The Size
of the Investment: The 4:1 Rule
The data from four business cases from different
international companies tracked over three years showed the remarkable
similarity in ROI across three very different businesses and a close match for
the fourth.
Note that in the above example:
-
Size is turnover at the start of the period, and all
benefits are calculated in NPV terms.
-
CM investment as a percentage of turnover is exactly as
stated.
-
Benefit as a percentage of turnover is the total net benefit
across the three-year forecast period.
-
ROI is defined as the total increase in revenue relative to
the total additional investment applied.
Table 16.1 appears
to show a relationship between the level of investment and the benefits from
improved acquisition, retention and development. (There are no general rules for
efficiency gains, as these depend so much on how efficient the company was
before the investment.) That is, in general, revenue increase is around four
times the original investment. Though this is a small sample, this figure is
consistent with projects we have implemented. So we suggest that if a business
invested US $50 million in CM, if the
project is managed properly it should expect a US $200 million return. This is a
useful rule of thumb, but it does not guide a company on how much it should
invest. It also disguises the relative benefits to be gained from companies with
a different starting competence in customer management. This is where our
maturity model can help.
Table 16.1: The size of the investment: the 4:1
rule
|
Company |
Turnover |
Sector |
CM investments as % of turnover over 3
years |
Benefit as % of turnover |
Return on investment (ROD
|
|
1 |
$~700 million |
Computer supplier |
2% |
8.5% |
4.3 |
|
2 |
$~7 million |
Financial services |
15.5% |
52.6% |
3.4 |
|
3 |
$~11 billion |
Telecomms |
0.5% |
2.1% |
4.1 |
|
4 |
$~600 million |
Travel |
1% |
8.3% |
4.2 |
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