How to Pick and Use the Right Metrics for CRM, Part II
eCRM expert Arthur O'Connor concludes his discussion on measuring the economic return of CRM implementation.ByArthur O'Connor
In my last column, I discussed some of the drawbacks in using traditional financial performance metrics to measure the economic return of CRM. In this, the second part of the two-part column on metrics, I'll provide three solutions to these issues, designed to make the measurement process more suitable to CRM and less painful to design and manage.
Despite the considerable challenges I covered in the last column, they are essential to developing metrics and tracking performance. Additionally, they are critical to establishing and maintaining management commitment for CRM. Here are three suggestions:
1. Set and manage expectations appropriately. Realize that a metric is a means (simply a form of measurement), not an end in itself.
While the true long-term performance indicators for CRM are improved sales and profitability, hard data for short-term measures aren't as appropriate. Yes, you can measure and reward employees on how fast they resolve calls and how much they sell. In fact, most call centers are measured on efficiency (time required to respond or resolve issue) and/or volume (numbers of calls handled, amount of cross-sell or up-sell revenue generated).
But many (if not most) customer interactions relate to issues unique to that particular customer (and may not represent a transaction). That means that some customers shouldn't get the "bum's rush" on an inquiry to the call center. Some customers have the potential lifecycle value to justify a more gentile pace of conversation which more accurately matches the way that particular customers prefers to interact with you.
So how do you track this? If the greatest asset any business has is positive awareness in the minds of its customers and prospective customers, how do you measure this? How do you reward people for improving a relationship? Or building trust or goodwill?
The same way you measure other critical success factors such as leadership, attitude and professionalism: by using qualitative factors (i.e. good judgment) and by tracking long-term results. Some of the best companies take a "balance scorecard" approach, using both soft (qualitative) and hard (quantitative) criteria in assessing the value of their CRM initiatives. This approach recognizes that generating greater return on customer lifecycle values is a long-term process involving a mix of many different things, only some of which lend themselves to quantitative measures and fewer still in short-term timeframes.
2. Set reasonable targets in appropriate time frames.
Don't set expectations for dramatic increases in sales and profits after implementing a customer data warehouse and campaign management system, or a steep fall in call center servicing costs just because you've implemented a new self-help section on your Web site. CRM, as with any major investment, requires time and patience.
Establish a group of metrics and questions that will give you some indication of performance, and, more importantly, provide insights into how you can make improvements in your process. Example of these questions would include:
- Do front-line employees believe that we're doing a better job listening to and serving our customers? Why and/or why not?
- Is the information we're now collecting on customers helping us better serve their needs (note: this can be anecdotal). Why and/or why not?
- Are retention rates increasing or decreasing (independent of average transaction size)?
- Are conversion rates on offers increasing as offers get more customized? Why and/or why not?
- Are customer service reps more quickly accessing the information they need to address customer needs?
- Are customer service reps spending more time listening to customers and adopting to their desired styles?
- Are we learning more things about our customers that are being translated into business initiatives and new revenue streams? Why and/or why not?
3. Be careful what you wish for
While the lack of proper incentives to use a new CRM system is a common problem, even a more serious problem is the presence of the wrong incentives. This seems especially true with operating performance metrics.
This phenomenon goes under the category of "Hell is answered prayers," or perhaps more to the point, the law of unintended consequences. Many corporate managers select and implement incentives which on paper, seem rational, but in practice, actually result in undesired behavior.
- Incentives to turn salespeople into data entry staff. Placing massive data entry requirements on your sales staff lowers their productivity and morale, while diverting their time and energy from clients.
- Incentives to treat customer interactions as unwanted costs. This category includes the use of poorly designed Interactive Voice Recognition systems that present inbound callers inadequate or inappropriate options as well as call center staff performance metrics that reward reps for the speed over the quality of the customer interaction
- Incentives to turn CRM into an expensive sales force automation system. This is perhaps the most wide-spread trend. Companies implement only a fraction of the CRM systems' capabilities, using it to generate more pitches and expecting the sales force to push more product.
In the short run, CRM isn't just about saving your business money in terms of greater sales productivity, cheaper customer support, or pushing higher margin products to customers. While all those things may generate short-term gains, the strategic benefit of CRM lies in re-engineering your business processes around the right mix of customers.
The best measure is perhaps the only one that real counts: did the CRM initiative help us attract more and/or better customers? In the long run, the best indicator of that is the all-important measure: profitability. And, ultimately, that in fact is the prime benefit of re-aligning your strategy and operations to better serve the needs of your best customers and prospects.
What are your thoughts and experiences with CRM metrics? Please send them along to me at email@example.com.
Arthur O'Connor is one of the nation's leading experts on customer relationship management (CRM) and customer-facing IT systems and strategies. He's currently the national columnist for eCRMGuide.com and this year serves as the chairperson of the Institute for International Research's CRM Conference. Arthur has over 20 years leadership and management experience in the area of customer management, strategy and new business development, including 15 years as a senior corporate officer of two NYSE-listed inter national corporations, and over five years experience as an independent management consultant and Big 5 firm practice manager selling and managing large-scale IT engagements.