retaining customers leads to lower costs and higher margins

Hold On To Your Clients

Quick. Ask yourself this question. If you increased your customer retention rate by 5%, what effect do you think it would have on your profitability? We’ll tell you the answer below. But first, you might want to ask whether you know what your current retention rate is. Knowing and measuring customer retention is a key performance indicator in growing both profitability and market share. This is always true, but especially so in today’s challenging economic environment, in which mid-sized and independent textile rental companies cannot afford to lose any accounts at all. It’s only natural to focus on acquiring new customers, but sustainable profitability depends on knowing what we must do to keep the customers and products we already have. After all, as you’re about to see, it’s easier and less expensive to retain existing revenue than to develop new sources. Some surprising facts about customer retention:

  • Acquiring new customers can cost as much as five times more than maintaining and satisfying the ones we already have.
  • A 2% increase in customer retention has the same effect on profits as a 10% reduction in costs.
  • The 5% reduction in customer defection alluded to above can increase profits by 25% to 125% depending on industry.
  • Customer profitability tends to rise over the life of retention.

Truly, the low-hanging fruit are the ones we’ve already picked. Now, let’s think about how we’ll keep them.

Step 1: Force Rank Your Customers

In order to know where we’re going, we have to know where we stand. Find out. Assemble your management team along with your customer service team and pose the question: How likely is this customer to renew their agreement with us if we asked them today? Do this for each of your accounts with the purpose of placing them into one of the following categories:

  1. Definitely no. — If asked today, this customer would not renew.
  2. Likely no. — If asked today, they would most likely not renew.
  3. Conditional. — If asked today, this customer would consider renewing but would require significant concessions.
  4. Likely yes. — While minor concessions might be necessary, there is a high probability of securing renewal today.
  5. Delighted partner. — This customer would definitely renew if asked today.

ranking your customers is key to retention improvementYour customer service team should always be on the lookout for the warning signs of an at-risk account. Competitor samples from another supplier are a flashing red signal. An alert team member might notice competitors’ business cards on premises or a competitor’s name on the sign-in sheet. Product levels in the warehouse should be monitored for undue shrinkage. Even a request for a line-by-line review of an invoice is a significant flag. Increased customer call in’s is another area to monitor. Any of these and other signs of trouble should be reason for discussion by the account manager and sales team.

Next, candidly survey the profitability history of each and every customer. You may reveal accounts that are actually hurting your bottom line. If so, re-evaluate whether these customers are desirable and if so, what your team can do to move them into the profitable column.

Step 2: Commit To A Culture of Pro-Active Communication

Customer retention is an ongoing process, not an event. Insist that your route reps take a few minutes each week with the decision maker at each location. They’re going to need something specific to communicate. While they’re conveying their weekly value added proposition, make sure they ask the following questions at every visit:

  • Do you have any new employees or deletions?
  • Do you have any other changes to the service?
  • Is there anything I can do today to better serve you?

The answers to these questions will form the basis of your strategic action plan to move your customers up into the “delighted partner” category. Have your team identify the obstacles that prevent each customer on your list from being fully satisfied and create action steps to overcome them. The next step could be the most important. As you make changes, communicate them to your customer in the spirit of becoming a true partner, not just a vendor. What you’re doing is called building a relationship – one based on people, not just a product.

Step 3: Create A Contract Renewal Program

Being systematic at this stage is where the rubber – or the market share – hits the road. It’s going to take a group effort. Identify the person who has the best relationship with each customer and who will have the highest probability of securing renewal. Don’t rely strictly on the size of the account or the amount of weekly revenue. Really look at who the key to the relationship is for each individual customer and never underestimate the power of your route rep.

How soon do you begin the renewal program? Your competitors may begin their sales process a full year in advance. Not only do they gear up early, but they may employ telemarketers to discern who their targeted prospects are using, when the contract expires and even details of services provided. For this reason alone, figure on starting your own renewal program 18-24 months in advance of renewal date with the objective of securing your renewal at least 15 months ahead of expiration This includes those customers with automated rollover or automatic renewal. Take nothing – and no one – for granted.
There are those who don’t worry until an automatic renewal comes up a second time, but that sounds to us like a strategy for a weakened position.

If you haven’t already started, the time to get serious and systematic about customer retention is now. With a strong effort from your team, you can turn threats into opportunities and improved customer retention into stronger market share and, PROFITABILITY.

Troy Lovins
CEO / Founder
Performance Matters