Measuring CRM’s Bottom Line Impact – Part 1 By Dr. Nancy Rauseo

Sometimes the most challenging part of implementing CRM is selling it internally to your company’s management and to the employees that will end up living and breathing CRM. Regardless of a company’s size, you will likely need to quantify the benefits and justify the expenses associated with your CRM initiative. This article addresses the need to measure the impact of CRM, at the beginning, during and after its implementation.

An important component of shifting from a product focus to a customer-centric focus is a change in your measures of performance. New business metrics and supporting analyses are required to continuously monitor the customer dimension of your company. There are two ways of looking at CRM business metrics: 1) the value the company creates for customers as a result of CRM, and 2) the value customers create for the company as a result of CRM. In this article, we will focus on the second – business metrics needed to support your company’s transformation to CRM. You can only improve what you measure.

Getting buy-in for a CRM initiative requires a solid, comprehensive, yet simple business case with CRM metrics to show others, objectively, what can happen if CRM is implemented throughout various parts of the company. According to the Yankee Group, it’s difficult to show a solid return on CRM, despite the fact that it’s a highly visible initiative. Hard, quantifiable metrics, however, can be used to measure the impact of customer intelligence, technology, business processes, customer experiences and training in order to help managers make an intelligent business decision.

Companies consider CRM initiatives for several reasons, including growth in revenues, reduction in expenses, and/or increased competitive advantage. The first step in quantifying the return on investment of CRM is to define the objectives you plan to accomplish with your initiative. Below are general CRM objectives, divided in the three key reasons. These are meant to serve as a guide when developing your own.

Growth in Revenues

  • Retain existing customers
  • Obtain new customers
  • Increase customer profitability

Reduction in Expenses

  • Realize sales efficiencies
  • Realize service efficiencies
  • Realize marketing efficiencies
  • Recognize operational efficiencies

Increased Competitive Differentiation

  • Increase customer knowledge
  • Increase knowledge of market opportunities
  • Increase knowledge of competition
  • Improve customer service

Objectives only define WHAT you want to achieve, not HOW you are going to achieve them. Every objective must be a statement of strategic intent and desired result. When developing a business case, you must define metrics or key performance indicators (KPI) which can be used to measure the value of the objective over time. A CRM metric or KPI must be easily quantifiable, obtainable, reliable, precise, and always expressed as a number.

In the small table shown below, we can observe three objectives for growth in revenues, along with some metrics that can be used to track ongoing results. By no means are these the only metrics. There are hundreds of metrics in general, with some being specific to industries or markets. Also shown is a target performance, generally a preset corporate target, which is based on a baseline, capability, competition, process limits, and customer expectations – this is an actual number.

Objective

Metric

Target Performance

Retain existing customers
Obtain new customers
Increase customer profitability

Retention rate
New customer acquisition rate
New profit per customer

60%
10% annually
$5,000

For example, the objective to retain existing customers can be measured using retention rate as the metric and setting the target performance at 60%. Throughout the CRM initiatives, retention rate can be tracked to determine the degree of progress being made.

So why should you bother to define CRM metrics? CRM aids in:

  • setting and gauging the progress and level of success in meeting CRM program and project objectives;
  • establishing performance baselines and standards;
  • providing feedback for adjusting the CRM strategy and implementation;
  • monitoring the customer experience with your company at all relevant touch points;
  • acting as a tool for change management;
  • changing the way employee performance is measured and compensated; and
  • in communicating the goals of the company in relation to its competition.

In our next article, we will look at the components that will help us determine the specific ROI or return on investment of CRM projects or initiatives. ROI tends to be the most effective measure of program success. ROI’s components are costs and benefits.  To view previously published articles on CRM, please visit us at Newsletter Archives.

Dr. Nancy Rauseo is on the faculty of Florida International University’s College of Business Administration where she teaches marketing and CRM. Nancy holds a Bachelor of Science in Industrial Engineering from Purdue University and an M.B.A and Ph.D. from Nova Southeastern University. Prior to her teaching career, she held various senior management positions for over 20 years in the areas of sales, marketing and technology implementation.

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