The profitability equation states, P = S x Q – C x Q, i.e. Total Costs (Unit Cost X Quantity) when deducted from Revenues (Unit Selling Price X Quantity) equals Profit. Organizations create value by either increasing revenues or reducing costs and sometimes by doing both. As per Gartner’s Run Grow Transform Model, every IT initiative should be accompanied with a value proposition which indicates clearly whether the initiative falls under the Run, Grow or Transform category. Run indicates Cost Optimizations, Grow indicates Revenue or Profit impact and Transform maps to new business undertakings. What should be the value proposition for taking up a CRM initiative?
Implementing CRM can help reduce costs e.g. Customer Service Agents can resolve customer queries within shorter timelines thereby reducing AHT (Average Handling Time). While there are cost advantages to a CRM initiative, CRM itself is a costly undertaking. Apart from cost of software licenses; implementation and customization costs can be sizable. Additionally, budget needs to be set aside towards change management and training of users because without users championing the cause of CRM, the initiative cannot succeed. Thus, investments required to successfully implement CRM will normally outweigh the cost benefits of such an initiative.
CRM can impact revenues in a much greater way. Going back to the equation on top, revenue growth comes from selling more products and services per customer or through enhanced pricing of existing services. Data gathered through CRM can be used to segment customers based on demographics, psychographics etc. Lifetime Values (LTV) calculated for each segment indicates relative profitability and different treatments can then be designed for different segments. These treatments may include up-selling and cross-selling propositions through Email, SMS, Web or Phone. Responses to such campaigns can be tracked and tagged to customers instantaneously. While on a call with a CSR or while browsing the company’s site, CRM can be used to dynamically calculate the churn score based on customer’s actions and pop up relevant campaigns to the customer/CSR. This is done based on the collective history of interactions by customers belonging to the same segment. Thus, only relevant deals are proposed to the customer thereby increasing the probability of a sale in an efficient manner, saving time, money and enhancing satisfaction.
Revenue is also impacted by the ability to sell products at an enhanced price. When a customer has bought multiple products and services from the company, the costs associated with churn are high for both the company and the customer. Depending on the segment and willingness to pay, the company can charge a premium for services which loyal customers will be willing to pay.
Going back to the Gartner Model, the value proposition for a CRM initiative is overwhelmingly towards Grow. CRM helps grow revenues by targeting the right customers, enhancing their LTV by increasing the number of products and services per customer through targeted up-sell and cross-sell opportunities. It also reduces churn by creating a loyal customer base through timely and personalized customer service.