As businesses continue to innovate in response to the change and uncertainty in our economy, many are considering changing their approach to customer engagement and retention. More firms turn to new business systems (unfortunately, without ROI Business Systems metrics) to enhance or improve sales and overall return on investment.
When changing business systems, decision-makers must consider the goals they hope to achieve. This can help them determine the business system that best suits their needs. However, they must also consider the return on investment, which includes factoring in several potential costs beyond the purchase price.
CRM vs. ERP: Pros and Cons
Although there are many business systems, most are one of two main types of business systems: 1) customer relationship management software (CRM) and 2) enterprise resource planning systems (ERP). Many other business systems are getting connected with CRM to drive increased productivity.
While CRM and ERP focus on the fundamentals, Sales, and Marketing teams tend to use legacy systems to increase their prospect outreach. Even though they are necessary, the selection process, cost associated with that process, and maintenance are becoming increasingly costly. Both business systems provide different benefits to a business and should be considered on their own merits.
A CRM offers a unique approach to improving sales by focusing on enhancing prospect sourcing or client/consumer lifecycle through targeted marketing using data collected from customer engagement and activity. CRM software collects data on customer engagement and allows businesses to automate and manage marketing campaigns based on that data. It also provides analytics on purchasing patterns, automates redundant tasks, streamlines sales processes, and allows for better customer support. Other legacy systems can function in conjunction with CRM, like marketing automation solutions (e.g., Marketo). Or they can be leveraged with the CRM native solutions embedded in their module offering (e.g., SFDC, HubSpot, and many others).
Businesses looking to improve sales might benefit from implementing CRM software. However, there are many complexities involved in installing and utilizing a CRM as an ecosystem. A well-developed CRM system can take any business to a new level. CRMs, which are entirely customizable, aim to help enhance the revenue operations model by focusing on the lifecycle of every customer through the collection of essential data points. The more customer data a business collects, the more the company knows its customer base.
Collecting data is difficult because many people are away from using their data and have apprehension about its collection. Moreover, data is not free, nor should it be misused nor collected without a clear purpose (storing data increases the cost burden). We usually collect it by heavy data procurement like specialized data provider vendors. Although that's convenient, it comes with the cost of additional license purchases or simply time spent on configuration, integration, and data consumption. (Data is not given away for free, but time spent reading the information adds up very quickly.)
Alternative or, rather, complementary to procurement are marketing activities that incentivize customers to engage with our content. That requires marketing to become a creative engine, attracting content and bringing the inbound information back to the company. Although the marketing automation solution acts as a deployment tool, CRM helps compile event data with the standard procurement data. CRM works as a data "translator" for a sales organization to build its prospect book of business or increase an upsell opportunity.
There are other ways to attract your future or existing customers, such as by creating a freemium product usage that most likely will provide you a good chunk of data or by creating a membership concept to make sure that data is constantly refreshed. Further, when companies don’t offer incentives, the alternative collects data from sales. Each sales transaction results in a ton of data mined for helpful information to be used in the CRM software for future sales. In other words, a CRM is a great tool, but you must be prepared to use it effectively it. Otherwise, without the knowledge and desire to properly use it, CRM software is just a very expensive excel spreadsheet or data dumpster.
The last thing to keep in mind is the cost of maintenance. Most of the CRM software on the market offers significant modifications that include multiple legacy systems integration, data workflow automation, and overall customization.
CRM flexibility comes at an additional cost that is not included in your initial calculation. We have to keep in mind that more customization means more complexity. Therefore, more staff must manage that complexity in the future. Budget owners should think twice before making decisions about purchasing CRM, and they should be thinking at least a few years ahead. The critical decision point is that companies must accept that this area cannot be cheap if they try to scale their sales or marketing outreach. It requires continued spending to enhance the company's ability to grow.
On the other hand, an ERP, or enterprise resource planning system, is software that helps streamline business operations by integrating across departments rather seamlessly. Its primary purpose is to share critical information in a standardized format in real-time across all departments. ERP also notifies necessary parties of any issues as they arise. Unlike CRM, the ERP is not designed to change frequently or store more significant amounts of information that does not serve the business’s critical data. This is one of the most forgotten differences between these two systems. The rise of CRM systems is driven by leveraging different levels and various customer data. ERP collects or processes information essential to our company's life (e.g., HC, Finance, Procurement, etc.).
Having ERP software aids in optimizing a business to anticipate and mitigate potential problems. The transparent dissemination of information and the cross-departmental integration makes an ERP an invaluable business tool, but it’s not designed with the same goals as a CRM. So, deciding between an ERP and a CRM tool is about what you hope to achieve.
Cost-Benefit Analysis
Keeping this in mind, business owners should assess the cost of adoption and the upside to the ROI before selecting any software for potential adoption and integration. First, businesses need to know what their goals are. For growth, CRM software can impact a company's ability to extend and retain existing clients while developing a significant data pool for marketing and research. This data is invaluable as it helps companies understand their install base, ideal customer profile, and areas of most effective customer acquisition (or retention). This leads to improved ROI for various reasons related to enhancing the customer experience. It can also extend the customer life cycle while reducing customer acquisition and retention costs, product adoption, and conversion.
CRM software has many useful features. The software allows users to collect customer data for every transaction or interaction a customer has with your business. Then, you can organize that data in any customizable segmentation. This allows teams to develop sales reports with better data to forecast the next steps and determine how to work more effectively to improve ROI. Without a CRM, businesses must rely on individuals to manage large amounts of data, which is incredibly challenging. (It can be impossible considering the amount of data or inconsistency between them.)
Moreover, one person cannot manage data the way a CRM can. One primary CRM developer, HubSpot, reports that the benefit is definitely worth the investment. Companies using CRM see a 29 percent increase in sales. They also reported seeing an average $8.71 return for every dollar spent on a CRM. This software has the potential to help any business see a better return on investment. However, the cost of adoption and integration can become difficult to ignore.
CRM solutions provide valuable data points or metrics to assess how well a business can cultivate lasting positive customer or prospect relationships. These programs leverage various CRM features and capabilities, resulting in many cost-related incentives for purchasing and adoption.
Leading companies like Salesforce or HubSpot have many costs that can seem reasonable at first, but implementation and adoption are long-term pursuits. On average, many business owners and consultants explain that the costs associated with any CRM software can be understood as the base cost times the number of members. This formula gets you a program, its many capabilities, and limited support. To properly use a CRM, a CRM developer role would have to be added to your organization or business.
In other words, having a CRM is not a one-stop solution. A CRM will require management and development skills and analyzing and synthesizing data. Utilizing the data to extend the customer life cycle will require some marketing and sales expertise. To synthesize, expanding the customer life cycle is critical to reducing the cost of conversion per customer and increasing overall ROI per account.
On the other hand, the cost associated with an ERP can depend on the size of your business. For small businesses, the estimated costs can be between $10,000-$150,000; for mid-sized, $150,000-$700,000; and for large enterprises, $1 million- well over $10 million.
Why so expensive?
The cost associated with an ERP can be astronomical if not approached with clarity. Every business decision entails fully understanding the impact a move will have on your company. In this case, an ERP is a popular choice, but it’s incredibly costly. The costs associated with an ERP acquisition and implementation go beyond software, including hardware, in-house/ outsourced support, and user-related costs such as end-user expenses, cost of maintenance, training, and employment. These costs result in ERP being a costly investment that may or may not be feasible for some.
The Bottom Line Enhancing a company through acquiring and implementing one of these software requires a lot of research, resources, and reasonable expectations on cost and benefits. Deciding between Customer Relationship Management Software or Enterprise Resource Planning Software can become a massive undertaking without proper research. Choosing the right type and software for you will require significant thought about potential costs. Both are incredible resources with lots of potentials to improve a company’s efficiency and growth. Sooner or later, you will need both. The purchase timeline (therefore, budget planning) must fit the size and stage of the company's development.
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