More dull but effective – CRM and margin retention

May 12, 2012 Richard Boardman

A couple of weeks back I wrote about using CRM technology to support major account planning, and that while it wasn’t perhaps the most glamorous use of CRM technology, it was a very cost-effective means to increase revenues. Another one of these ‘dull but effective’ uses of CRM is in the area of margin protection. As background a lot of organisations experience two issues:

Firstly, the company has limited visibility of future sales opportunities. Quotes and proposals may be stuck on individual hard drives, or lost in an array of folders on a shared drive somewhere. There may be some visibility in a pipeline/forecast report in Excel or a CRM system, but often there’s relatively little detail as to exactly what is being sold and at what price. For many organisations the first real visibility is when the order is processed.

Secondly, and I know I’m heading into dangerous stereotype territory, salespeople tend to be driven by getting the deal done rather protecting revenue or maximising the value of the deal.

The combination of these two factors means that many companies unnecessarily surrender margin, which in turn can have a profound impact on the bottom line.

One way to address this is to increase the visibility of future sales opportunities, as well as develop a set of processes for the appropriate authorisation of discounts. This increased level of scrutiny tends to help businesses improve retained margin by helping ensure that discounts are only offered where they’re genuinely needed.

This management oversight can also potentially be used beneficially for other purposes:

• It can help ensure what’s being proposed to the customer is appropriate for their needs – for example, are we selling the professional edition, but, actually given their requirements, they need the enterprise version.

• It can help ensure that what’s being proposed will actually work. For many businesses the solutions they offer are increasingly complex, and there’s a growing risk of putting forward a solution that won’t operate as intended once it’s installed.

• It can help organisations identify additional potential revenue opportunities that may have been missed. In the same way Starbucks always seem to ask me if I want anything to eat with my morning coffee, these opportunity reviews can be a useful prompt to ensure that the salesperson is offering the full array of products and services to meet the potential customer’s needs.

While it’s possible to introduce these processes without using CRM software, using an appropriate technology to support them can make the difference between success and failure. CRM’s opportunity management capabilities, which allow a far more detailed profile of the deal to be built up than can easily be tracked in an Excel spread sheet, and workflow capabilities that allow review actions to be automatically created, based on defined criteria -for example if the value of the proposal is greater than £x and the retained margin is below x%, and the opportunity is at a given stage in the sales cycle – are a natural fit for these margin retention/maximisation initiatives.

As with the strategic planning, the cost of supporting these processes within a CRM system is likely to be relatively minor. The capabilities are likely to be largely out of the box without the need for heavy development work.  The greater challenge is to develop the right set of processes, and to get people to follow them.

Again, as with strategic planning, it may not be the sexiest (or most expensive) use of CRM, but, if through the right processes and supporting technology, organisations can increase average margins by a few percentage points, and do the same for average sales values, then the impact on the bottom line can be highly attractive.