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."
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."
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:
- 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.
- 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.
- 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.
- 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."