Lurking hidden costs in web-based CRM

At first, on-demand CRM software looks like a can’t-miss opportunity in terms of rapidly upgrading lots of customer service really quickly under one base price of, say, $75 per user for marketing, sales force or service automation modules or $125 for all three suites.

At first.

Just as surely as time is money, however, hidden costs may be tucked away, despite promises of “this low price” or that.

Need proof? Check out the cautionary tale provided by appliance and automotive equipment provider Sterling PCU. Salesforce.com met all the company’s needs until a second database back-up. “That’s when,” a Sterling spokesperson said, “salesforce.com started to charge us an arm and leg for backing up our own data. It’s just not acceptable.” Today, Sterling claims their new CRM system saves them $18,000 annually.

A few tips, then, to help you ensnare some of those revenue-eating traps follow. We can’t guarantee savings of $18,000, but consider the following and you may well get what you pay for (and vice versa).

• Beware complexity. There is little that can be done, it seems, about the headaches certain to appear when faced with integrating data between on-premise and hosted software. Work stoppage may happen, shutdowns of some or all parts of your network may be necessary: All represent drains on resources and thus revenue.

• Think about consultants. Because of certain complexity in implementation, you will be hiring a consultant. iServiceGlobe SAP consultant Srini Katta, a specialist in e-business and CRM implementation was quoted at CRMblogger and SearchSAP.com as estimating that, “at a minimum, a company may need to bring in a business analyst to determine what data is needed and should go beyond a company firewall.”

Choose your consulting partner carefully; understanding exactly what’s in the consulting contract will help keep potential hidden costs within the potential hidden costs to a minimum.

• Consider storage space (but probably not too much). Much is made of “bloatware,” much of it colorful. One CRM world blogger writes of “the notoriously contagious ‘bloatware’ malaise that often affects ageing software – adding features for the sake of it,” describing the phenomenon as “like mutton dressed as lamb – full of superfluous features the developers have decided you need.”

This can mean having to buy further storage space either in that hardware the would-be CRM buyer was hoping to avoid or from the hosting service. Companies like SAP and Salesforce.com offer additional space as well, should you need it, but at an extra cost, naturally.

For an opposing viewpoint set to debunk all the myths about the ever-discussable bloatware, check out this entry by blogging software developer Joel Spolsky entitled Strategy Letter IV: Bloatware and the 80/20 Myth.

By the “80/20 Myth,” Spolsky is referring to a common rule of thought employed by software developers that goes as so: “80 percent of the people use 20 percent of the features. So you convince yourself that you only need to implement 20 percent of the features, and you can still sell 80 percent as many copies.”

But, Spolsky argues, that 20 percent of features is different from user to user; one of the beauties of web-based CRM is the pick-and-choose options most offer. The 20 percent your business needs can be yours at minimal cost. If you choose correctly.

As for the cost of hardware, Spolsky presents an eye-opening statistic: In 1993, Microsoft Excel 5.0 took up about $36 worth of hard drive space; in 2000, Microsoft Excel 2000 took up about $1.03 in hard drive space. That price you’re paying for extra space? Accept it; it could be much worse.

• And then there’s shelfware. Just because you’re not buying anything that can go on the shelf doesn’t mean you’re not paying for something that is utterly useless.

Shelfware is an already classic 21st-century phobia, programs that simply sit on the shelves after purchase due to one problem or another. In a Network World piece by Denise Dubie entitled “Net execs struggle to rid their shops of shelfware,” Dubie presents five cases of business had by (typically) CRM product that was too much, not enough, or just plain didn’t work.

Though the piece is focused on traditional hardware for IT companies, the lessons learned are the same, and the moral is simple: Do not buy that which you do not need.

• Know what you need to know. A guideline for costs in a CRM system deployment has been nicely summarized at CRM Lowdown. It looks like this: needs analysis and site preparation; software purchases and license support; implementation and deployment costs; ongoing operational support; and strategic development costs. Happy calculating!

• Finally, there’s the apocalypse. Back in early 2006, Salesforce.com suffered from a couple of power outages that took them – and subsequently their customers – off-line for hours. In light of the development, TMCNet posted a decent pros-and-cons list of hosted vs. in-house CRM software.

Reacting to the near-catastrophic power failure, contributing editor David Sims opined then that hosted CRM was still too immature to meet long-term business needs.

To be fair, nothing like the large-scale event Salesforcers suffered almost a year-and-a-half ago has occurred again. However, certain suppositions of early 2006 still hold: Hosted CRMs can be limited in custom features, carry untold hidden costs in the medium term, and cost companies extra when waiting for the subcontracted service.

Ultimately, Sims gives a warning of “caveat emptor” in recommending the avoidance of long-term contracts.

Some may attempt to convince the prospective CRM system purchaser that he/she is buying basically foolproof stuff with a no-nonsense billing structure. Just recall what they say about that which sounds too good to be true. And caveat emptor.