What is Customer Relationship Management (CRM)?

Editorial Team

21 min read
Entering information in POS system

Customer relationship management (CRM) allows a business to manage and analyze contact with their past, current, and future customers. The goal of CRM is to allow a business to better understand their customer relationships so that they can identify opportunities, improve customer experience, and generate sales. 

While the term itself refers to relationship maintenance in general, it is most often used to refer to a CRM software or cloud-based professional tools designed to help companies maximize the effectiveness of their relationship management. 

What CRM Does

Because CRM is so important to a business’s ability to close sales and retain repeat customers, an entire industry of CRM software has developed. While the pros and cons of each specific solution depend on your small business and its individual needs, an ideal system should benefit your company in four ways:

Manage Interactions with Current and Prospective Customers

CRM software can help you manage outreach no matter where the customer is in the sales cycle. Customer profiles make point-of-sale interactions seamless. With this software, you can automate follow-up emails. It’s easier to schedule appointments, and you’re less likely to miss meetings or let someone fall through the cracks. 

Leverage Customer Data and History

It’s been scientifically proven that past behavior is the best predictor of future behavior. When you can analyze how your customers have interacted with your brand in the past, you can better predict what they’ll do in the future. 

It’s also been said that data is the oil of the digital economy. Data is so valuable that it fuels the profits of some of the biggest tech companies. Many small businesses have yet to tap this resource. With the right CRM system, you can mine your own data to better understand who your customers are, what they want, and how they want you to interact with them. This information can also help you identify new opportunities and predict which products or services may be successful. 

Focus on Customer Retention

Relationships drive repeat business. CRM helps you focus on maintaining the customers you’ve already won over instead of trying to educate and entice a never-ending parade of new customers. Staying connected helps keep your brand top-of-mind, and can make communication as easy as the click of a button.

Drive Sales Growth

The benefits of CRM will ultimately drive sales growth for your business. Customer relationship management can help you transition prospects into first-time customers, first-time customers into repeat clients, and repeat clients into ardent fans. 

Types of CRM Technology

Technology has removed much of the manual labor from customer relationship management. There are different types of tools based on the technology they offer.

CRM software

You can license the software with a one-time purchase. With this option, the business pays the fee up front instead of paying a yearly subscription. CRM software is also referred to as on-premises CRM because the business assumes the responsibility for the system. The software is hosted on the company’s server, and the business is responsible for all administration and security measures. Any updates to the system will likely come at an additional cost.

The upswing of this CRM type is that it provides a company with the most control. If your business has complicated CRM needs, you may best benefit from a software license, as it allows you to fully integrate the system with your company data. Of course, in that case you will also have to take on a potentially lengthy installation process. 

Cloud-based CRM

In the last decade, cloud-based CRM tools have become increasingly popular. These on-demand services can also be referred to as software as a service (SaaS). With this model, a CRM company provides a business with CRM service for a monthly or yearly fee. The data is hosted in the “cloud,” an external, remote network. Employees can access the system and its data at any time and from any location.

Cloud-based CRM provides for flexible use. They’re much more cost-effective up front, making them appealing to businesses that don’t have the working capital to finance the one-time cost of an on-premise CRM software. 

With cloud-based CRM, the business doesn’t have to assume responsibility for the security of its data. That can be a huge perk for small businesses like a neighborhood boba shop that doesn’t have the budget or the technological know-how to implement security practices to safeguard customer data. The flipside is that you don’t control the security of your customer data, which means that there is a risk your CRM host could be hacked or go out of business or get acquired by a new company. In these instances, a merchant’s data may be compromised or lost. 

Open source CRM

Open source refers to the practice of making the source code of a software available to the public. Open source CRMs make it possible for a business to make changes to the system at no added cost. This option is best reserved for businesses that want to make a number of customizations to the software and have the development resources to dedicate to the task. 

How Can CRM Help Grow Your Business?

Planning is essential to every aspect of business growth. When you started your business, you needed a business plan outlining what you aimed to achieve and how you intended to execute it. A new marketing initiative demands the same amount of care and planning to be effective. Once you implement it, it’s just as important to track performance so you can measure how successful it was. Why would you treat your customer relationships any differently?

CRM systems give you a bird’s eye view of your customers from their past history, the status of their orders, and customer service issues to more personalized details like birthdays and product preferences that allow you to tailor their experience. These systems make it simple and easy to provide exactly what a customer wants by allowing you to anticipate those needs. When a customer service issue does arise, CRM enables you to address the concern swiftly, so the issue doesn’t escalate. 

Stay connected and enhance relationships

Living in the age of information and convenience comes with a trade-off. Global attention spans are declining, and we see the results in consumer behavior. Trends don’t last as long, which can impact your business if you work in an industry where trends drive purchasing behavior. It also means that even if your customers remember that they need something from your business, they’re liable to be distracted before they go the extra step of reaching out.

We see this in customer retention rates. Merchants find that an average of 11-20% of first-time customers never return. Every 30 days, the likelihood of a first-time customer returning drops by another 50-75%. Building a relationship with your customers can help ensure your first-time customers become repeat patrons instead of one-time customers. For example, Clover® POS merchants see a return rate 1.5 times greater than merchants who don’t use Clover. 

CRM allows you to do the heavy lifting when it comes to maintaining a customer relationship. The software makes it easy to reach out to customers with special promotions and individualized service. Thanks to the marvels of technology, you may be able to customize your interactions based on customer demographics or past purchasing behavior. Birthday promotions make customers feel special and remembered. If you have a product that’s been out of stock, you can use your CRM to notify customers who have previously purchased that product. This targeting allows you to improve the experience for select customers without spamming everyone’s inbox. 

Streamline processes

CRM allows you to streamline and often automate customer engagement initiatives. A good system will allow you to communicate directly with your customers, invite them back, reward your VIPs, and to get to know your biggest fans. 

Automation and personalization are essential to streamlining these practices. When your customers make a purchase with a credit card, those transactions can be used to build their customer profile. This automatically keeps their preferences up to date, enabling you to provide a more tailored experience. 

You can mix up the way that you send promotions, too. Whether you’re planning a campaign or looking to drive traffic on a slow day, you can connect via text, email, or social media. Operating on multiple channels increases your customer reach and reduces the chances of promotion fatigue. 

Increase profitability

Staying connected and streamlining your processes can increase your Customer Lifetime Value (CLV). CLV refers to the total worth of a customer to a business over the life of the relationship. It can pay dividends for a business to invest in improving their CLV. A mere 5% boost in customer loyalty can grow profits by as much as 95%.

Acquiring a new customer costs between five and twenty-five times more than retaining an existing customer. Because CRM software enables you to generate repeat business, it can increase your business’s profitability directly. 

The benefits to the bottom line don’t end there. Customer engagement strategies, like loyalty programs, can directly increase how much customers spend with your business. Customers who engage with loyalty programs spend around 60% more per transaction than those who do not. In addition to purchasing more, loyalty program customers also buy 90% more frequently, and they’re five times more likely to choose the brand in the future.  

What Should You Consider When Setting up CRM?

Prepare to get the most out of your CRM by communicating with customers, offering promotions to win them back, and rewarding your most loyal fans. 

Connect with your customers

Forget the antiquated suggestion box. With a CRM system, you can set up automatic prompts to ask your customers how you’re doing. You can add an automated code to your receipts that invites customers to share their feedback. A CRM app can allow them to send you private feedback— either via text message or through the platform. 

Feedback can help you identify opportunities for growth in your business. If several customers report difficulties finding the products they need, that gives you a heads up that you may want to adjust your merchandising. If you receive a number of requests for a specific tea flavor, it tells you that demand exists for a new product. Offering that flavor will increase your customer experience and there isn’t the same risk as offering new flavors without knowing how your consumer base will respond. 

As you increase your communication with customers, prepare for some of it to be negative. That’s not only expected, it’s actually a perk. Public review sites are becoming more popular than ever, and while they provide an excellent forum for customers to share their experiences with a brand, it’s easy for a small issue to become part of a merchant’s permanent record on the internet. With CRM, those small-but-potent issues can be avoided and even turned around.

For example, say a customer comes into a bike shop looking for a new tire tube. They wait for ten minutes before the salesperson is able to help. When they get home, they realize they’ve been charged for the wrong item. This could easily turn into a nightmare where the customer blasts public review sites and social media about the terrible service they received. Now imagine it with a CRM. After the customer receives the incorrect charge, they’re immediately prompted to provide feedback. They outline the issue, and the bike shop swiftly corrects the mistake. Crisis avoided, and the customer may even leave a positive public review. 

Bring customers back with enticing promotions

CRM promotions can attract customers digitally the way chalk signs featuring daily specials entice people walking by on foot. Promotions can be an affordable, effective way to generate sales and build buzz around your brand. When it comes to building a customer loyalty program, promotions are used again and again because they work. 

There are several ways to approach promotions. First, you can use promotions to collect information and build customer profiles. Giveaways are often popular promotions because they’re enticing—it’s a thrill to win—and customers often gladly exchange their email or other personal information for a chance to win. Broadening your customer database can help you build a foundation for future outreach.

Promotions keep existing customers coming back, too. When a holiday is approaching or you’re having a slow day, you can create a discount, gift with purchase, or other perks. These promotions can be easily created through a CRM and then instantly sent to a portion or all of your customer base. 

These promotional offerings can be adjusted to meet other business needs. Salons have used Clover’s winback campaign feature as appointment and scheduling reminders. If they want to add a cherry on top, they combine it with a 10% discount or other perks to go that extra mile and keep customers happy and engaged. 

Reward your best customers with what they value

You could offer your fast-service restaurant customers a free coat, and it won’t change a thing if they don’t value it. You may already have a sense for what rewards your customers care about. A CRM allows you to back up that gut feeling with data. It may also help you discover opportunities or better target your rewards. 

Customers engaged with loyalty programs spend more money and purchase more frequently. When your CRM is integrated with your POS, you can make signing up for a loyalty program as easy as entering a phone number. Coffee shop customers who see other customers racking up points for their daily coffee may be more likely to sign up– especially when the coffee shop has made it easy. Once they’re earning loyalty points, they may be more likely to buy breakfast at your shop than the place down the street because it means earning more points towards their free coffee (or whatever loyalty perk you decide to offer). 

When your CRM is integrated directly with your POS system, you can also automatically track rewards when purchases are made. You can determine your own perks or rewards, so that your offerings best match your business model. You can even customize the way points are earned, either based on qualifying items or purchase amount. This control maximizes the benefit of a rewards program for your business and your customers. 

How Much Does CRM Cost?

There is a wide range in the cost of a CRM tool. The pricing varies based on the size of your business and the complexity of the system, i.e. the features it offers. Pricing may also vary based on the technology the product uses (cloud-based vs. software). 

Paid cloud-based CRM tools are most often priced per user. At the low end, a small business can find a CRM for as little as $12 per user per month. On the high end, cloud-based CRMs can charge upwards of $300 per user per month for an advanced program. What you should plan to pay depends on the size of your company and the features you’ll need. 

On-premise and open source CRM software will likely come with higher upfront costs, but the payment covers the lifetime of the product. With both of these systems, you’ll also want to review the hardware costs associated with running the system, as you may need an additional server to host customer data. If you’re considering on-premise CRM, ask about the potential costs of upgrading the software down the road. 

There are some free CRM options, though they come with restrictions and limitations on how the product can be used. If you’re a freelancer or sole proprietor, a free option may help you test the value of a CRM before financially committing. For most small businesses, the labor and complications involved in rolling out a free CRM only to have to switch platforms to a different paid product usually isn’t worth the money you’ve saved. It’s worth remembering that when you’re not paying for a service, you’re often the product. 

Your Role in Customer Relationship Management

You know your customers and your business best, so you understand your CRM software requires more than anyone else. Because these systems handle the nitty gritty, you can think high-level about what you need and want for your business, understand the offering of your CRM so you can maximize its benefits, and take an active role where it’s still needed.

What does your business need from its CRM?

Take a look at how your business currently interacts with customers. Are there specific pain points in your process? Do prospects tend to drop off before they become customers? Do you wish your repeat customers went from once-a-month visitors to everyday regulars? Understanding what you want, and need, from your CRM is the crucial first step towards making a worthwhile investment. 

If your CRM needs are basic, there’s no point in paying for a system with all the bells and whistles. While a salon doesn’t need a CRM that can include purchase orders in a customer file along with product measurements and building plans, a construction company may very well need all of those features. On the other hand, sending appointment reminders may be an essential feature for many salons. 

If your business needs enhanced capabilities, you may choose to opt for a premium option. Premium CRMs provide extra features like automation that let you schedule customer outreach, audience targeting to ensure you’re sending promotions to specific customers or win back campaigns to engage dormant customers. These features add stellar value, but only if you plan to use them. If you don’t need it and won’t use it, then it’s just an added cost. If a CRM system is new to your business, you may be better served with a more pared down version. It will be easier to learn and train employees, and you won’t end up paying for features you never touch. 

Cloud-based CRMs allow you to upgrade your subscriptions, which is a perk. If your business is new to CRM, start with what you know you’ll use, and you can upgrade later. 

Set your expectations and goals

The first step leads right into the next. Once you have ironed out what your CRM requirements are, you can determine what you expect from your CRM and what you aim to achieve. You can discuss these with a representative during your shopping process. Don’t be afraid to ask questions. This will help you to understand what expectations are reasonable and discover capabilities you may not have known about. In some cases, you may realize that a product won’t help you meet the goals you’ve set. It’s better to find out before you go through the trouble and expense of onboarding the whole system. 

Goal setting at the beginning of the process will serve you well as you implement your new CRM system. Without clear goals, it’s much harder to measure the success of your outreach efforts and determine the usefulness and value of the system. If you can track how an initiative or campaign is performing, you can see what needs to be adjusted more clearly. 

Engage with your customers

Direct feedback is one of the primary benefits of a CRM system. Prepare to hear from your customers more often and dedicate time to responding in a timely manner. When a customer provides feedback, try to acknowledge it immediately, so they know you’ve seen it. A negative experience can damage a customer’s relationship with your business. Responding to feedback within 24 hours can go a long way in repairing that relationship. If you need more time to formulate a response for a complicated situation, let them know. Transparency in customer service lets them know that you care and are taking the steps necessary to address the issue. 

If you receive the same feedback over and over, you may want to look at what systemic or operational adjustments your business can make. What is CRM after all? The goal of customer relationship management is to help your business provide better service and a better customer experience. Making adjustments in response to feedback shows customers that you’re willing to put in the work and do what it takes to retain them. 

Bring on your creativity

CRM handles much of the administrative nitty-gritty to free you up for the more creative, personal aspects of customer relationships. Design promotions that will bring your customers back, then use the CRM to roll them out. Offer rewards they’ll really value, then use the CRM to implement the program. When these initiatives are designed with care, they’ll be more memorable and effective. 

Maintain your customer records

To maximize the return of your CRM, you may want to check your records routinely to:

  • Maintain complete customer profiles
  • Avoid entering duplicate profiles
  • Remove any duplicate entries from the system

Maintaining one complete record per customer will give you an accurate picture of your customer base and allow your CRM system to be more effective. Systems that integrate with your POS may automatically create a customer profile for purchases made with the same credit card. But if a customer uses multiple cards to make purchases, it’s possible that a new profile for each charge will be created. Gathering other personal data like an email, name, phone number, or address will help you more clearly identify and differentiate customer profiles. 

Creating complete customer profiles will likely require buy-in from your staff. If CRM practices are new to your business, you may want to hold a specific training for employees on effective ways to capture customer information or potentially offer a performance competition for the employee who enters the most completed customer profiles. Then plan to audit the files a few times a year to root out any duplicate entries. 

Manage the unexpected

A CRM system can help when the unexpected comes your way. No one anticipated that the coronavirus pandemic would upend business as we know it. In a rapidly changing economic climate, CRMs have allowed small business owners to communicate information quickly. When states announced forced closures of non-essential businesses in the spring, the CRM systems helped merchants communicate closure, reopening, and other relevant information to their customers quickly and efficiently. 

As the pandemic continues to spread in some areas of the U.S., it’s become increasingly clear that uncertainty is our new normal. Clear, reliable communication has become more important than ever. A CRM software can help you share increased safety measures (like contactless payments) your business is taking. You can offer promotions to entice customers back. As you deal with new and fluctuating constraints on your business, consistent outreach can go a long way towards building and strengthening customer relationships. 

Other Considerations When Choosing a CRM

Here are some other things to keep in mind when shopping for a CRM: 

  • What aspects, if any, of the sales cycle are unique to your business?
  • If you have an existing loyalty program, will you be able to integrate it with your new system, and if so, how much time and work would that process entail?
  • If you’re planning on starting a new loyalty program to overhaul your current system, what do you need to communicate these changes effectively to your customer base?
  • Can your CRM be integrated with your POS system?

CRM systems are as varied as the businesses that use them. There is no single “best” or “right” answer. To choose the best system for your business, focus on what capabilities are important to you. It may be helpful to put these together in a list of most important to least important. That way you’ll have a sense of what’s most important to you as you compare options within your budget, giving you a greater sense of confidence in your decision.

This information being provided is for informational purposes only.

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