Customer retention - It's more sales than service
By Jerry Stapleton and Nancy McKeon, for SBT
It's cheaper to keep a customer than it is to get a new one! That, of course, is one of the great truisms of selling. Another truism is that most customer defections are a surprise to the salesperson. And almost never have anything to do with poor service, product quality or outdated technology.
Your customer base is, no doubt, your most treasured asset. And one that you toiled and spent to acquire. So let's protect it like we mean it -- except, of course, for that small handful of "customers from hell" that we want to jettison. But that's another column.
If it's not because of service or quality problems or obsolete products or technology, why do customers defect? In our firm's experience with clients and their customers -- and heck, with us and our own clients as well - 90% of all defections can be placed in one large bucket: change. This bucket spills into four smaller ones. And here they are.
Bucket No. 1: Change in the political environment
Though there are other examples, here's the example of political change that is most familiar to most salespeople: Phil is one of your sales guys. Phil's contact at Customer X is Sally. Sally leaves X and moves to Y. Sally's replacement wants to put his own spin on things so he promptly brings in his own pet peddler to replace your company. Phil's commissions -- and your profitable revenue from X -- are history. Naturally, Phil needs to attempt to follow Sally to Y, but that's no sure bet, and besides, it's probably just trading dollars at best, anyhow.
The best way to prevent that type of defection is to make sure your salespeople don't make the No. 1 account management mistake: overly identifying with a single contact. They will, of course, unless you intervene and encourage -- coerce if you must -- them to spread themselves around, horizontally and, especially, vertically in the organization. The longer they've been calling on a single contact the harder it is for them to move beyond that contact. And they will go to great lengths to convince you that there's absolutely no reason to do so-oftentimes, because they actually believe it.
Bucket No. 2: Change in supply chain strategy
One client, an HR and employee-benefits consulting firm, lost a big customer when that customer took the work it had been outsourcing to our client and brought it back inside. The client never saw it coming. (A lighthearted disclaimer: this occurred before the client brought our firm in.) Were they doing a bad job? Not at all. It's just that there was a shift in philosophy at the top of the organization triggered by the new CEO that had joined the company more than a year earlier. Could it have been prevented? Maybe not entirely. But a reasonable business case presented to the right executive months earlier could very well have saved some of the business -- if not all of it.
Bucket No. 3: Change in business direction
Another client, a Fortune 100 chemical company, narrowly averted what would have been a painful defection of its biggest customer in Canada. The customer, then the largest printing company in Canada, had made a strategic decision at the very top of the organization to exit the commodity-oriented printing that consumed 80% our client's products sold to the printer, and invest more heavily in flexo printing, historically a tiny part of the printer's revenue and one where our client played only a small part in supplying.
In a stroke of both smart account management and luck, our client approached its customer's management with a business presentation that demonstrated the client's commitment to flexo technology, including its sizeable investment in soon-to-be-released flexo-related products. Ironically, our client's competitor had not paid attention to the printer's shift in business direction which -- and here's the irony -- was straight in the direction of that competitor's sweet spot. The business, by all rights, should have been theirs.
Bucket No. 4: Change in business conditions
About two years ago, Curt, a client salesperson for a software company, approached a customer that was paying a $300,000 annual license fee for Curt's software, and suggested they move to a hosted solution that would save the customer almost 50% in fees. Was Curt feeling the pressure from a competitor? Nope. He had been a good Business Resource level salesperson who made sure he had his arms around the state of his customers' businesses. This customer, he determined, was in the very early stages (senior management was still in denial) of an impending and substantial decline in business. Rather than take the chance of loosing all of the business -- and his commissions, of course -- when the customer woke up and panicked, he opted for this approach. Face it, too many salespeople in this situation would have crossed their fingers and hoped for the best, if they had even known at all about the decline in the customer's business.
Our firm has a diagnostic process wherein we ask prospective clients the following question:
"For good reasons, bad reasons or no reasons, customers sometimes take all or part of a particular supplier's business away from that supplier. To the extent that this has happened to your company over the past year, estimate - however roughly -- the percentage increase in revenue that your company might have realized if it had been successful in keeping all of the business it had been doing with its existing customers (i.e. if your company had not lost any business at all from its current customer base over the past year) (enter a numeric value, in percent increase in top line revenue)."
Of the responses we've collected to date -- and they vary wildly -- the average is 8%. How much of that loss was preventable? Most of it. And that's especially painful since existing business tends to be more profitable than new business for many companies.
Protect your most treasured asset -- your current customers. Check in with the salespeople covering your company's most important accounts. Do they have the pulse of the customer's business and politics, or is their knowledge limited to current and anticipated needs for your product? Are they connected throughout the company or do they over-identify with "their" contact? The wrong answer to either of those questions could be costly to your business.
Jerry Stapleton and Nancy McKeon are with Stapleton Resources LLC, a Waukesha-based sales force effectiveness practice. They can be reached at 262-524-8099 or on the Web at www.stapletonresources.com.
Nov. 28, 2003 Small Business Times, Milwaukee