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