The term CRM is one of those big business buzzwords that seems so general as to be almost incomprehensible.

The term stands for customer relationship management, and it centers around three concepts familiar to every business owner:

  • Retaining existing customers is cheaper than acquiring new ones.
  • Eighty percent of your business comes from 20 percent of your customer base.
  • The best new business is referral business.

The premise of CRM is that by identifying individual customers, businesses learn the customer's specific needs and desires. This allows the business to provide the service that differentiates it from competitors.

The Key: Relationships
The concept moves a business' focus from the singular transaction to the lifetime value a loyal customer holds. And here's the dirty little secret: Small businesses can accomplish the objectives of CRM more effectively than big business -- and for a lot less money.

Big business realizes the necessity of managing customer relationships. Its efforts to do so have resulted in the development of computer software that focuses on such things. Generally speaking, this software attempts to gain a 360-degree perspective on the customer -- that is, to view, gather and learn from all of the customer's interactions with the company. These software packages typically cost $250,000 (U.S.) and up.

Big business' fatal error in attempts at CRM lies in the fact that a corporation is incapable of having a good relationship with an individual. Only individuals can have good relationships. This often overlooked fact gives small business the upper hand in all CRM. Most small businesses practice good CRM in their daily routine. The question becomes how to incorporate technology into a CRM routine.

Here's How It Works
In a town of 10,000 people in the state of Wisconsin, a family-owned hotel has been in business for several decades. The company has a healthy community relationship, complete with a great location.

Being digitally hip folks, the owners of this hotel want to use a Web site as a tool for travelers needing to book a room. And in a stroke of pure CRM genius, they decide they don't want their online reservation form to simply result in an e-mail confirmation.

Rather, by using a service that converts e-mail messages into faxes, their online reservation form is faxed to their front desk. To make the confirmation, a hotel employee contacts the customer at a time the customer has specified as convenient. Additionally, all customer data, such as "prefers tea not coffee," are maintained in a database. Total cost for setting up the above-described Web site, fax service and database: less than $2,000.

You Hold the Key
By using technology to funnel customers to a human being, this hotel has unlocked the key to CRM -- relationships. And in focusing on relationships, small business can maximize the value of its current customer base while establishing the quality of service that leads to the best new business -- referrals.

Customer relationship management is a matter of realizing that the lifetime value of a customer is much greater than the single transaction, then using each interaction as an opportunity to learn so superior service can be provided.

When it comes to CRM, a small business can use its size to its advantage.

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