In short, Yes! But let's dive in and look at how.
Considering CRM as an investment is a worthy decision, as a CRM system can transform a business if harnessed correctly. I've spent many years in sales with and without a CRM system, and having experience in both situations gives me a perspective that will help to explore this topic.
Let's quickly discuss what a CRM system does.
CRM Basics
A CRM manages sales opportunities and the customer information associated with those opportunities. Let's look at an example of how this would work. Let's assume you own a business that sells lawnmowers at a retail location. Your customer base reaches out to you when they're interested in buying. In this instance, every customer that reaches out to you is exceptionally precious because you're not taking a proactive selling approach to acquire these customers. In this scenario, a CRM would allow you to record all the customers who contacted you, the products they were interested in, and which products they purchased.
A CRM system allows you to follow up with the customers who did not purchase and to contact the customers who did purchase if you want to reach out to them and sell them another product.
That is the main functionality of a CRM. It stores and organizes sales data, customer contact information, and quotes sent to customers, allowing you to perform analysis and targeted sales and marketing programs.
Can a CRM help my business?
It depends on the specific business whether or not a CRM will be useful. A helpful way to explore this question is to go through the features of most CRM systems, and that's what we'll do in this post. Reviewing these features will make it clear whether you would see a worthy ROI from this investment.
Features and Functionality
1. Organizing all of your customer contacts
It's essential to have all of your customer contacts in an organized system that you can export into spreadsheets, allowing you to contact these customers with marketing and sales promotions in the future. It's a long-standing business fundamental that selling to existing customers is usually much easier than selling to new ones. You've already established a relationship, marketing costs are lower, the sales cycle is shorter, conversion rates are higher, and upselling and cross-selling opportunities exist. (OpenAI, 2024)
Given how much easier it is to sell to an existing customer versus a new customer, a key activity in any business is keeping in touch with your customer base. The goal is to create a relationship between your customers and your brand. An organized and segmented customer list is essential to accomplish this; a CRM allows you to do this easily.
2. Targeted cross-selling information
Cross-selling is a sales strategy in which a business tries to sell current customers additional products or services related to the one they are buying. Cross-selling is a common method many companies use to accomplish much of their growth. When I was a sales rep, and I would form a relationship with a customer, the first items they would buy would be only the beginning of our business relationship. They were testing me out as a new supplier and wanted to see what kind of service they would receive before trusting me with a large amount of their business. In essence, I was cross-selling. Focusing on cross-selling is an important strategy to use to grow revenue.
Cross-selling, while a vital tactic for growth, can be challenging to pull off if you don't have a system that organizes contacts and sales data. Using a CRM system to target the right customers is a way to make cross-selling efforts more efficient and profitable. Allowing you to reach out with the right product to the right customer at the right time. (Li, S., Sun, B., & Montgomery, A. L., 2011)
3. Sales Analytics
A CRM integrated with your ERP system will show which products have been purchased, at what price, and by whom. This data lets you calculate your close rate for different products at different price points. You can see the price elasticity of different products, empowering you to create a pricing strategy to maximize your profit margin and identify pricing trends in your market.
I've noticed in my career that different types of customers have different demand curves.
"A demand curve is a graphical representation of the relationship between the price of a good or service and the quantity of that good or service that consumers are willing and able to purchase at different price levels" (Open AI, 2024).
For example, you might have customers for the same product in two industries. Each industry may have different goals and objectives. If the goal of an industry is to get to market quickly with new technology and innovation, then it may not be as price-sensitive as another industry focused on low-cost leadership.
"The other aspect is that the CRM can target the group and charge differently based on the customer value. There are three factors driving the vendors to execute group pricing: demand elasticity, externality, and lock-in effect. Empirical research has indicated that different groups have systemic different price elasticity of demand. The data from CRM through touch points and data warehouse can assist to evaluate groups' elasticity. Konana et al. [12] (Shang, Wu, Ji, 2008)
Using CRM to derive group price elasticity can help you become more competitive and maximize your margin.
4. Forecasting
A CRM system allows you to forecast your future sales by looking at the current opportunities in your pipeline and then assigning a close rate to estimate future sales. You can also bring more granularity into your forecast by using different close rates for distinct products in your pipeline. An accurate forecast will allow you to create more efficient purchasing decisions, tying up less cash in inventory, avoiding potential backorders in your supply chain, and preventing last-minute orders. Forecasting can also help with staffing needs and preparing for what is coming in the future.
5. Track the performance of salespeople.
A CRM system can track the number of opportunities and the close rates for different salespeople. This can allow you to see which of your salespeople is more effective at closing and generating opportunities. I would warn against using the CRM to establish KPIs on salespeople as this can incentivize the creation of inaccurate data in the CRM. Still, you can get greater visibility into what sales activities are taking place. This can help you monitor the effectiveness of your compensation plan, hiring practices, or leadership style.
6. Creates a process around sales activities.
A CRM creates a process around your sales initiatives, allowing you to refine those initiatives over time. Sales can be a challenging role to take on because the effort you put in is not instantaneously correlated to the results. Having a process helps salespeople focus on the activities that will bring results and provide a higher level of gratification and motivation. It also provides a framework to implement best practices and improve productivity.
In addition, having a process around your sales activities dramatically helps when it's time to sell a business. Potential buyers appreciate having processes with software tools that manage primary business functions such as sales and marketing.
7. Visibility into Marketing program effectiveness.
A CRM system will allow you to see the effectiveness of specific marketing campaigns. These systems allow you to tag opportunities with a specific marketing campaign, allowing you to see the metrics for each marketing campaign. You can see how many opportunities are generated, which campaigns had the highest close rate, and the elasticity of your pricing.
A major goal of most companies is to develop a competitive advantage. A competitive advantage ultimately gives customers a reason to choose one company over another. A strong marketing program can lead to a competitive advantage within your market. (Lithenius, 2019).
8. CRM can create a culture of activity-based sales management.
I have been part of organizations with large sales teams that did not have a CRM system. It's interesting how having greater visibility and access to accurate information can change a company's culture. Here are some observations of how a CRM system can change a business's attitude toward sales.
Without a CRM, the visibility into sales activities is limited, so organizations tend to judge sales reps based solely on the amount of sales dollars generated. With that mindset, a culture can develop where sales results are the only metric that matters. You might hear a statement such as: "I don't care what you sell or how you sell it as long as you hit the target." That type of strategy begins to change with the implementation of sophisticated CRM systems. The results are significant but only part of the story.
The rationale behind prioritizing activities is that sometimes, salespeople who are getting great results are not necessarily doing a great job. A CRM enables you to see this because there is great transparency in the activities being accomplished to get results. You can see how many quotes have been sent out and how many contacts a rep has created.
Sometimes, you have a sales rep who is overachieving the target. Still, when you have tools that show you the activities a salesperson has taken, you sometimes discover that the salesperson had a couple of high-dollar sales come in that were not quoted, and we're brand new contacts to the organization. In other words, those sales just came in without any sales effort. In order to see the actual performance of the salespeople, you would need to see how many quotes were generated, how many were closed, and what activities the person did to generate those sales. CRM lets you do just that. Often, many sales leaders find that it's more effective to manage activities taken by a sales rep and to give the actions an equal rating in compensation as the actual result. This is managing salespeople using activity-based incentives (ABI).
This way, leaders manage the activities that salespeople complete instead of just the direct result. It's essential to look at salespeople in this light because much of what happens in a sales territory is out of a salesperson's control, and you want to reward both effort and results.
Here is a study published in the Journal of Marketing Research that shows activity-based incentives are able to increase sales positively with an outside sales team.
Abbreviations: Supervisor-only Activity Based Incentives (SABI) and Supervisor + Salesperson (SSABI).
"For sales effects, we find that the SABI treatment yields a significant increase in sales (about 6%–9%, depending on the model specification) beyond the no-ABI baseline. The SSABI treatment also increased sales (about 8%) beyond the same no-ABI baseline. In both instances, the effects are magnified in territories with larger numbers of salespeople."
(Rao, Viswanathan, John, Kishore, 2021)
Conclusion
When we return to the question, is a CRM worth the investment? For many businesses, it is. CRM can be transformative, bringing data and analytics into a business, leading to greater performance and more effective management. Ultimately, it's specific to the company and a question only you can answer.
References
OpenAI. (2024). ChatGPT [Large language model]. https://chat.openai.com
Lithenius, K. (2019). Selling existing services to new customers: Case study Finnair Flight Academy. https://scholar.google.com/scholar?hl=en&as_sdt=0%2C39&q=selling+to+existing+customers+&btnG=#:~:text=Selling%20existing%20services%20to%20new%20customers%3A%20Case%20study%20Finnair%20Flight%20Academy
Li, S., Sun, B., & Montgomery, A. L. (2011). Cross-Selling the Right Product to the Right Customer at the Right Time. Journal of Marketing Research, 48(4), 683-700. https://doi.org/10.1509/jmkr.48.4.683
Shang, W., Wu, H., Ji, Z. (2008). Applying CRM in Information Product Pricing. In: Xu, L.D., Tjoa, A.M., Chaudhry, S.S. (eds) Research and Practical Issues of Enterprise Information Systems II. IFIP International Federation for Information Processing, vol 255. Springer, Boston, MA. https://doi.org/10.1007/978-0-387-76312-5_70
Rao, R. S., Viswanathan, M., John, G., & Kishore, S. (2021). Do Activity-Based Incentive Plans Work? Evidence from a Large-Scale Field Intervention. Journal of Marketing Research, 58(4), 686-704. https://doi.org/10.1177/00222437211020013
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