CRM: How to identify the metrics that matter

18th Jul 2011

You can't manage what you don't measure. But you'll still come unstuck if you've defined the wrong metrics, says Forrester's Bill Band. 

It goes without saying that a critical practice for getting more value from customer relationship management initiatives is defining the right metrics to track success and prompt corrective action.
But the critical word here is "defining". While it is true that "you can’t manage what you don’t measure", it is also true that you can’t measure what you don’t define. And CRM certainly has some ‘previous’ when it comes to this.
Take the oft-quoted Gartner study from 2002 which suggested that 50% of CRM projects would be perceived as failures. As Ed Thompson, research director of Gartner, explains: "The main problems at the time were that many organisations were not sure why they were doing it… what goals they had were vague."
Almost 10 years later, and when Forrester VP and principal analyst Bill Band was researching the new paper ‘Update 2011: The right CRM metrics for your organisation’, it was still a problem.
"A lot of CRM initiatives historically have gone awry or are perceived not to be successful, but when you dig into them you find out that there is really no way to tell if they were successful or not. Underneath it you find that the projects didn’t have any metrics to find to be able to determine success," he explains.
"Typically that points to a deeper route issue – it’s not that metrics are so important in and of themselves, but usually the companies haven’t thought through metrics around customer-facing initiatives, and often it speaks that they don’t have a strategy. Metrics are only relevant in relation to a strategy that you are trying to execute. And when I see that metrics haven’t been defined, often the root cause is because there really isn’t a customer relationship strategy that has really been worked out."

Metrics overview

As Forrester’s report emphasises, there are certainly no shortage of metrics being applied to today’s CRM initiatives. Traditional operational metrics that continue to be measured include number of prospects, close rates, renewal rates, sales stage duration, number of trials and number of calls made (sales operational); number of responses from a campaign, revenue from a campaign, cost per campaign and customer retention rate (marketing operations); and time to resolution, average call handling time, complaint time resolution and number of customer call backs (service operations).
And arguably the biggest news is the emergence of new categories in the CRM metrics dashboard, specifically voice of the customer feedback measures (such as include customer satisfaction level, Net Promoter Score and brand preference) and customer social listening measures (sentiment, influence and share of voice).
"If you think about the history of CRM from a technology point of view it has been more defined primarily as an optimisation of internal operational activity, so the metrics that traditionally have been associated with it have been driven from an internal operational point of view," highlights Band. "But now companies are becoming more sophisticated at understanding they need to have both the internal operational and the external perception metrics side by side as opposed to scattered independently throughout the organisation."

Metrics challenges

So, a whole load of metrics – some new, and some tried and tested. "You won’t want to do all of these, but people need a starting point," says Band. "The key takeaway is that these bread and butter metrics continue to be important – depending on your strategy."
He adds: "When you look at ongoing operational metrics, we see of lot of them in companies, but the question is whether they are tied to an overall strategy. Often that is a missing linkage. In the call centre you might have lots of operational metrics, or in marketing there are traditional marketing, like campaign management and close rates and so on, but I see a lack of tying metrics to a strategy."
This doesn’t mean that there has been no progress, however - in the last four or five years there has been a definite shift towards organisations at least developing business cases in advance of their investments, something that was sorely lacking in the late 90s and early 2000s. Usually, by its very definition, if there is more rigour around the financial business case there will be metrics attached to this, at the very least from a financial point of view.
Band says: "Broadly speaking, 10 years ago people were investing in these initiatives more on face and not having a well thought -through strategy or metrics. But more recently we do see most companies applying at least more financial rigour to these investments so there has definitely been a maturation."
The emergence of the new outside-in measures is also of huge benefit when it comes to establishing metrics that are in sync with customers. "The more important thing is to be making sure you are paying attention to customer perception metrics, and that speaks to really understanding from a customer perspective what is important and then driving your metrics off of that."
Nonetheless, despite this progress, if operational metrics aren’t tied to the CRM strategy, then the long-standing concerns around CRM metrics remain. So how can organisations link CRM strategy, tactics and metrics to business goals?

Finding the right metrics

In his paper, Band suggests that the starting point is to establish the goal of the CRM initiative, and then build it out from there. For instance, is it to increase revenue per sales rep, decrease customer acquisition costs or decrease service response times? The process of defining a value-based CRM plan starts with linking the highest-level corporate business goals to a clear set of specific CRM strategies and tactics.
Forrester suggests the following four step guide:
  1. Define and quantify business goals. Quantify how your CRM initiative will either increase revenues from customers or decrease the costs of acquiring and serving them. For each targeted business outcome, define a method for estimating the size of the expected benefit.
  2. Formulate CRM strategies and tactics. Define your strategies and tactics to achieve the goals you’ve defined and quantified, and identify appropriate tactics for each important customer-facing function, i.e. marketing, sales and service.
  3. Establish appropriate CRM measures. For instance, customer service metrics might include number of calls handled per agent, or first call resolution. Voice of the customer feedback metrics might include Net Promoter Score. Establish the current baseline of performance before you start your CRM initiative and define the increment of improvement that you want to achieve at a specified time in the future. Monitor these metrics on a regular basis and take remedial action if you find yourself falling short.
  4. Link CRM goals, strategies and metrics. For instance, if your business goal is to improve revenue from new sources by 10%, your strategy might be to increase average deal size by selling more solutions instead of individual products. The metrics associated with this approach could be average deal size and average revenue per sales rep.
This may be simpler in principle than in reality, however. "One of the challenges that people do have is that there is one business goal and single set of tactics and strategies and it all ties together," says Band. "But in most companies that I work with, they in fact have different brands and different products which may all have different strategies and requirements in terms of what is trying to be achieved. Therefore it is not so black and white to be able to work through this process and end up with one simple set of metrics because most companies are more complex that this implies. But the thinking process at a product or brand level can still be applied."
A decade after the struggle to measure CRM initiatives first came to light, and the topic of the best CRM metrics to use continues to be a hot topic. Organisations are more aware than ever that the right metrics are a key part of the discipline that leads to success. And certainly there has been notable progress, with businesses applying greater financial accountability to their CRM investments, and increasing efforts to establish what customer measures should be applied by virtue of feedback exercises. But those organisations hoping to define the right measures need to be looking in the right place – in their own backyard.
Band concludes: "People always ask us what metrics they should use,” says Band. “And I say it is hard to say until you tell me what tactic you are trying to implement so you can track that - and that tactic ought to relate to a strategy for achieving your business goal."

Replies (4)

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By jamesandrewbrown
18th Jul 2011 11:54

These days CRM systems can report on pretty much anything that you want, be it an activity or a value. The emphasis is really on the customer to scope out their requirements based on the goals of the company and then to break those down into measurements that are meaningful.

Project teams need to be very clear about which business goals can be reflected by a dashboard or a report. If you get too specific then you might find that the reports don't really reflect a true picture of what you are trying to achieve as a business. - Reports for the sake of reports - The old adage of "keep it simple" is always best practice!


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By nickb
19th Jul 2011 01:34

Yes I agree with Mr Band's views, they are brand dependent, and as such can be diverse, and appear to lack an overall strategy.

I would like to try to identify some common denominators in this. Firstly if I may I would like to take cost and efficiency programs out of the equation, and also assume that quality and service are not issues. This pretty much deals with Internal Change Management (ICM)with the exception of Innovation, which I would argue should be driven by customer needs analysis. Incidentally we find net promoter scores very effective for ICM.

I would argue that the true purpose of a communications strategy is to build trust with the customers, that trust is based upon a two way dialogue, and managing that process is about listening, and identifying what customers want from a relationship with your brand, then being seen to address those customer needs. So how do you do this?

List your products. Identify the gross profit of each, Identify the customer benefit or need addressed, map needs onto target markets.

Understand what it is that makes some of your products more valuable to the customer than others. Consider the most desireable mix of product sales volumes, and in the light of market penetration and price sensitivity, concentrate your efforts on delivering against those goals.

The metrics to measure are all the loyalty criteria based upon the level of interaction, from opened email, through anonymous response via identified dialogue, to customer and advocate. Look at conversion rates at each level. Success can then be quantified by knowing how much spend converts into how many sales, in which time scale. For various tools and case studies have a look at             nick brown          [email protected]

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By Jennifer MacIver Edwards
19th Jul 2011 13:21

I agree that organisations often don’t connect what they’re actually trying to achieve from the CRM strategy (build a better picture of their customers) and the metrics they use. But I’d like to add a further point to this which is that, in my opinion, the concept of deploying a generalized CRM strategy that focuses on one-dimensional metrics such as reducing the amount of time customer service representatives spend on the phone is, in essence, flawed. Instead, organisations need ask their customers what they actually want and expect from their communications with the company and integrate this into a CRM strategy. Whilst aiming to reduce time spent on the phone may be perceived by the organisation as a CRM benefit, does this actually work for this customer? Some customers will inevitably demand longer on the phone and others may be irritated by having to call to voice an issue and would prefer to use email or social media to do so- therefore has a CRM strategy been a success simply because call time has been reduced to 1 minute per customer? Instead of setting overarching CRM goals in an effort to build better relationships with customers, companies should treat their customers as individuals and understand that there is no such thing as a single CRM strategy- as after all ‘one size’ never fits all.

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By jeremy
08th Aug 2011 17:41

I agree with Band's suggestion to establish the goal of the CRM initiative first. It is important to have a starting point and it becomes easier to build out from there. Otherwise it will become too overwhelming and turn into chaos. I really like his four step plan as well. I think the 4th step is very important. You always need to measure your progress in order to determine what you are doing is working for you. I also think it will help you determine what crm tool is best for you. We are currently doing some research with our company on a new crm tool. We don't like the one that we have been using. Does anyone have any experience with ms dynamics crm? Thanks!

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