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How to Measure CRM ROI for Your Nonprofit

Customer relationship management (CRM) software is one of the most critical IT investments a nonprofit organization can make. CRM software has a direct impact on fundraising effectiveness, marketing reach, and general productivity, so it’s no wonder organizations go to painstaking lengths to choose the best software for their teams.

And even with careful attention paid to the purchasing process, many nonprofits still struggle. In fact, for a sizable percentage of nonprofits, 56% of donors from this year won’t be giving again next year. It’s a harsh but true fact that organizations need to face in order to best prepare for their future efforts.

If nonprofits want to up their retention rates and keep donors around for years to come, they have to work to take full advantage of the software they spend their valuable resources investing in.

Plus, it’s important to remember that the software selection process doesn’t end with signing a contract. After the initial purchase, nonprofits face the challenges of implementation, training, adoption, and maintenance. Across the industry, CRM initiatives have reported failure rates between 18 and 69 percent.

Obviously, no organization wants to use a CRM that isn’t worth its salt. But how will you know your CRM initiative is failing if you aren’t measuring its return on investment (ROI)?

What is nonprofit ROI?

Measuring ROI is black and white for commercial businesses. Most rely on sales figures such as monthly revenue and sales per customer to gauge the impact of a new CRM. This means everything boils down to a simple ratio of net gain over total cost.

Nonprofits, on the other hand, are driven by the pursuance of their mission—not sales figures — which means they have to work with a different set of metrics for calculating ROI (we’ll get to those shortly). The good news is, the underlying principle is still the same: you’re trying to quantify a new system’s net value for your organization. An ROI assessment should answer the following questions:

  • What am I getting for my money?
  • How does my CRM support larger organizational strategies in play?
  • Is my CRM underperforming in any key areas?

There are plenty of ways to search for a final number. For example, many CRM vendors offer free ROI calculators on their site so that you can plug in a few variables and crank out an estimate. But more often than not, these “tools” are more effective as marketing ploys than empirical data sources. Since you aren’t even using the vendor’s CRM yet, the best you can do is get a ballpark estimate based on vendor-determined averages.

Online, you can also find generic calculators for measuring ROI after implementation. While these are more intricate, they can still fail to align with your specific nonprofit objectives and ultimately lead to inaccurate assumptions.

The better way

The only tried and true way to get an accurate read on your CRM investment is to measure it yourself, using internal metrics and data that you’ve (hopefully) recorded before and after implementation. Bring in your CFO and accountant to help conduct the analysis and make sure you’re prioritizing the right numbers.

You might also want to run your pre- and post-test plans by your board to see if they have any helpful insight into your measurement techniques or even questions they’d like to see answered in your analysis.

Before you make any comparisons, you’ll need to establish a time sample that accurately reflects the impact of CRM adoption. Typically, that means overlooking the first several weeks or first month after installation, since this period is often marked by workflow disruption and overcoming any program-specific learning curves.

The timespan should be long enough to depict sustained performance trends, but not so long as to mix in other variables like employee turnover or local market fluctuations. Generally, 4-6 months is a good rule of thumb, although some organizations see measurable results even sooner, depending on the software.

Next, divide your calculations into gain analysis (including direct gain and cost savings) and cost analysis, and determine the metrics that constitute each of these values. In the section below, we give examples of common cost and gain metrics—some that are universal, and others that are specific to nonprofit organizations.

Calculating CRM investment cost

As you might have guessed, the cost of a CRM is much more complicated than upfront licensing and subscription costs, although these are probably the largest percentage of CRM cost. Depending on the vendor and the scale of the product, there can be dozens of additional expenses written into the contract or incurred as part of ownership. Here are some common examples:

  • Data migration
  • Employee/Volunteer training
  • IT maintenance and infrastructure expenses
  • Vendor maintenance fees
  • Paid upgrades
  • Added cost integrations
  • Vendor support fees (for implementation services, consulting, or premium support)
  • Cost of adding or removing users

For each item, you should calculate both its direct cost, and the required time/labor costs. For example, installing a new system might require server upgrades or new hardware, which is the direct cost, but your systems administrator will also have to spend time installing and troubleshooting the new software and equipment, which is the time and labor.

Calculating CRM investment gain

The benefits of CRM software aren’t always easily quantifiable, especially when they come in the subtle forms of time and cost savings. That’s why it’s important to define a baseline from before CRM implementation and compare new data from your designated time sample with your baseline values.

To put things in plain English, here are some key areas to look for improvement, starting with direct gains:

  • Overall revenue: from cumulative donations and grants
  • Granular revenue: average gift values per donor/donation, regularity of donations
  • Conversion rates from marketing campaigns, organic web traffic, fundraising events
  • Relationship acquisition: new constituents, donors added to contact or accounts database

And you should always take a look at conversion rates from marketing campaigns, organic web traffic, and of course, your fundraising events.

In addition to direct gains, a CRM system can provide indirect gains via time and cost savings by improving workflows and automating repetitive tasks. Since these are subjective in nature, they can be difficult to measure, but here are a few ideas to get you started:

  • Productivity: Work more efficiently through effective workflows, streamlined event planning, faster data entry through web form capture, higher volume of calls logged, emails sent, etc.
  • Donor retention: Keeping your existing donors saves you from redundant efforts to replace them or re-market. A 2% increase in retention can equal a 10% decrease in costs.
  • Distilled Marketing: A good CRM can eliminate marketing and fundraising efforts that are unprofitable or target the wrong audience, and instead prioritize leads based on gift potential.
  • Donation Processing: Many nonprofit CRMs offer built-in donation processing, which lets constituents give and pledge through self-service portals, saving the organization the time and costs of manual payment processing.

Conclusion

Maybe you clicked on this article expecting to find a list of blank fields connected to a magic algorithm. Instead, you found out the truth: calculating ROI is an arduous process that takes time. In order to get a truly accurate picture of what CRM has done for your organization, you should follow these steps:

  1. Collect the right data before and after implementation.
  2. Compare how you’re doing now with how you were doing then.
  3. Define ROI as a percentage of what it really costs to own and operate a CRM.

No prefab formula or calculator widget can do that. But if you put in the work, you’ll be grateful for the valuable data you’ve gathered.

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Author Bio

aleks-peterson-thumbAleksandr Peterson is a technology analyst at TechnologyAdvice. He covers gamification, CRMs, project management, and other emerging business technology. Connect with him on LinkedIn.

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