This article was originally compiled by Susannah Patton and Tom Wailgum and published in March, 2007. It was last updated in April 2017.
If you don’t have an accurate view of who your customers are and what their needs or desires are or will be at any given stage in their lives, or if you are losing customers to a competitor, that's a clear indication that you need CRM.
There are many technological components to customer relationship management, but thinking about CRM in primarily technological terms is a mistake. Instead, a useful way to think about customer relationship management (CRM) is as a strategic process that will help you better understand your customers’ needs and how you can meet those needs and enhance your bottom line at the same time.
A successful CRM strategy depends on bringing together lots of pieces of information about customers and market trends so you can more effectively market and sell your products and services.
With an effective CRM strategy, a business can increase revenues by:
- providing services and products that are exactly what your customers want
- offering better customer service
- cross selling products more effectively
- helping sales staff close deals faster
- retaining existing customers and discovering new ones
These revenue gains don't happen by simply buying software and installing it. For CRM to be truly effective, an organization must first understand who its customers are, their value, their needs, and how best to meet those needs. For example, many financial institutions keep track of customers' life stages in order to market appropriate banking products like mortgages or IRAs to them at the right time.
Next, the organization must look into all of the different ways information about customers comes into a business, where and how this data is stored and how it is currently used. One company, for instance, may interact with customers in a number of ways, including email campaigns, web sites, brick-and-mortar stores, call centers, mobile sales force staff and marketing and advertising efforts. CRM systems link up each of these points. This collected data flows between operational systems (like sales and inventory systems) and analytical systems that can help sort through these records for patterns. Company analysts can then comb through the data to obtain a holistic view of each customer and pinpoint areas where better services are needed. For example, if someone has a mortgage, a business loan, an IRA and a large commercial checking account with one bank, it behooves the bank to treat this person well each time it has any contact with him or her.
How long will it take to get CRM in place?
It depends. If you decide to go with a hosted CRM solution from an application service provider and you are planning to use the software for a specific department like sales, the deployment should be relatively quick – perhaps 30-90 days. However, if you are deploying either a hosted application or an on-premises package (involving the purchase of software licenses upfront) on an enterprise-wide basis (that involves different departments like sales, marketing and operations), you should expect the implementation and training to take months, if not years. The time it takes to put together a well-conceived CRM project depends on the complexity of the project and its components and how well you manage the project.
How much does CRM cost?
Again it depends. A hosted sales automation application can cost between $65 and $150 a month for a basic sales automation package. If you want more sophisticated functionality and a greater level of support, you pay a lot more. An enterprise on-premises CRM package can cost anywhere between several thousand to several millions of dollars, depending again on how many functions you purchase and how many computers or “seats” have access to the software. For instance, one company or department might purchase an email marketing management application or a salesforce automation application, while a larger firm might want to purchase an integrated package that includes a database as well as applications for marketing, sales and customer service and support (via call centers and online). Obviously, the integrated software package is much more expensive.
Procurement analysts at market research firm IBIS World Inc. offer this advice: Be "highly selective" when choosing your CRM vendor because you're unlikely to switch vendors (it would be too disruptive to your business). But this also means that you should negotiate your rate from the beginning. Fortunately, there is some room for vendors to give you a deal. “Profit margins for CRM software providers are high at 21.7 percent of revenue, which suggests there is significant room for buyers to negotiate lower prices,” according to an IBISWorld Procurement Report on CRM.
[ Download the free IBISWorld report for more information on CRM pricing ]
Cloud CRM vs. on-premises
The market for on-demand CRM has soared particularly among small and mid-sized companies, largely because of fears about the expense and complexity of large-scale on-premises CRM implementations. And indeed, on-demand CRM is often a good choice for companies that want to implement standard CRM processes, are able to use out-of-the-box data structures with little or no internal IT support, and don’t require complex or real-time integration with back office systems.
However, on-demand CRM software is not always as simple as the vendors would have you believe. For instance, customization can be problematic and hosted CRM vendors’ API tools cannot provide the degree of integration that is possible with on-site applications. Getting a hosted CRM system working shouldn’t take as long as a traditional software package, but larger and more complex rollouts can still take a year or more. And while the hosted option reduces the need for in-house technical support, upgrades can still sometimes be technically tricky. In addition, some companies with particularly sensitive customer data, such as those in financial services and health care, may not want to relinquish control of their data to a hosted third party for security reasons.
For more on the cloud vs. on-premises CRM decision, read why one company left their legacy CRM behind and made the move to cloud.
Which division should run the CRM project?
The biggest returns come from aligning business, CRM and IT strategies across all departments and not just leaving it for one group to run. The reason for this, as Moira Alexander writes, is that "in most companies, individual departments or teams believe they hold the key to understanding customer needs more than other areas of the business. But the reality is that different departments simply have a different view into customer expectations and none has an all-encompassing view."
In fact, it’s best for the business departments who actually use the software to take ownership of the project, with IT and the CIO playing an important advisory role.
What causes CRM projects to fail?
Many things. From the beginning, lack of a communication between everyone in the customer relationship chain can lead to an incomplete picture of the customer. Poor communication can lead to technology being implemented without proper support or buy-in from users. For example, if the sales force isn't completely sold on the system's benefits, they may not input the kind of demographic data that is essential to the program's success. One Fortune 500 company is on its fourth try at a CRM implementation, because it did not do a good job at getting buy-in from its sale force beforehand and then training sales staff once the software was available.
What industries are leading the way in CRM implementations?
As in most leading-edge technology implementations, the financial services and telecommunications industries set the pace in CRM. Other industries are on the CRM bandwagon include consumer goods makers and retailers and high-tech firms.
Which industry is behind the curve?
Heavy manufacturing. As a rule, the further an industry is away from the end customer, the less important CRM is.
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