Cost Analysis

IVK Corporation funded 180,000 loans, experienced a slowing of business performance over the past two years (Austin, 2009 p.19). By purchasing a customer relationship management (CRM) application such as Salesforce, IVK could improve its overall functioning as customer service is a major component in the company’s IT department.

Investing in Salesforce CRM would improve the strategic positioning of IVK. It is well known that companies are more successful when they avoid margin-eroding competition (operational effectiveness) and focus on strategic positioning versus operational effectiveness. (Gallaugher, 2013).

Costs associated with the Salesforce CRM are variable based on the different models as illustrated in Figure 1. There is a monthly leasing fee which is billed annually. It is recommended that IVK purchase the Performance Edition to accelerate performance. It includes the Sales and Service option at $300/month (fixed cost) with the Service Cloud, a system that combines traditional call-center support with search engine technology and social-networking sites (Kanaracus, 2009), and also features a 24/7 Premier support, developer sandboxes, customizable mobile products, third-party apps and increased storage (Schaeffer, n.d.). A sandbox is a copy of a user’s production environment of Salesforce which can be used for functions such as training users without affecting the live data in the production organization. Another important function of the Performance Edition is customizing mobile products. Salesforce provides several mobile apps to keep you connected and productive, no matter where you are (Schaeffer, n.d.). IVK will offer the Salesforce applications to 100 employees.

It is recommended that IVK offers the Salesforce applications to 100 employees in the first fiscal year in order to evaluate that IVK needs are being met and that efficiency and outcomes have improved.

Figure 1. Salesforce Automation and CRM Pricing Chart






Salesforce Pricing vs. SugarCRM.

The cost of Salesforce implementation is variable, and companies are expected to pay anywhere from $5,000 to well over $80,000. Since IVK is a medium-sized corporation (400 employees/ 100 Salesforce users) it is estimated that the cost will be $42,000 at $50/hr. Implementation costs vary on several factors such as the size of the organization, the type and complexity of the organization and business objectives. Implementation costs will rise if the organization is large and complex, or if the corporation wishes to heavily personalize the program.

Table 1: Variable and Fixed Costs IVK *




“Fixed Cost” (2009); Bragg (2013)


*many cost items may have both fixed and variable components


It would be beneficial to hire a salaried full-time administrator. This is a fixed cost. IVK will need to identify an employee (administrator) who is an expert, knows the system backwards and forwards, is the “defender of their data” (Marks, 2012) and is the go-to person for any salesforce question. The administrator would train staff specifically on how and why they must use the program. It is vital that employees embrace the Salesforce CRM system. Otherwise, IVK could suffer consequences if even one employee submits outside spreadsheets instead of using CSR. Should this occur, the work is viewed as “If it’s not in the system or, it doesn’t exist” (Marks, 2012).


Major costs include: purchase of Salesforce $300.00/month/user for100 employees (fixed annual recurring cost); estimated Integration is $50,000 (upfront and variable based on complexity of current operating systems); Implementation training by Salesforce (estimated at $30,000 (a variable cost which often fluctuates based on needs during the implementation); Implementation is estimated at $42,000, (however, is also variable based on time to complete implementation); training (Full Time (FT) administrator) $40,000/year (recurring); and maintenance costs (FT IT employee $40,000.00 which is a recurring). If needed additional FT IT staff may be added in future fiscal years (variable cost). See Table 2. Estimated Costs of Purchasing Salesforce. Purchasing Salesforce is worth the investment given that on an average, those using Salesforce see a 29% increase in sales from greater visibility and a 34% increase in sales productivity (Salesforce, https://www.salesforce.com/form/sem/sales_manage_sales).


In looking at the overall costs listed above IVK would calculate its return on investment (ROI) or net present value (NPV). (Gallo, 2014) “ROI always involves estimating the future cash flows of an investment.” (Knight, 2015, p6.) To determine a company’s ROI, various methods are available, i.e. The Return on Investment Calculator by Axia (Axia Company, n.d.) and models developed by Harvard Business Review (HBR) i.e. the Business Valuation Model: ROI analysis (Knight, 2015). Salesforce disclosed its 3 year risk adjusted ROI (North, 2008) when reporting the Total Economic Impact TM of Salesforce CRM Customer Service & Support. See Table 3. The risk-adjusted ROI was 72%.


”Based on these findings, companies looking to implement Salesforce CRM Customer Service & Support can see financial benefits in the form of labor cost savings as well as opportunities for multiple functions or departments in the organization to benefit from the Salesforce CRM platform.”(North, 2008, p.19) In all, IVK could possibly benefit from investing in salesforce to improve outcomes. Thus, the effects of using Salesforce would align with the company’s goals such as service-oriented architecture and Real time operations (Austin, 2009). Moreover, Real Time is the future for companies to visualize how data and wealth are being generated (Pennystock lab, n.d.)


Table 2: Estimated costs of Purchasing Salesforce
Table 3 : Three-Year ROI, Risk-Adjusted (2009) *Summary financial results Original estimate Risk-adjusted





The ROI was calculated for the purchase of Salesforce Performance Model. See Table 4 below. The projection was made for five years which makes the prediction more robust. Highlighted in blue are the cost estimates. The green highlighted region illustrates the revenue uplift. In the first year following the implementation of Salesforce (year 1 to 2), it is expected that there will be a two fold increase in revenue. The next year (year 2 to 3) there is only a 10% projected increase in revenue. Lastly, in the following years (year 3 to 4 and 4 to 5) revenue is not expected to change. The ROI of 5% is concerning and suggests that Salesforce may not contribute significantly to improving IVK’s outcomes.

Table 4. ROI Calculations














References:

Austin, N. Nolan, R., & O’Donnell, S. (2009) The Adventures of an IT Leader. Boston,Massachusetts: Harvard Business Press.

Axia Company. Return on Investment Calculator: For IT system project proposals. Retrieved
from http://www.axia- consulting.co.uk/html/roi_calculator.html


Bragg, S. (2013). “What are examples of fixed costs?” Cost Accounting. Retrieved from http://www.accountingtools.com/questions-and-answers/what-are-examples-of-fixed-costs.html


Gallo, A. (2014) A refresher on net present value. Harvard Business Review. Boston,Massachusetts: Harvard Business School Publishing.

Gallaugher, J. (2013) Information systems. Washington, DC: Flat World Knowledge.


“Fixed Cost” (2009) Investing Answers. Retrieved from http://www.investinganswers.com/financial-dictionary/economics/fixed-costs-2948

Kanaracus, C. (2009) Salesforce launches Service cloud. CIO.com. Retrieved from http://www.cio.com/article/2431294/infrastructure/salesforce-launches-service-cloud.html

Knight, J. (2015) HBR Tools Return on Investment (ROI) Part 1, Part 2. Harvard BusinessReview. Boston, Massachusetts: Harvard Business School Publishing. Retrieved from https://hbr.org/product/hbr-tools-return-on-investment-roi/TLROI1-ZIP-ENG


Marks, G. (2012) What Salesforce.com Won’t tell you. Forbes. Retrieved from http://www.forbes.com/sites/quickerbettertech/2012/12/31/what-salesforce-com-wont-tell-you


North, J. (2008) The Total Economic Impact Of Salesforce CRM Customer Service & Support.Forrester Research Inc. Retrieved from https://www.salesforce.com/ap/assets/pdf/cloudforce/ServiceCloud-Forrester-TheTEIOfSalesforceCRMCSS.pdf


Pennystocks lab. The internet in real time. Retrieved from http://pennystocks.la/internet-in-real-time/


Salesforce. Sales Force Pricing and Salesforce.com vs. SugarCRM. Retrieved from
http://www.diffen.com/difference/Salesforce.com_vs_SugarCRM


Salesforce. Grow sales with the world’s best CRM. Retrieved from
https://www.salesforce.com/ form/sem/sales_manage_sales


Schaeffer, C. Salesforce.com Independent Review. Retrieved from http://www.crmsearch.com/salesforce-pricing.php