Activity based costing for customer relationship management

activity based costing for customer relationship management

Activity based costing by contrast identifies cause and effect relationships in order to Activity based costing enables managers in this way to identify and correct areas For example, a customer may appear to be profitable based on income. Customer relationship management (CRM) is the hot topic in today's . Activity- based costing (ABC) and associated software provide the conceptual framework . For example, when there is no direct cause-and-effect relationship between the However, activity-based costing (ABC), which has been proposed as a We show how this case company improves customer portfolio management and show.

The costs associated with finding new customers mean that every existing customer could be important. The more opportunities that a customer has to conduct business with your company the better, and one way of achieving this is by opening up channels such as direct sales, online sales, franchises, use of agents, etc. However, the more channels you have, the greater the need to manage your interaction with your customer base. Customer relationship management CRM helps businesses to gain an insight into the behaviour of their customers and modify their business operations to ensure that customers are served in the best possible way.

In essence, CRM helps a business to recognise the value of its customers and to capitalise on improved customer relations.

Customer relationship management

The better you understand your customers, the more responsive you can be to their needs. CRM can be achieved by: You must also adapt your business to the needs of your customers.

activity based costing for customer relationship management

However, there are many potential benefits. A major benefit can be the development of better relations with your existing customers, which can lead to: The more you know about your customers, the easier it is to identify new prospects and increase your customer base.

activity based costing for customer relationship management

Even with years of accumulated knowledge, there's always room for improvement. Customer needs change over time, and technology can make it easier to find out more about customers and ensure that everyone in an organisation can exploit this information.

The better the relationship, the easier it is to conduct business and generate revenue. Therefore using technology to improve CRM makes good business sense. CRM solutions fall into the following four broad categories. Outsourced solutions Application service providers can provide web-based CRM solutions for your business. This approach is ideal if you need to implement a solution quickly and your company does not have the in-house skills necessary to tackle the job from scratch.

activity based costing for customer relationship management

It is also a good solution if you are already geared towards online e-commerce. Off-the-shelf solutions Several software companies offer CRM applications that integrate with existing packages.

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Cut-down versions of such software may be suitable for smaller businesses. This approach is generally the cheapest option as you are investing in standard software components. The downside is that the software may not always do precisely what you want and you may have to trade off functionality for convenience and price.

The key to success is to be flexible without compromising too much. Custom software For the ultimate in tailored CRM solutions, consultants and software engineers will customise or create a CRM system and integrate it with your existing software.

Activity-based costing - Wikipedia

However, this can be expensive and time consuming. If you choose this option, make sure you carefully specify exactly what you want. This will usually be the most expensive option and costs will vary depending on what your software designer quotes. Managed solutions A half-way house between custom and outsourced solutions, this involves renting a customised suite of CRM applications as a tailored package.

This can be cost effective but it may mean that you have to compromise in terms of functionality. How to implement CRM The implementation of a customer relationship management CRM solution is best treated as a six-stage process, moving from collecting information about your customers and processing it to using that information to improve your marketing and the customer experience.

Stage 1 - Collecting information The priority should be to capture the information you need to identify your customers and categorise their behaviour.

Those businesses with a website and online customer service have an advantage as customers can enter and maintain their own details when they buy. Stage 2 - Storing information The most effective way to store and manage your customer information is in a relational database - a centralised customer database that will allow you to run all your systems from the same source, ensuring that everyone uses up-to-date information.

Stage 3 - Accessing information With information collected and stored centrally, the next stage is to make this information available to staff in the most useful format.

Stage 4 - Analysing customer behaviour Using data mining tools in spreadsheet programs, which analyse data to identify patterns or relationships, you can begin to profile customers and develop sales strategies. Stage 5 - Marketing more effectively Many businesses find that a small percentage of their customers generate a high percentage of their profits. Using CRM to gain a better understanding of your customers' needs, desires and self-perception, you can reward and target your most valuable customers.

Stage 6 - Enhancing the customer experience Just as a small group of customers are the most profitable, a small number of complaining customers often take up a disproportionate amount of staff time. If their problems can be identified and resolved quickly, your staff will have more time for other customers.

Potential drawbacks of CRM There are several reasons why implementing a customer relationship management CRM solution might not have the desired results. During this time, the Consortium for Advanced Management-International, now known simply as CAM-I, provided a formative role for studying and formalizing the principles that have become more formally known as Activity-Based Costing.

Kaplanproponents of the Balanced Scorecardbrought notice to these concepts in a number of articles published in Harvard Business Review beginning in Cooper and Kaplan described ABC as an approach to solve the problems of traditional cost management systems.

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These traditional costing systems are often unable to determine accurately the actual costs of production and of the costs of related services. Consequently, managers were making decisions based on inaccurate data especially where there are multiple products.

Instead of using broad arbitrary percentages to allocate costs, ABC seeks to identify cause and effect relationships to objectively assign costs.

activity based costing for customer relationship management

Once costs of the activities have been identified, the cost of each activity is attributed to each product to the extent that the product uses the activity. In this way ABC often identifies areas of high overhead costs per unit and so directs attention to finding ways to reduce the costs or to charge more for costly products.

Activity-based costing was first clearly defined in by Robert S. Bruns as a chapter in their book Accounting and Management: A Field Study Perspective. For example, increased automation has reduced labor, which is a direct cost, but has increased depreciation, which is an indirect cost. Like manufacturing industries, financial institutions have diverse products and customers, which can cause cross-product, cross-customer subsidies.

Since personnel expenses represent the largest single component of non-interest expense in financial institutions, these costs must also be attributed more accurately to products and customers. Activity based costing, even though originally developed for manufacturing, may even be a more useful tool for doing this.

Drucker in the book Management Challenges of the 21st Century.