How to Pick and Use the Right Metrics for CRM, Part I

Arthur O'Connor

Updated · May 16, 2001

Photo Arthur O'ConnorThere's great truth to the adage: "You can't manage what you don't measure." The trick is in picking the right measures and deciding how to use them. Calculating ROI (Return On Investment — the ratio of profit gained or lost over the amount of investment made) sounds like it should be a pretty straightforward process as it relates to CRM. But it isn't.

Hard, quantifiable short-term metrics are hard to come by, and many of the desired behaviors of CRM aren't the sort that can be readily recorded and tracked by existing financial accounting and management reporting systems.

Still, you need to find some ways to measure what you're doing, and better still, capture information that can help you do things better. In this first of a two-part column, I'll talk about the type of metrics used in measuring CRM and the problems encountered when using them. In the following column, I'll discuss recommended approaches to these shortcomings.

Three Types of Metrics
For the purposes of this discussion, I'll group and cover three types of metrics, which are associated with three distinctive stages of a CRM project lifecycle:

  • Financial metrics that are established prior to implementation to determine feasibility/justification of the investment. Additionally, these metrics will track and determine the economic value contribution after implementation.

    These metrics are used to quantify the amount and timing of the economic return, relative to the investment required of a CRM initiative. In the wake of the spending spree on IT projects without commensurate improvements in productivity and profits, corporate managers are finally asking for a compelling business case as to the purported economic benefit of these multi-million dollar systems. While the rhetoric suggests that all major CRM investments have specific financial goals to achieve relative to the current state, the evidence suggests that the majority of CRM systems are bought on faith, with only superficial financial analysis and forecasting.

  • Implementation plan milestones and schedule of deliverables.

    These metrics are the most commonly used by far. Project managers use them to track the progress of CRM implementations. But the problem is that CRM isn't just an implementation project – it's often a major capital investment intended to change the way a company does business. By relying exclusively on these internal measures, success is often defined by completing the project on time and on budget, not by the results generated from the investment, which happens after the fact.

  • Operational performance metrics.

    This group of metrics is used to run the new CRM system. These metrics are most commonly found in the operation of call centers, campaign management, and sales force automation systems.

While the middle category – implementation plan milestones and schedule of deliverables – is well-established and accepted, the first and last categories of metrics are far more problematic to design and implement. Here's why:

1. Traditional quantitative measures are influenced by many other independent variables.

The real critical success factors and performance indicators for CRM are improved sales and profitability. But those are long-term goals. So how can you get a better idea of how well the CRM is operating before it's too late?

It is difficult to isolate the cause or attribute the increase (or decrease) of sales and profits in the short-term to the implementation of a specific CRM or program. Too many other independent variables (price/performance of product/service, competitive market conditions, productivity of staff, fulfillment and delivery performance, management focus and commitment) directly influence traditional financial performance measures.

Yes, it's true that higher customer satisfaction and loyalty can be measured in customer surveys, repeat sales (both frequency, recent frequency, and per-sale transaction volume), call to resolution times, and returns (number and nature of product returns/service complaints). But even a metric as specific as customer care quality – whether in the form of satisfaction, retention, frequency of purchase or average transaction volume – is still a factor of so many other internal and external variables.

While customer care, revenue and profitability are appropriate long-term goals, they are less useful in measuring the implementation and execution of a CRM strategy in the short-run.

2. Creating new quantitative measures and a tracking process specific to the re-engineered business process is painful, difficult and hard to justify itself.

ROI sounds like a great idea until you run into this fact: you have to develop performance metrics and document the current state in order to create a baseline of comparison to the new, proposed state.

Activity-based costing can be an expensive and painful process, particularly when you realize that you're spending money, but not actually fixing or improving anything. All you're doing is simply documenting and codifying how "bad" the "bad" old way of doing this actually is.

3. Benefits are both tangible and intangible, and have different payback periods.

Many of the benefits of embracing a customer-focused strategy and infrastructure are soft and intangible, and difficult to quantify over the long-term. Therefore, they are unsuitable for a short-term performance measure.

Another problem is that even the hard, financial paybacks of CRM are staggered (they are realized over different periods of time), and some, such as the benefits of a customer-focused culture, accrue over decades.

In my next column, 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.

If you'd like to respond to some of these points, or want to share information regarding CRM metrics, please write back to me at [email protected].

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 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.

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