Putting a Value on CRM

Broadly, CRM can be looked at from:

• A marketing perspective (increasing the number of people who know about your service or product);
• A sales perspective (turning the people who know about your service or product into people who have purchased your service or product); or
• A service perspective (ensuring that people who have interacted with you are satisfied and delighted). 

Effective CRM across all three channels can also create a powerful new marketing and referral force for a company: its happy customers. Delighting customers fosters positive word of mouth.
While CRM is a customer centric approach to doing business, CRM needs to be approached strategically – in line with the business objectives of a company.
 
The first step to any CRM initiative is to understand the value of a customer relationship to a business. While this is unique to each customer, data mining can be used to determine the value of segments of customers.The revenue generated by a customer is literally the sales made to the customer. This can be calculated on a one-off basis directly related to the cost of the acquiring that particular sale, or it can be calculated over the lifetime of the customer relationship.However, referrals made by a customer can also be included as part of the revenue generated by the customer.

The cost of acquiring the customer refers to the marketing and advertising channels used to acquire that customer. In Digital Marketing, this is the CPA (cost per acquisition) of any of the channels used to acquire a customer. The benefit of Digital Marketing is that it is highly measurable and trackable, enabling a relatively accurate calculation of CPA. The lifetime value of a customer refers to calculating the costs of both acquiring and retaining a customer against all purchases made over the lifetime of the customer relationship. One can also look at customer value in terms of the referrals that a customer generates for a company.
 
For example, a potential customer looking to purchase a digital camera is likely to search on Google for cameras. As a company selling digital cameras, your excellent PPC advert and compelling offer attracts the potential customer who clicks through to your website. Impressed with your product offering, she purchases a camera from you, and signs up to your email newsletter as part of the payment process.
 
Analysing the spend on your PPC campaign against the sales attributed to the campaign will give the cost per acquisition of each sale. In this case, this is the cost of acquiring the new customer.
 
As she has now signed up to your newsletter, each month you send her compelling information about products she might be interested in. If you have taken note of her obvious interest in photography, these newsletters could be focused on photography, and highlight additional products she can use with her new camera. The costs associated with sending these emails are the costs of maintaining the relationship with the customer. When she purchases from you again, these costs can be measured against the repeat sales she is likely to make.
 
While CRM initiatives need to satisfy customer goals – increased customer satisfaction and approval – these need to be in line with business goals. Business goals are to increase overall revenue. In terms of CRM, this can be either to increase revenue generated by each customer, to increase the number of customers or to reduce the costs of acquiring a customer, or a combination of all three. It is important to align CRM initiatives with business goals, so that success of the initiatives can be measured.
 
It is here especially that CRM goals can be set across marketing channels, sales channels and service channels.
 
When it comes to the marketing channel, CRM initiatives can be used both in the acquisition of new customers and in the marketing to existing customers (which can be seen as acquiring new sales from existing customers).