About a year and a half ago, Tom Cooke sold his small business to Image Tech Corp. and “like an idiot” agreed to run the company’s sales department.

What he found was that the St. Louis corporate event production firm had no way of keeping track of its interactions with customers, potential and otherwise. “We did not have a comprehensive system,” he says. “Intellectual property would be walking in and out of the company every day at five between the ears of our employees.”

Image Tech used ACT!, a CRM software program from Sage Software, but Cooke found most sales people were using Microsoft Outlook, which is primarily an e-mail software program, instead. After hooking up with a San Francisco reseller, Cooke had Microsoft CRM installed in May for a one-time fee of around $18,000. Since his employees were already familiar with Outlook, the transition to Microsoft Dynamics CRM was easy, he says. Now the company has what he wants: a central database of consumer contacts that includes information about the contact’s interactions with the company and past purchasing habits.

Image Tech isn’t alone. Years ago, CRM might have been designed for Fortune 500 corporations with large call centers. But, these days, small- to medium-sized businesses represent one of the hottest segments of the market.

Why CRM Works

With some CRM programs, you don’t need any IT staffers. While a small business might opt to install a software program on their IT system for roughly $1,500 per seat, there’s another option: Outsourcing the whole thing through such Web-based companies as SalesForce.com. Outsourcers charge in the range of $50 to $100 per month and buyers can opt out of the service any time.

Such ease of use has no doubt been the reason behind the revenue growth at CRM vendors. These companies say that small businesses spent just under $1 billion on CRM software last year, and are projected to spend more than double that by 2010, according to Gartner Inc., the Stamford, Conn. technology research firm. “We’re starting to see an interest from small businesses,” adds Liz Herbert, a senior analyst with Forrester Research, another research firm based in Cambridge, Mass. “They tend to be very resource-constrained and these [CRM programs] are easy to deploy and manage on an ongoing basis. And you don’t need a large number of IT people to initiate it.”

What's the CRM ROI?

Microsoft doesn’t quote an ROI figure for its Dynamics CRM software, but Kevin Faulkner, product marketing manager for the line, says that at this point CRM software is a must-have for small businesses. “A CRM system frankly is as central to your business as an accounting system,” he says. “People don’t ask, ‘What’s the ROI on an accounting system?’”

Indeed, Image Tech hasn’t yet claimed much ROI on its $18,000. Cooke says that the software has not led to many new sales yet but has led to “more times at bat” so far. “Our batting average is not as good as it can be,” Cooke says, “but now can analyze why a program is not successful.” He’s hardly disillusioned, though. He says he feels that with the increased data about what was pitched, what the competition is offering, and what the prospect’s main issues were, it’s only a matter of time until the effect of knowing the customer better through CRM is felt on the bottom line.