What is CRM? Software for managing customer data

Equal parts strategy and technology, customer relationship management (CRM) is about using data to understand your customers—and boost sales.

CRM
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CRM definition

CRM is an abbreviation for customer relationship management, a method for managing a company's interaction with current and potential customers, and storing and analyzing data about past interactions. Management consulting company Bain defines CRM as "a process companies use to understand their customer groups and respond quickly—and at times, instantly—to shifting customer desires." But CRM can mean both the process and philosophy for meeting those goals, and the technology used to implement that process.

CRM software

According to Salesforce, the leading CRM provider (and more on them in a moment), CRM software grew out of the contact management software of the 1980s, which in turn was meant to provide a digital version of the rolodexes that were so important to sales professionals. At first, CRM software lived on individual PCs; later, it migrated to servers where it could provide services to an entire organization, at which point people started using the phrase CRM system,reflecting the fact that it spanned across an enterprise's infrastructure.

One of the most important things to keep in mind about a CRM system is that it is ultimately less important than the data you put into it. That's one reason to think of CRM as a philosophy and set of practices for recording data about customer interactions, not just a software package you buy.

What is CRM software used for?

Customer relationship management is a strategic process that helps you better understand your customers’ needs and how to meet those needs and enhance your bottom line. CRM systems link up information about customers from a variety of sources, including email, websites, physical stores, call centers, mobile sales, and marketing and advertising efforts. CRM data flows between operational systems (like sales and inventory systems) and analytical systems that sort through CRM data for patterns.

If you don’t have an accurate view of who your customers are and what their needs or desires are or will be at any given stage in their lives, or if you are losing customers to a competitor, that's a clear indication that you need a CRM system.

There are many technological components to CRM systems, but thinking about CRM in primarily technological terms is a mistake. Instead, CRM should be viewed as a strategic process to better understand and meet your customers’ needs. A successful CRM strategy depends on bringing together lots of pieces of information about customers and market trends so you can more effectively market and sell your products and services.

With an effective CRM strategy, a business can increase revenues by:

  • providing services and products that are exactly what your customers want
  • offering better customer service
  • cross selling products more effectively
  • helping sales staff close deals faster
  • retaining existing customers and discovering new ones

These revenue gains don't happen by simply buying software and installing it. For CRM to be truly effective, an organization must first understand who its customers are, their value, their needs, and how best to meet those needs. For example, many financial institutions keep track of customers' life stages in order to market appropriate banking products like mortgages or IRAs to them at the right time.

Next, the organization must look into all of the different ways information about customers comes into a business, where and how this data is stored and how it is currently used. One company, for instance, may interact with customers in a number of ways, including email campaigns, web sites, brick-and-mortar stores, call centers, mobile sales force staff and marketing and advertising efforts. CRM systems link up each of these points. This collected data flows between operational systems (like sales and inventory systems) and analytical systems that can help sort through these records for patterns. Company analysts can then comb through the data to obtain a holistic view of each customer and pinpoint areas where better services are needed. For example, if someone has a mortgage, a business loan, an IRA and a large commercial checking account with one bank, it behooves the bank to treat this person well each time it has any contact with him or her.

CRM vs. ERP vs. marketing automation

Before we move further, we need to clarify the difference between CRM and a couple of other terms you might have heard thrown around in this space: marketing automation and ERP. While there is some conceptual overlap — all three involve storing, analyzing, and making use of customer data to improve business processes — the three actually occupy distinct niches, and learning what those are helps clarify what each tool does:

  • Marketing automation is all about low-cost effective communication with potential customers, or prospects, mostly in the form of email and social media contacts. Ultimately, the purpose is to gather leads (contact info on prospects) to hand them off to the sales team.
  • CRM aims to converts leads into contacts, which is to say leads that have expressed interest in buying your products, or have bought in the past and, you hope, will buy again in the future.
  • ERP coordinates the process of actually producing and delivering products to the people you sold them to, and managing the financial information about those sales.

These three tools can work in sequence — the output of the marketing automation process goes into CRM, and CRM info on completed sales should go into ERP — but each of them represents a distinct domain, and truly the only people who should have login privileges on all three systems are your IT staff. (Read more about the distinction between CRM and marketing automation and CRM and ERP.)

Salesforce: CRM and beyond

One of the reasons that CRM, ERP, and marketing automation aren't as distinct as they should be in the popular mind is that Salesforce, the giant in the CRM field, is also trying to work its way into the ERP and marketing automation spaces as well. With 26 percent of the market, Salesforce has a massive lead over its competitors in CRM; other big names in this space include Oracle, SAP, Adobe, and Microsoft.

Types of CRM

Beyond the brand names, there are two main types of CRM: on-premises, which means the CRM software is installed on a server under the customer's control, and cloud or on-demand, which runs on the vendor's cloud infrastructure and follows a more metered or pay-as-you go approach.

The market for on-demand CRM has soared, particularly among small and mid-sized companies, largely because of fears about the expense and complexity of large-scale on-premises CRM implementations. And indeed, on-demand CRM is often a good choice for companies that want to implement standard CRM processes, are able to use out-of-the-box data structures with little or no internal IT support, and don’t require complex or real-time integration with back office systems.

However, on-demand CRM software is not always as simple as the vendors would have you believe. For instance, customization can be problematic and hosted CRM vendors’ API tools cannot provide the degree of integration that is possible with on-site applications. Getting a hosted CRM system working shouldn’t take as long as a traditional software package, but larger and more complex rollouts can still take a year or more. And while the hosted option reduces the need for in-house technical support, upgrades can still sometimes be technically tricky. In addition, some companies with particularly sensitive customer data, such as those in financial services and health care, may not want to relinquish control of their data to a hosted third party for security reasons.

Free CRM

A hosted CRM system will cost in the ballpark of $50 to $100 per user a month. If you want more sophisticated functionality and a greater level of support, you pay a lot more. An enterprise on-premises CRM package can cost anywhere between several thousand to several millions of dollars, depending again on how many functions you purchase and how many computers or “seats” have access to the software. For instance, one company or department might purchase an email marketing management application or a salesforce automation application, while a larger firm might want to purchase an integrated package that includes a database as well as applications for marketing, sales and customer service and support (via call centers and online). Obviously, the integrated software package is much more expensive.

Those costs, even the hosted options, are well beyond the means of many small businesses. Fortunately, there's a burgeoning niche of free CRM options which, while less sophisticated, are usually more than adequate for the needs of a small or medium enterprise. Included in this category are open source offerings like SuiteCRM and SugarCRM. (Read more about the pluses and minuses of seven free CRM options.)

What is the best CRM software?

We'd love nothing more than to give you a one-sentence answer that IDs the top CRM offering. Unfortunately, as is the usually the case for complex questions about important software tools, the answer is "it depends." Or, as CIO writer Matt Kapko puts it, "The best customer relationship management software is the one that has the right capabilities and features for your objectives." Kapko has a detailed lowdown what the key features to look for to match your needs are, and you should definitely follow him on this deep dive if you're asking this question.

Managing CRM

As we've noted, CRM is as much a process and a state of mind as it is a software platform. That's why the biggest returns come from aligning business, CRM and IT strategies across all departments and not just leaving it for one group to run. The reason for this, as Moira Alexander writes, is that "in most companies, individual departments or teams believe they hold the key to understanding customer needs more than other areas of the business. But the reality is that different departments simply have a different view into customer expectations and none has an all-encompassing view."

In fact, it’s best for the business departments who actually use the software to take ownership of the project, with IT and the CIO playing an important advisory role.

CRM rollouts are very complex and have a certain degree of notoriety as doomed to failure. From the beginning, lack of a communication between everyone in the customer relationship chain can lead to an incomplete picture of the customer. Poor communication can lead to technology being implemented without proper support or buy-in from users. For example, if the sales force isn't completely sold on the system's benefits, they may not input the kind of demographic data that is essential to the program's success. One Fortune 500 company is on its fourth try at a CRM implementation, because it did not do a good job at getting buy-in from its sale force beforehand and then training sales staff once the software was available. (Read moreon what to do if your CRM project crashes and burns.)

The final thing you need to keep in mind when managing your CRM project is that you need to eliminate data silos to succeed. Users need access to data beyond what they themselves enter into the system. That means integration — across users and across departments — and integration projects are always difficult. But trust us: the payoff is worth it.

CRM examples

Ready to see some examples of CRM in action? Check out this post from the Teamleader blog. They've got some great detailed stories on how real-world companies are deploying CRM to boost their bottom lines.

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