Realizing ROI on CRM is More Science Than Religion

Despite the press that failures have received, CRM continues to emerge as the most intelligent and important way to model and run a business. CRM is the future. It’s happening. It’s being implemented successfully. But know this: planning and implementing CRM is a science. It is a methodology that begins with a sound strategy and is executed according to tactfully articulated and executed steps. Believe me, CRM implemented in an unsystematic way makes for low credibility and low replicability.

Yes, despite the buzz and hype around so-called ‘CRM failures’ – companies can indeed plan, deliver and measure positive returns on CRM investments. Companies that don’t do CRM well are getting lots of press. But in fact the ‘70 percent failure rate on CRM’ figure we have read about curiously matches the ‘70-percent failure rate’ claims pertaining to IT initiatives in general. We aren’t told about the successes, frankly, because the global companies that are adept and successful at CRM don’t necessarily wish to share that hard-earned wisdom with competitors. Salesforce.com has taken a different approach and spun off an interesting site which promotes CRM Success. With all the botched CRM implementations that Siebel has had, they should start their own similar site and call it ‘CRM Failures’.

The challenge is to set up a process for achieving and measuring ROI from CRM initiatives. Here is a useful process for achieving and measuring ROI on CRM. I will share a mile-high overview. The process:

Set Your ROI objectives
Identify opportunities for achieving those objectives
Quantify and prioritize opportunities and define mechanisms for realizing them
Select appropriate measures of success
Set up processes to measure ROI on CRM
Track CRM performance and report the results over time

This is it. Now let’s look at each phase.

The recommended approach begins with agreement on CRM objectives and ROI priorities by senior management. CRM priorities should be focused in strategic key business areas like: acquisition, growth, retention and ‘win back.’ They should be prioritized by degree of focus e.g., “80% growth, 10% acquisition and 10% retention.”

The second step is for marketing to identify opportunities to achieve objectives. There are many ways and opportunities to achieve objectives – the goal is to find the best opportunities. You also need to determine the number of opportunities you can reasonably act on and measure. Assume ten opportunities, for the moment..

If the company’s primary objective is growth, then resources and efforts will be allocated and directed accordingly. In any case, the group will use analytical CRM tools to determine which opportunities make the most sense for the business. This means evaluating each opportunity carefully and thoroughly, and will take a number of dedicated meetings. The outcome of the exercise would be to identify a portfolio of opportunities, which are proportional to the number of objectives. Assuming 10 opportunities and objective focus example from above - 80% growth, 10% acquisition, 10% retention, you would identify eight opportunities with growth as the key goal, one for acquisition and one for retention. And again, each of these opportunities must be evaluated for potential business impact through analytical CRM.

Once the company has identified the opportunities, then the next step is to define mechanisms to realize these opportunities. This will require the further use of analytical CRM tools to project and model this realization. Participants would include marketing tool users and the CRM analyst moderator.

Once your team has completely analyzed each opportunity and has agreed upon how the business would realize the opportunities, then you will be ready for action.

Next, you’ll establish metrics to measure your success. These might include such measures as increases in: Average customer value, Average number of products owned by customer, Average market basket size, Average number of transactions, Average customer-level profit, Retention rate, Acquisition rate

The metrics you choose should align to your stated objectives – and of course, to your identified opportunities.

Step five is to set up processes to measure your ROI on CRM. Based on the metrics that you have established around the key customer segments you have identified, you need to set up baselines – reference points – criteria, for evaluating your success. Companies often make the big mistake of failing to set up measurement processes – and this makes it hard to know how far you have gone – how much you have accomplished.

Set up baselines by documenting where you are today. Gather the statistics on key strategic customer segments you have identified. Examples include: total sales, number of products or services sold, number of transactions, call volume, gross margin, cost of servicing, length of tenure, average value of transaction, average customer lifetime value, or customer equity.

What follows? You need to establish ways to know how you know what you think you know. In other words, “how do you KNOW that your marketing actions caused or drove significant improvement?” You need a measurement system to verify that improvements are the result of your efforts. Many companies use ‘control’ groups – sub-segments of each target segment that do not receive the communications, offers, or messages of the target segment. Control groups provide a reality check in communications campaigns by indicating whether or not a message or offer achieved its goals. For example, a credit-marketing offer would perhaps be sent out to both high value and medium value segments. A sector or control group within each segment would NOT receive the offer, and thus you could examine new credit applications in each group and compare the results.

You should have control group measurements at the offer, program and universe levels. This will enable you to measure the effectiveness of all of your customer marketing and communication activities.

Next, it’s important to set up a measurement system that separates CRM ROI from other ROI or other company measures. Top-line financial measures, such as stock price or PE are not sufficient measures of CRM ROI.You need to figure out what the components are that you will use to measure ROI on CRM alone.

Finally, track your CRM performance and report the results. You’ll need to custom-tailor your systems, processes and report forms to document your success.

CRM is an ongoing process. It’s more science than zen or religion – although a spirit of enthusiasm certainly helps. You’ll need both, because building customer value takes time, and your success will vary among market segments, geographic locations and other criteria, based on your objectives for each of these – and your collective skills and acumen at analytical CRM. Like any science, CRM improves with time, practice, and the right CRM technology. And there’s nothing like success to make believers out of skeptics. By documenting your success with ROI figures you’ll drive those peak religious experiences your company will need to raise overall business performance to ‘transcendent levels’ – which shareholders also appreciate.