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What CRM actually stands for

Author

Zack Ober
May 22, 2024

Business literacy for data professionals in under 5 minutes

In this issue we’ll tell you what CRM actually stands for, and what they actually do for the business.

What you’ll learn

  1. What CRMs do for the business

  2. What CRMs mean to data

  3. Why CRMs are a $250 billion market 

1. What CRMs do for the business

"Customer service shouldn't just be a department, it should be the entire company."

Tony Hsieh - Former CEO of Zappos

CRM stands for Customer Relationship Management, and usually refers to a tool or system that supports managing customer relationships. CRMs collect, organizes, and even analyzes data (sound familiar?) about buyers and customers.

Technically a spreadsheet could suffice as a CRM. But for many businesses, a more robust tool is necessary. Salesforce is the most popular CRM with somewhere between 25 - 33% share of the CRM software market. Salesforce, Hubspot, Microsoft Dynamics and many other software solutions have features to help businesses manage relationships throughout the entire customer life cycle.

I mentioned the importance of relationships to Sales in a previous issue. If you are a consultant or a freelancer, then you may have heard that you are in a “relationship business”. Well it turns out that relationships are critical to winning and retaining customers for all businesses.

CRMs are a tool that help “go-to-market” teams (Marketing, Sales, Customer Success) operationalize how they create and develop their relationships. They can help with operations throughout the entire sales cycle, pre-sales (marketing) relationships, and post-sales relationships (customer success).

Operationalizing Relationships

In the first Issue of this newsletter I mentioned that an operation is a “series of tasks” that achieve a desired outcome. The desired outcome for go-to-market teams are new and renewed customers. The tasks that lead to this outcome typically involve conversations.

There are different types of conversations throughout the sales cycle (and post sales). Each conversation delivers new information about the buyer.

These conversations help go-to-market teams build and maintain trust. Every buying decision has risk. Trust is what helps buyers feel more confident about taking that risk to actually make a purchase.

CRMs centralize important information gained from these conversations. They facilitate operations by automating tasks (e.g. follow-up emails), and integrating with other operational tools (e.g. Quickbooks/Docusign).


How Each Team Uses CRMs

  • Marketing - Uses CRM data to run personalized ads and campaigns. Can also store engagement information to help Sales target “hotter” leads.

  • Sales - Uses CRMs to productize their sales operations and store valuable information from their conversations with buyers.

  • Customer Success - Uses CRMs to store valuable customer information. May use CRMs to productize operations to renew customers.

  • Product - Integrates the product with the CRM to ensure systems are talking to each other and maintain a central source of truth.

  • Finance - May use CRM sales funnel analytics to forecast future performance.

2. CRM data

In this section I’ll go over some of the core “objects” that CRMs use to capture buyer and customer information. You may already be familiar with these objects, but I hope to provide more context by connecting them to the business operation that they serve.

There are several different CRM software vendors in the marketplace, and they each have their own naming conventions for these core objects. Don’t worry too much about the names, just think about the objects and how they relate to how buyers become customers.

Core CRM Objects

  • Contacts - Essentially people. Usually different contact methods like phone and email are rolled up to one contact.

    CRM users may want data or metrics at a contact level, especially if they’re about to communicate with these contacts. It’s important to understand how these contacts map to data from other systems.

  • Accounts - Any organization, person, or brand that has the potential to purchase (or already purchased). The account is usually the party that would enter into a contract with the business.

  • Leads - An account that has the potential to become a buyer.

    Leads are at the “top of the funnel.” They have yet to be qualified and could come from a variety of sources (more on this later).

  • Prospects - A lead that has shown interest. A “qualified” buyer.

  • Opportunities - A deal with an account that has not yet closed. Each opportunity is a potential source of revenue.

    Opportunities could refer to a few different deal types depending on the terms of the contract and what the buyer is looking for. The most common deal types are:

    • New Business - These are opportunities with new accounts.

    • Renewals - When a contract expires, a new revenue opportunity is created to renew that contract.

    • Expansion (or Upsells)- Opportunities to add on services or products to an existing contract.

  • Deals - A “closed” opportunity. An opportunity that results in either a “closed won” or “closed lost” status.

There are several other objects that I did not cover. I want to keep my promise of “5 minutes or less” so I had to put an end to it.

But you don’t need to know all of these objects. The goal of this newsletter is not to learn more about tools and features.

It’s more important to understand the business operation of acquiring paying customers, and how CRMs play a role in this operation. Which is a nice segue into the final section.

3. Almost every business has a CRM

Roughly 91% of businesses with 10 or more employees use a CRM. Why are CRMs so popular? Everything I’ve written in previous issues provide a reasonable explanation.

CRMs make building and maintaining relationships easier. Relationships are the gateway for businesses to build trust with buyers. Trust is essential to converting buyers into customers. And customers are the source of revenue.

I think the popularity of CRMs is a testament to the importance of growing and retaining revenue for every business. In fact, businesses see an average return of $8.71 for every dollar they spend on a CRM.

For data professionals, it’s not enough to familiarize yourself with the data. If that’s all you focus on, then you’ll run into a world of data quality pain, as CRM data is notoriously a disaster (but that’s another topic).

Instead, focus on what other teams are doing with their CRM, and how it serves their goals and the goals of the business.

Next week, we’ll take a detour from Sales and begin a series of issues on Marketing.

-Zack

P.S. I am grateful to all of my readers. Please let me know how I can make thins newsletter more valuable. And if you like it so far, please do share with your network!

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