CRM vs ERP: Spot the Difference (2024)

Businesses looking to automate core business processes typically look at two main softwaresolutions, enterprise resource planning (ERP) and customer relationship management (CRM).ERP helps companies run successful businesses by connecting their financial and operationalsystems to a central database, while CRM helps manage how customers interact with theirbusinesses.

Both serve as vital data repositories. Both also touch on multiple departments and, whilethey are sometimes built on the same platform, the software is often bought separately andintegrated where needed.

This article will help identify the key characteristics of both CRM and ERP, how they differand whether a business needs ERP, CRM or both.

What is CRM?

In short, CRM or customer relationship management is softwarethat manages all the ways a customer interacts with a business. Initially, CRM features werefirst developed for sales departments and were sometimes known as sales force automation(SFA). Other systems were soon developed to manage customer service interactions andmarketing, particularly in the call center — or as it became known, the contactcenter, once the telephone became just another channel for customer service.

Through acquisition and development, software vendors began to combine all of thesedisciplines under one umbrella, called customer relationship management. Sales performancemanagement and sales incentive compensation are also included in some CRM systems, but they’re often sold separatelybecause of their complexity.

What is ERP?

Enterprise resource planning (ERP) evolved out of material requirements planning (MRP),which was a way for manufacturers to understand and manage all the resources needed tooperate a successful business. ERP serves as a shared database to all the parts of anorganization. At its core, this means finances, including the general ledger (GL), accountspayable, accounts receivable, payroll and financial reporting.

But ERP also extends to inventory management, order management, supply chain management and data related to servicesorganizations. ERP touches on procurement, production, distribution and fulfillment as well.Some ERP systems also offer Human Resources Management Systems(HRMS), CRM and ecommerce.

CRM Benefits

The central promise of CRM is to give the business a central repository of all customer data,tracking all customer interactions. Armed with this information and using analytics,businesses can make more informed decisions on which customers to pursue for added revenue,how sales teams are performing, how to service customers efficiently and appropriately, andmore.

For example, with a centralized CRM system, sales reps will know whether customersthey’re visiting have outstanding customer service tickets and can respondaccordingly. Alternately, customer service can quickly see whether a caller is a high-valuecustomer, or a potentially high-value customer, and route them to the appropriate servicetier.

ERP Benefits

The benefits of an ERP system come from having a single, shared databasefor all financial and operational data. This greatly impacts reporting — both staticmonthlyreports and ad hoc reports requested by leadership. A single source of financial andoperational data also means employees can drill down into reports to uncover financialinsights without the need for IT or finance teams to conduct the analysis and reporting.This allows businesses to make faster, data-backed decisions that can impact everything fromprofitability to new growth opportunities to creating efficiency across the organization.

Another benefit of moving to an ERPsystem companies frequently cite is a faster financial close. Finance teamstypically account for all income and expenses and tabulate the results at the end of eachmonth or quarter, commonly known as closing the books. Closing the books using spreadsheetsor entry-level accounting systems typically requires extensive manual work, data entry andcontacting different departments for financial information. With a centralized ERP systemautomating many of those tasks, companies have reported reductions in monthly close times;this task now may take only a week to just a few days.

ERP systems also introduce much greater financial controls into an organization. With acentralized system and role-based permissions, only those with the proper job functions getaccess to sensitive data, improving audit trails and reducing financial risk.

What is the Difference Between CRM and ERP?

While the entire organization will come to rely on both ERP and CRM systems, the fundamentaldifference between ERP and CRM is that ERP is primarily for financial data and the financedepartment, while CRM is customer data used by the sales and customer service departments.The former is commonly referred to as the back office,and the latter is the front office.

Some ERP systems include a CRM component, while others do not, but CRM software systems donot include ERP components. Forexample, Salesforce.com is not an ERP system because it doesnot handle transactional data. It may access order history or invoices, but that data isbrought in through an integration with the ERP system.

Video: CRM vs. ERP

How are CRM and ERP Similar?

ERP and CRM are both business applications that store and analyze data in a relationaldatabase. Both are delivered either through a traditional on-premises model or throughsoftware as a service (SaaS), where the vendor manages the software in its own data centerand customers access it through the cloud.

While NetSuite and Salesforce.com, the two pioneers in SaaS ERP and CRM respectively, gottheir start around the same time, CRM systems were quicker to move to the cloud because thesystems proved simpler to build and businesses were initially wary of putting financial datain the cloud.

Do I need CRM or ERP or both?

Nearly all growing companies, from small and midsize businesses (SMBs) to enterprises, willeventually need both an ERP and a CRM system — or a single platform for both.Companiesrunning their financials on entry-level accounting tools like QuickBooks or evenspreadsheets often turn to an ERP system when they find those systems are holding back theirgrowth, are inefficient or they simply need something more robust.

The same can be said for businesses managing their customer relationships in individual salesreps’ email clients, spreadsheets or contact management systems. Whether a companyfirst invests in CRM or ERP will depend on its business model. A company with a small set ofhigh-value customers and complex financials might be more apt to first invest in an ERPsystem, while a company with relatively straightforward financials and a large customer baserequiring frequent contact might do the opposite.

Ultimately, however, both systems are essential for most companies.

Integration of ERP and CRM Systems

ERP and CRM systems do need to be able to share data, and this is better done through atechnical integration vs. having two sets of data that need to be maintained separately.

A sales rep, for example, might want to access a customer’s order history, creditstatus or outstanding payments when attempting an upsell or cross-sell campaign. The financedepartment might need access to the CRM system to calculate sales commissions when they runpayroll or bulk order discounts. A CRM system built on top of an ERP platform also createsadvantages for business leaders who may need a consolidated way to examine pricingstructures and manage KPIs like customer acquisition costs and customer lifetime value.

One common process that requires tight integration between CRM and ERP is configure, price,quote (CPQ). CPQ tools require information in both the CRM and ERP systems and are vital formany businesses. The larger CRM and ERP vendors typically have prebuilt integrations for oneanother that they or a third-party partner offers. However, these integrations can beexpensive and difficult to maintain when the CRM or ERP system goes through an upgrade.

Adopt a Solution That Unifies ERP and CRM

Companies using ERP often focus on the finance module that automates basic accounting tasksand lets stakeholders view available cash and the flow of money, but a CRM that can improvecustomer communications is the next logical step.

ERP systems with CRM built on the platform offer a number of advantages. Unified ERP and CRM systems tend to be lessexpensive than purchasing point solutions individually, and the unified data model means allinformation is updated in real-time, without having to wait for batch uploads or middlewareconnections. Systems built for ERP from the ground up are better able to handletransactional processes — that means simpler programming, customizations andthird-party tools.