There's So Much More to CRM

There's So Much More to CRM

A big opportunity to give customers more efficient, more profitable businesses awaits solution providers selling CRM.

by Alan S. Horowitz

Technology changes. In the world of customer relationship management, not only has the technology changed, even its moniker has evolved. First called contact management, it then became sales force automation, which morphed into CRM.

Now CRM is becoming XRM, a term that Mitch Cannady, CEO of solution provider Spinnaker, says recognizes the way CRM technology has spread beyond customer relationships to include managing relationships with vendors, partners, customers' customers and others. "Referring to customer relationships is just too narrow now," he says.

Mike Snyder, CEO of CRM consulting firm Sonoma Partners, says the technology is now being used as a platform for a multitude of functions, including managing time and expenses, generating proposals, tracking a business' various locations (such as a chain of stores or restaurants), compliance (used by franchisors to track franchisees), and managing internal processes such as e-mail and even finances. "Things that in the past were done on a non-CRM system are now being built into CRM," he says.

Whatever you want to call it (we will refer here to the technology as CRM), this is a market from which solution providers can reap significant revenue. "The opportunities (for CRM) are massive," says Snyder. "Every company in the U.S., no matter its size or shape, needs CRM. Everyone needs a database of their customers, and to communicate with them."

Business customers recognize this need. A majority of end-user business customers polled in a July 2009 survey by the Institute for Partner Education & Development (IPED) said increasing collaboration with customers was important, or very important.

"CRM is a good business. It holds a lot of promise," notes John Kaufman, managing partner at solution provider The CRM Connection. Spinnaker's Cannady says CRM is "one of the fastest-growing markets" in the IT industry. And Snyder, whose business is exclusively CRM, grew his revenue in 2009 by 44 percent, and he expects a similar increase in 2010.

A Pint of Hardware, a Pound of Services
Sonoma Partners typically sells no more than three servers for most CRM system installs, and the CRM software package itself, which includes Microsoft Dynamics CRM, SalesLogix, ACT and NetSuite. Delivering CRM from the cloud via Software-as-a-Service (SaaS) helps lower initial hardware costs for smaller customers. But the real action for solution providers is in CRM services, consulting, and upsell.

Falling prices are also helping to drive the CRM market. Benafsha Irani, managing partner at West Coast Consulting a solution provider, says as recently as two or three years ago, CRM solutions often cost $250,000 and up. Today, they typically go for less than $100,000.

"For every dollar of software we sell, we typically sell $2 of service," comments Kaufman, whose primary CRM product is ACT. Donato Diorio, CEO of solution provider Broadlook Technologies, agrees: "(CRM) is a great opportunity for the consultative sale."

Cannady looks at it this way: "Software has a profit margin of 15 percent to 30 percent, while services have a profit margin of 40 percent to 50 percent," he says. So, if you ensure the service dollars are part of the sale, you can lead with lower-margin, more pervasive and easier-to-sell CRM solutions. Margins on Sage's CRM product, for example, range between 20 percent and 50 percent, while Microsoft's CRM margins are between 15 percent and 35 percent, says Cannady. "We sell Microsoft over other applications because there are more opportunities selling Microsoft. We give up margin for volume," he says.

David Gottlieb, XRM practice manager at FMT Consultants, puts it this way: "There are no boundaries (to using CRM). The boundaries are in your imagination."

Some examples of CRM imaginations running wild: Snyder sold a CRM system to a government election commission, which used it to manage election dates; track training, certification, availability and pay to election judges; track equipment used in the field; schedule locations; and manage other aspects of elections. Another sale involved a CRM system bought by a large church. The system runs a touch screen placed at the entrance to a day care facility, where parents drop off their children during church services. Parents check in their children using the touch screen, and when picking up their children, use it to check them out.

"CRM is almost a platform. It is very configurable, and you can take a department or a need of a company and use the CRM product without having to completely custom-develop a product to fit the client's needs," says Alan Kahn, managing director of InterDyn AKA, a CRM solution provider.

It seems to be working for practically everyone. Kahn says he's seen a lot of manufacturers, service and financial firms join the CRM parade. Cannady is selling to pharmaceutical and technology companies and real estate firms. Kahn focuses on midsize companies, and divisions of Fortune 500 corporations, though he generally does not do enterprisewide rollouts at very large organizations. Irani is seeing strong demand among finance companies, nonprofits, technology companies and telcos. Snyder does a lot of business with retailers and hotels.

Show What You Know
A great many customers of all sizes understand he value of CRM. But there are always holdouts. Consulting customers on the value of CRM begins with a discussion of the ROI it generates. A recent study by research firm IDC that examined the ROI of CRM implementations showed that companies received benefits worth $8.21 for every $1 invested in a CRM system. This significant ROI came from reduced operational costs and higher revenue due to increased agility and faster time to market, according to IDC.

In fact, a small business' ROI on a CRM system can easily hit 50 percent within 6 to 12 months, according to Jason Albino, principal at The Project Solution, a solution provider.

Solution providers themselves also stand to benefit from their own in-house CRM implementations and should embrace the technology, says Chris Parks, Ingram Micro's senior manager of operations of the services division. As IT spending returns, keeping a solution providers sales team efficient and organized can help control costs, which adds margin. "CRM eliminates the tribal knowledge that folks keep in their heads about their customer base," says Parks.

KnowledgeCentrix, a solution provider in Irvine, Calif., uses CRM extensively for its own business. Says president Chris Androzzi: "CRM is the backbone, the core of our business. It is our single source of truth and drives every aspect of our business."

For Androzzi, the CRM selling cycle starts with a needs assessment, which is done by interviewing management as well as key stakeholders in sales, marketing and customer services. You want to know the challenges they face and how work flows through the organization. Then the solution provider designs a system, which is usually based on the company's existing infrastructure, in order to hold down costs. These assessments do not have to be given away for free. For example, The CRM Connection's Kaufman charges for CRM assessments, then backs out the cost when the deal closes.

Running your own CRM system can help close deals too. "Everything we sell we use internally," says Kaufman of his CRM system. "So we invite prospects to our facility to let them see how we use this and that." Kaufman offers clients a variety of services. These include customizing the CRM software, installation, implementation and training. "We won't take on a project if the company won't invest in training their people ? because that leads to failure," he says.

Doing More, By Doing More
To help offset slower sales over the past 12 months or so, Kaufman has expanded his CRM service offerings to include expanded reporting (such as data mining) and marketing. "We are working hard to help our clients leverage all the information they have," he says.

Deal sizes for CRM solutions appear to be increasing too. A little less than a year ago, the average deal size for a Microsoft CRM deployment was about 181 users, recalls Snyder. Now the average deal size has increased dramatically -- to 714 users.

A shift in who's signing off on the purchase of CRM systems is also taking place, says Kaufman. In the past, CRM proponents have been found in sales, customer service and in the boss' office -- almost never IT. Now, IT is stepping up and going to bat for CRM systems. "Unless IT signs off, it is not happening," says Kaufman. The reason for this shift has to do with understanding how more and more prevalent CRM systems work in the network. In the past, when sales signed off on a CRM system, they lacked an understanding of support issues, resulting in an increased cost at the network level. IT can control these costs by taking the lead with CRM.

Even a SaaS-based CRM solution that eliminates the need to add a server can generate profits for solution providers focused on services. West Coast Consulting's Irani says, "People contact me and say, 'I purchased Salesforce licenses, but now I need implementation.' "

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