Why are CRM solutions so expensive?

10/18/2010 09:48 PM | Sky Stebnicki

The price of CRM software can be surprisingly daunting, especially if you are new to the marketplace. We have come a long way from buying Act! at Costco for $39.95  and paying a geeky high school kid $8 an hour to spend a day getting it setup on one or two computers. Many of the more popular CRM solutions charge up towards $125/per/user per month to manage customer data. That means if you run a small-business of 25 people you can expect to pay around $3,125 per month or $37,500 per year to manage your customers! But why? Technology is supposed to get cheaper with time, not more expensive. What happened?

It is true that technology is always getting cheaper, but while the cost of existing technology is falling, the number of new features and demands continue to rise. This is true in nearly all technological markets. Last week I found myself helping a friend select a new cell phone. His current phone was more than 6 years old and he was ready to try something new and more powerful. He had heard a lot of good things about the smart phones and decided to get one this time around. The only problem was when we got to the store he was shocked to discover that they wanted him to pay $299 for the new phone, in addition to signing a new 2 year contract. He said with confusion in his voice "But they gave me my last phone! Why is it so expensive?"

The truth is that he could still select the free phone, but it would be nowhere near the phone he wanted or needed. What had changed was not the prices of phones, but the requirements and expectations of the user. The rising cost of CRM is a similar story.

In the past if a company wanted to automate workflows, share a customized customer database, or build complex reports they would have to purchase an extremely high priced (tens of millions of dollars) customized solution and pay Oracle, IBM or Siebel millions of dollars more just to get it up and running.  Then they would have to staff highly-paid professionals to operate the expensive hardware and update the expensive software in the expensive datacenters. Naturally, small and medium sized organizations could only dream of being able to afford such extravagant luxuries so they settled on simplistic email/communication systems and basic contact management, while leaving the more advanced tools to the proverbial "big boys."

But what transpired over time is that the features of those extremely costly high-end tools were refined, standardized, and found their way into more commodity CRM packages. Additionally, many vendors opted to manage all the hosting in-house, so that customers could have the benefit of the big IT staff and massive data centers at a fraction of the cost. The result has been that hundreds of CRM vendors have emerged which offer pre-packaged CRM solutions, that include the features of the multi-million dollar systems, for just a few thousand dollars.

The reason the price can seem so high is a matter of perspective. Feature-for-feature, $125/per/user per month is ludicrously low when compared to what it used to cost for the same tools. You can still purchase a basic single-user or even shared contact management system for $39.95. But rest assured, chances are very slim that it will be able to keep up with the ever-increasing demands of the marketplace. CRM is no longer just a contact management system, but has transformed into a full-fledged business platform, that if used correctly, will be the foundational piece for the way your organization operates.

But lets face it, even if it is a matter of perspective and $125/user/month is a relative steal; for most of us $3,125 per month for an organization of 25 people is still cost prohibitive. If you are in that group then you are certainly not in the minority. The "CRM Report" has documented that only one out of six small businesses use any sort of CRM system. And Analyst Sheryl Kingston of the "Yankee Group" concluded that "It (CRM) is  too expensive and too complex for them (small businesses). That is why they are still using Excel spreadsheets."

Fortunately, the cost of CRM solutions is being addressed by a few organizations, including the netric and others. Netric CRM was strategically designed to implement the most important features for small-business while it is priced 70%-80% cheaper than most other systems. Other lower-cost alternatives include SugarCRM , Act! by Sage Software and vtiger CRM.

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