Customer relationship management (CRM) software is one of the most critical IT investments a nonprofit organization can make. CRM has a direct impact on fundraising effectiveness, marketing reach, and general productivity, so it’s no wonder decision-makers go to painstaking lengths to choose the best software for their teams.
But the 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 even know your CRM initiative is failing if you aren’t measuring its return on investment (ROI)?
What is nonprofit ROI?
Measuring ROI is a little more 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—and that 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 seeks to 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 innumerable ways to arrive at a final number—some of them helpful and accurate, others not so much. For example, many CRM vendors offer free ROI calculators on their site, where 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.
Elsewhere on the internet, you can 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 false conclusions.
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 (if you have one) to help conduct the analysis and make sure you’re prioritizing the right numbers.
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’ll give you some 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:
IT maintenance and infrastructure expenses
Vendor maintenance fees
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 (direct cost), but your systems administrator will also have to spend time installing and troubleshooting the new software and equipment (time/labor cost).
Calculating CRM investment gain
The benefits of CRM software aren’t always easily quantifiable, especially when they come in the more subtle form 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
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: through more efficient 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 two percent increase in retention can equal a 10 percent 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.
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 need to collect the right data before and after implementation, compare how you’re doing now with how you were doing then, and 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.