Predicting CRM Payback

Jim answers questions from fellow Drillers

Topic Overview

Hi again folks, Jim Novo here.

Yea, I know. Boss wants to do smart customer marketing, but also wants to know what the payback will be for the “CRM investment”. Geesh, can’t we just figure cost out later? Sure you can, but might be better to make sure you understand what the “CRM success levers” are before you go spend a ton of money. You mean Drillin’, Jim? Sure, on to The Drillin’ …

Q:  Hi Jim,

Our industry is facility management services where a headquarters with chain locations contracts with us to manage their facilities in all their markets.  The President is interested in a “CRM Solution” but is concerned about the ROI he might expect from implementation.  Do you know of any number that I can pass along to him that would placate his insistence on knowing in advance what the ROI will be?

A:  Bad news: No, not really.

Good news: You can figure it out, which is something often not done.  You might not even need any new software to “do CRM,” though it depends on what you have now and what the objective of the CRM program is (you do have an objective, correct?).  But the software required is likely not millions of dollars and if you only have 100’s of clients you could probably do it with some combination of contact software, MS Access / Excel. 

The key question to ask: do you really know how your customers behave?  In this kind of contract business, I imagine the central issue is this: Can you predict which customers are likely to re-up a contract, and which ones are not?  And then can you use this information to focus on the ones less likely to re-up, and take steps to make them more likely to re-up?

Sometimes it is just a matter of better customer service.  In this case, what you need is better service practices, not “CRM.”  From a distance, it is very difficult to know what the issues might be in your company.

Here’s a test you can do to find out where you might be on the road to answering the CRM question.  If you cannot accomplish one or more parts of the following, you are not ready to even talk about “CRM,” and need to do some more internal research.  These steps, by the way, are the ones everybody skipped on the early rounds of CRM that created so many bad outcomes. Research / Implement / Discuss the following ideas to pave the way for a successful implementation if you decide to go with a CRM approach:

1.  Define a “best customer.”  It’s not just sales, you have to take into account margins, service costs, etc.  Don’t worry about finding exact financial numbers.  Think about best in relative terms – these customers are better than those customers, and you are pretty sure it is true.  If you can’t get to this point, you probably need better data collection before you think about a CRM project.

2.  Once defined, how many of these customers left you in the past year or 2 years or whatever the right time frame is for your business?  If you typically sign 3 year contracts, then it might be “in the past 4 years.”  Also identify best customers who stayed with you and renewed.  If you can’t get to this point, you probably need better data organization before thinking CRM.

3.  Group best customers who left and best customers who stayed and compare the two groups.  Look for similarities and differences.  Is it the kind of business they are in, geography, number of “trouble calls,” billing disputes?  You will almost always see patterns that will lead you to conclusions on what circumstances create a best customer who stays and one who leaves.  If you can’t get to this point, you probably need better data analysis before you think about CRM.

4.  Now that you know what causes customer defection and retention, figure how much more money you could make if you could keep a certain percentage of these best customers that would otherwise leave.  If you can’t do this, you probably need better customer reporting before you think CRM.

5.  Figure out what it would cost to keep this certain percentage of best customers that would otherwise leave.  Is it better targeting in sales upfront, better customer service, better billing practices?  If you can’t do this, you probably need better financial reporting before you think about a CRM project.

6.  Calculate your ROI and either decide to do it or not.  If you can’t do this, don’t invest in CRM, because it is going to cost you more than you will make on it!

Sorry I don’t have “a number” for you, it simply does not work like that.  But you can find that number, a number that is right for your business, with a little detective work.  Many businesses can get great results following the above plan.  If you are a larger organization with a lot of complex issues, you might need the industrial strength version of the above – hire an agency!

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