Measurable improvements. Measurable results. Measures of success. How do you know if your CRM initiatives are "working"? Do you have a meaningful method of tracking improvements over time?
Since CRM is essentially a focus on providing optimal value to customers, then we should be sure to measure the success of our CRM initiatives using metrics that relate directly to customers. Because implementing CRM is time-consuming and requires a significant commitment across the organization, it is crucial to:
- Establish the means of measuring your progress on CRM initiatives.
- Establish enterprise-wide measures of success and metrics that can be applied to all of your CRM initiatives.
- Apply these metrics on an ongoing basis to ensure continued funding of your CRM initiatives.
A common challenge in many organizations is that various groups, departments and divisions have varying means of measuring and reporting on the success of their CRM and customer-related initiatives. Some may look at response rates; others may look at data capture rates. Some may look at increases in average order; others may look at number of contacts required to close a sale. Needless to say, the result is a lack of consistent performance on CRM initiatives and confusion between departments and in senior management about the measures of success for these initiatives.
Rather than beginning with whatever may come to mind or whatever the first vendor in the door may propose, broad-scale quantification of potential return on investment must be pursued. Ideally, each of the potential initiatives should be tied to projected improvements in customer dynamics acquisition, retention, penetration and/or reactivation. The next step is to determine how improvements in these dynamics impact revenue, costs and/or competitive differentiation.
Finally, it is important to establish universal metrics around these customer dynamics. Each of these four dynamics can be measured using fairly rote metrics percentages, number of customers, number of products per customer. Organizations probably have some of these measures established today. They may acquire one or two customers out of every one hundred prospects that are contacted. They may retain 10, 50 or 80 percent of their customers from one year to the next. They may cross-sell a quarter of their customers into a second product line. They may be able to reactivate 10 percent of those lost to attrition.
Reporting on these historical patterns and over time identifying trends of improvement in these patterns is certainly one of the keys to measurement.
A customer scorecard can be developed to reflect customer dynamics in a way that is most meaningful to your organization. A scorecard should be fairly simple in order to have meaning across the organization and should reflect measures of acquisition, retention, penetration and reactivation across all business lines, divisions and functional areas. One of the most effective initial approaches is based on customer segment level measurements that track customer segment performance at least quarterly. Typical metrics included on the segment scorecard are:
Current spending. This metric will vary based on your business but could relate to monthly or annual billings, total purchases, total balances or average order size.
Customer profitability. Unlike spending, profitability measures the value of the total customer relationship across all product lines, after netting out the cost of servicing.
Customer lifetime value (LTV). Since customer relationships represent ongoing investments that result in the continued performance of a group of customers, it is important to also project the future behavior and projected value of your customers when looking at the success of your CRM initiatives. LTV forecasts current profitability over the predicted life of customers within the segment.
Market penetration for high- value customers. This metric identifies the percentage of high-value customers that have been acquired compared to the potential prospect population. While the measure can address the total segment population, the most relevant is the sub-segment of high-value customers.
Cross-sell. Here, you are looking at the depth of the relationship across all product lines. Typically, this metric reflects the number of different product categories but may all reflect add-on features or services.
Product penetration. This metric identifies the proportion of customers within each segment that have purchased within each product category.
Customer retention. Segment-level retention percentages are important, but retention statistics should also be generated to compare performance for the low, average and high-value customers within each segment.
Customer reactivation. This measures the number of previously inactive customers that have been enticed to purchase again. Generally, this metric is presented based on varying terms of inactivation.
Channel usage or penetration. For many industries, the use of multiple channels is an indicator of customer loyalty customers who utilize a combination of retail, telephone, catalog and Internet channels are typically more profitable and more loyal than single channel users. This metric tracks the number and type of channels utilized.
The customer scorecard concept reinforces the concept of cumulative, enterprise-wide impacts on customer relationships. Because it is produced quarterly, organizations can easily identify the upward or downward trends in key measurements. After generating and refining a customer scorecard, the organization also has the key performance statistics necessary to set customer segment goals. Next, individual and department goals and incentives can be tied to the customer-level objectives.
Organizational commitment to CRM will be dependent on demonstrated success of the initiatives. Establishing enterprise-wide measures and metrics, as well as the reporting and tracking processes, are the critical first step in demonstrating that success.
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