Every business needs some form of customer relationship management (CRM) system, argues Brian Donaghy, vice president of product strategy with Smart Online Inc., a provider of software-as-a-service (SaaS) applications for businesses in Durham, N.C. That’s true even if the system is an amalgamation of Post-It notes, spreadsheets, and the like. Of course, this is not always effective.

That's where software comes in. “A CRM application is a better way to manage so that you can be more organized and do more with less,” Donaghy says. An effective CRM application provides an organized, comprehensive view of a company’s customers and prospects, and employees’ interactions with them. Once a large-business luxury, CRM software packages have come down in price and scale as they have migrated to hosted applications or SaaS solutions, making CRM available to a growing number of small and mid-size businesses.

Spending on SaaS will climb by 25 percent annually through 2010, according to a May 2007 report by Saugatuck Technology Inc., of Westport, Conn., “Three Waves of Change: SaaS Beyond the Tipping Point.”

Hosted versus licensed CRM

SaaS solutions for CRM usually require a lower upfront investment, as no software needs to be purchased and installed. Upgrades can be done over the Internet, rather than by loading disks onto each computer. And, employees can access the program with just an Internet connection.

Gerry Czarnecki, chair and chief executive officer with The Deltennium Group, Inc., a consulting firm based in Boca Raton, Fla., tried out a half dozen different applications, checking how easy it was to enter and access data and create reports, before zeroing in an SaaS solution from Infusion Software, an on-demand CRM provider from Gilbert, Ariz. Czarnecki’s goals in implementing a CRM solution were to better manage relationships and leads, and automate the company’s marketing efforts. While the system has only been in place for several months, “I have no doubt that I’ll be able to do more with less,” Czarnecki says. “I can use my staff to focus on expanding.”

While security often is mentioned as a concern with hosted solutions, most providers continually invest in updated security features, 24/7 monitoring, and multiple backups and redundancies. As a result, their security often trumps the protection a small business owner can afford.

However, it’s not unheard of for the server hosting an application to go down. Until that server is back up, the data in the system is inaccessible, says Doc Pratt, president of Pratt Computing Technologies, Inc., of Knoxville, Tenn.

And the costs of hosted solutions can add up. Some providers charge a set-up fee of several thousand dollars or more. Ongoing monthly fees can range from $20 to $150 per user. In addition, the provider may charge more for additional services, such as delivering a tape backup. SaaS also can be more difficult to customize.

Licensed solutions typically start at several hundred dollars per user license, and go up from there. Some also charge a maintenance fee of about 20 percent of the initial cost. According to Ted Harding, general manager of Legrand Software, a San Franciso-based CRM provider, some of the benefits of licensed CRM include that the application runs on your computers, and data is stored in your file server. It's also not off-site, and you’re not dependent on an Internet connection to access the programs. Interfacing the application to third-party applications tends to go faster and has fewer constraints. Finally, the user interface may be richer.

Lisa and Michael Lujan, co-founders of Mentoring Minds LP, a Tyler, Texas-based provider of educational products to schools, opted for a licensed CRM product that to track and follow up on prospects and sales calls. In early 2006, the Lujans implemented a CRM solution from LeGrand. Now, they electronically tag different mailings. When an order arrives, the Lujans can easily match the order with the materials that were sent to that school or district. And, salespeople can enter information on the schools they’ve visited, enabling the Lujans to quickly see which visits are leading to sales. “We can track and see what was successful. Before, it was hit or miss,” Lisa Lujan says.

Features to look for in CRM

Whether hosted or licensed, these are some common features you'll want to look for in a CRM solution for your business:

Application Programming Interface (API): This allows the CRM solution to link with other systems, eliminating the need to enter information multiple times, says Clate Mask, president and chief executive officer with Infusion Software.

Multiple contact information: Users should be able to organize and access information by a person’s name, as well as his or her company, says Harding. That makes it possible to view all the interactions that have occurred with a particular person, as well as with multiple individuals within a single company.

Dashboards: The system should provide a summary view of the sales opportunities underway across a company’s customer base and the employees working on them. With this, promising opportunities are less likely to fall through the cracks, says Harding.

Delegation: Employees should be able to use the system to electronically delegate tasks to their colleagues.

Information entry and access: Employees also should be able to enter and access information from anywhere within the system, says Donaghy of SmartOnline. For example, if they’ve talked with a client on the phone, they should be able to enter details of the call under the person’s name. Once in the system, that information should be accessible through both the individual’s and the company’s name.