,800 on each user of their system over a five year period.

The hidden costs are what normally spiral these budgets out of control. Here are the key culprits:

• Vendor support
• Consultancy 
• Ongoing customization
• Ongoing staff training 
• Minimum contract terms 
• Staff overtime during implementation
• Opportunity cost

We advise looking at the whole process from vendor selection to a full implementation program when allocating a budget. Custom CRM development can be a good idea if you know exactly what you need; this can be a good option even for small businesses

2. Justify the cost of a CRM Investment

There are many ways to assess an investment at the outset:

Revenue impact

This is very hard to determine, but you must try and quantify this.

The overarching question is: how much will this initiative improve my revenue? The ways to measure this accurately are varied and deciding which method to use is context dependent. Starting with the revenue of the organization or division, the CRM is likely only one factor that affects that figure so you’ll probably need to drill down deeper. Revenue per user, customer acquisition cost or conversion rate are probably getting closer to how you can track progress. Of course, many CRM’s aren’t even directly related to revenue, so this will be impossible.

"Revenue per user, customer acquisition cost or conversion rate are probably getting closer to how you can track progress."

What you need to do is anchor the metric with an action in the CRM. So, for example, a sales CRM that allows you to increase outreach volume and outreach channels is simpler, as you can look at the revenue with the new system versus the old. It’s often the case that the system may improve one metric (sales call volume for example) but not increase revenue straight away or at all. That’s not ideal, but at least it is being measured. You should start with a hypothesis – x action is improved by the CRM and will result in y. To do this, some baseline data is important.

Cost impact

This is similar to revenue in that you need to predict potential cost savings the CRM will deliver. These can be varied: from cheaper bookkeeping to customized reporting. You need to try and quantify what the cost saving will be, benchmark the current costs, have a process for reviewing costs and a metric to tie the cost-saving to the new CRM.

I worked with a company who had a very simple cost saving. They implemented a CRM which had improved analytics from their old CRM; this meant reports were automatic rather than manual and they could calculate the hours and the costs saved. One phenomenon I noticed is that saved staff hours just get absorbed into other tasks, so the saved time isn’t used well. So if saving time (and subsequently cost) is a key driver users should think about how the saved time will be spent.

However difficult to quantify organizations should aim to look at an ROI from a cash perspective over a period, typically three to five years.

Graph showing cash flow benefits of well planned CRM implementation, courtesy of Steve Schultz, Quaero

Other considerations

Alongside the cash flows there are many other justification metrics where it is so opaque to infer a cost that perhaps the metric is something else. It may be staff morale that will be affected by using the old CRM; a new CRM may help culture, it may allow for greater collaboration or structure the business information for an acquisition. If these metrics can’t be sensibly tied to cash flow then at least try to quantify them.

"If these metrics can’t be sensibly tied to cash flow then at least try to quantify them."

I was working with an organization who were streamlining their data to pass a due diligence process with an acquirer. They had a clear view of how the data needed to be stored and a new CRM was an essential improvement to ensure the acquisition went ahead.  So the outcome was binary. Successful CRM implementation = acquisition and unsuccessful CRM implementation = unsuccessful implementation.

3. Choose a deployment model and pricing structure

Do you want a cloud CRM or an on-premise CRM?

The trend is clearly towards cloud computing for CRMs - in a recent survey 79% of respondents said they had a cloud project underway or planned. Meanwhile, a third of respondents planned to increase their spending on cloud solutions in the next 12 months.

The advantages of cloud CRM are well known:

• Smaller upfront cost: most cloud CRMs operate on a SaaS model, meaning that you pay a per user per month fee, rather than having to front a large amount of money in one go for perpetual licenses
• Ability to scale quickly: a lot of cloud CRM providers offer scalable solutions that let you add functionality when you need it
• Ease of setup and operations: as there's no hardware replacement required, cloud software can be easily implemented from an infrastructure point of view

On-premise offers one clear advantage – control. Storing in the cloud does handover control to a third party, which can cause issues with:

• Service disruptions: although very rare, when they do happen you are at the mercy of a third party.
• Data retrieval: From the cloud, this can be more difficult than if the data is stored locally.
• Regulatory concern: legislation about where you can store data is a concern for administrators and also potential customers.

In practice, all but the largest most tech-heavy companies store information in the cloud but on-premises solutions can work if you need more control or the data is especially sensitive.

The implications for budget can be dramatic. An on-premises solution will carry a much higher upfront investment for servers and setup. Setting up a cloud-based CRM is less capital intensive but, of course, you are tied into making payments on a regular basis.

"You may also need to upgrade your hardware, which can be expensive, and looking at how it will hold up five years into the future can be hard to predict."

At the point of implementation, on-premise CRMs will incur support and hosting costs, which can be a big cost as the bespoke nature of the solutions often need experts that are on-site. You may also need to upgrade your hardware, which can be expensive, and looking at how it will hold up five years into the future can be hard to predict.

Cloud CRM has a much lower upfront costs - but over time monthly fees add up. It's particularly important to view your CRM budget as a constant fixture in your business costs rather than a one-off project if you go down this road. 

The decision for on-premise vs cloud is often more about feature set than budget but a clear costing can go a long way to helping you make a decision.

4. Decide which CRM features you need and how they will affect your budget

When implementing a CRM most organizations approach it by looking at what features they need, whereas the first question should be “what do I need this system to do for the organization?”

So before features are even mentioned a very tight business case needs to be generated and then distilled as simply as possible. It is a good discipline to try and distil it into one sentence.  Here are a couple of examples:

• The CRM will allow us to match customers with offers more efficiently and this will help us improve our customer lifetime value. 
• The CRM will help our sales team save two hours a day which will allow them to do more prospecting and increase user acquisition and sales.
• The CRM will decrease the staff hours needed for weekly reporting by 30% meaning we can save money on contract staff.

Of course, a CRM may achieve results in more than one area, but the exercise will help you think about the broad purpose. From here this can be broken down into quantifiable goals and then finally onto features.

You can list and prioritize your CRM needs with our comprehensive CRM requirements template

Below is some guidance on how to make decisions over certain features and how they can affect your budget. 

• Ease of implementation: being able to get the workforce up and running with the software is critical. Daniel B. Scherer, CEO of Secure Health, surmises. "After some trial and error with off-the-shelf CRM solutions, we discovered that the truly critical features to look for in a CRM solution are tracking capabilities and simplicity. When making this decision, you should consider fitness for purpose; some systems are necessarily complex, but it should be as simple as possible.
• Remote access: this is an important feature because of the trend towards working from home and a remote workforce. Most cloud-based systems can be used from anywhere but if your system doesn’t have this feature then be sure that it’s not something you will need in the future.
• Feature flexibility: the number of available apps and the ability to build out customizable features needs to be considered. It is almost certain that you will want to make changes after the initial setup and if this is difficult it will be a big cost down the line.
• Integrations: you will likely need to connect your CRM to other systems that you use, and it’s important you understand what is possible from day one. Obviously the more flexibility, the better, and an easy-to-integrate CRM will cut down on customization costs considerably

When tying this decision to budget you will likely be weighing up functionality vs cost. A typical pricing plan for CRMs is to charge more for extra features, which can start to add a lot to the overall cost, especially if you are paying per user/per month.

If you need to customize the setup of the CRM this is likely to add to the budget, especially if you need to buy in this expertise.

"Often companies don’t leave any redundancy in their budget plan, which leads to the inability to add features in the future."

When looking at functionality versus cost, look at essential vs desirable, difficulty to implement post setup and cost. For example, for a feature which is desirable and easy to add later but expensive it makes sense to run the CRM without it at the start to reduce the budget.

Often companies don’t leave any redundancy in their budget plan, which leads to the inability to add features in the future. You should assume that you will need to add other features so leaving budget for this is important.