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Predicting CRM Payback

Analytical Culture, Analytics Education, Customer Experience, DataBase Marketing, Driller Q & A, Marketing / Tech Interface

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

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:

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Match Cost of Effort with Value of the Customer

DataBase Marketing, Driller Q & A

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Topic Overview

Hi again folks, Jim Novo here.

Sure, you can do a ton of analysis and find out all kinds of cool things about the behavior of your customers. But what about implementation, how do you execute on all this info? There are some universal rules, and one of them is to match up cost of effort to customer value. That way the ROI monsters in Finance will always be giving you a smile. Ready for the Drillin’ ?

Q: My boss (VP of phone sales) is really looking to try out some new ideas and RFM is one he has latched onto.  He actually has explored this concept for a few years but never acted upon it.  Anyway, he just purchased your book and after finding that he did not have time to read it he gave it to me.  My job was to read and understand at a high level and to lead a discussion with the marketing group to get them excited about the concept.  I am a finance guy by trade so this concept was very interesting.

A: That’s funny, the people who really “get it” the most are finance people and IT people, because it is kind of “black and white,” very numbers driven.  Stuff either works or it doesn’t – did you make money or not?  ROI is the name of the game.

Q: Obviously I either did not do a good enough job explaining RFM, Latency, tripwires, etc. or they just are unwilling to have someone from their team tackle the concept.  The question they always wanted answered was “We don’t know why the customer behaved as they did.  Thus a sales call needs to be made not a marketing campaign.

A: “Why” is not really the issue; defection is happening.  Depending on the biz, a sales call might be exactly what is needed.  These models are always about allocation, putting scarce resources to the highest and best use.  Per customer, sales calls are expensive; direct mail is not, email even less so.  If you have a formal “wall” between sales and marketing, usually the “whose responsibility is it” issue is decided by “degree of pain” e.g. how valuable is the customer to the business overall?

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LTV of Car Buyers

Customer Experience, DataBase Marketing, Driller Q & A, Measuring Engagement

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Topic Overview

Hi again folks, Jim Novo here.

The car business is interesting because the Customer Lifecycles can be so long and the value of a customer beyond just the car (service, etc.) is a huge factor. Can this industry use Lifecycle ideas? You betcha, Drillin’ is Drillin’ …

Q: Do you happen to know approx. calculations of LTV for the car-industry? I wonder what this might be for a person that buys every a new car every 3 – 5 years, including service profits, etc.

A: The only published, verified study I know of on this was done by General Motors for their Cadillac division. To quote:

“Each new customer that comes through the door of a Cadillac dealership represents a potential LTV of more than $322,000. The figure is a projection of the number of automobiles the customer is likely to purchase over his or her lifetime, as well as the services those automobiles will require over a lifetime.”

Take that number and extrapolate based on the average margin on sales and service for any other car, and you should get pretty close. Looks to be somewhere around 6x – 8x the original purchase price, perhaps?

Continue reading LTV of Car Buyers →