Simple Multiplication
Something you will often see/hear me talk about is the concept of lasting loyalty. This is not a foreign concept to most business owners. I would actually go so far as to say that it’s highly desirable to most businesses. In a previous blog post, I mentioned that there is value in looking into the “why” behind an employee or a long-time customer leaving. When it comes to keeping a customer, that “why” is demonstrated with a simple act of multiplication.
Let’s say we have an IT company. They are working on getting a new client to sign up for a full service package where the sale is based on the following equation: If I buy this new network setup that does what my current setup does 30% faster and more securely than what I have now, then I will be saving X dollars in saved time & liability! Simple right? That’s how they’re pitching it to this prospective client. They’ve spent the last 6 months building this relationship, and now their new client is ready to sign on the dotted line.Thus begins the onboarding process!
When you bring on a customer for the first time, there’s often a lot of initial logistics to set up. Getting the POC/customer name, their DOB, their shipping address. For B2B clients, onboarding can include even more time and investment like installing new equipment, establishing payment methods, training on new software/equipment/processes…the list goes on and on. In general, onboarding a new client can take minutes…hours…or even days! That is a LOT of time and money invested in this relationship!
Before we go on from here, we need to stop and ask ourselves one question: How much do I usually spend upfront on a client to get them onboarded? How much does it cost me in BOTH money AND man-hours? You have to buy the materials upfront….pay your people to install…make sure the sales rep gets their cut…etc. Suffice it to say, there’s a lot of hands in the pot before you’ll actually start to break even with this new client. Am I right?
Alright…now that you have a number in your head, here’s the next part of this little exercise:
Take all that money and flush it down the drain! That’s what losing that client means. Oh! You have a contract you say? Well that’s a good start…but most contracts only make sure that you get your initial investment back at best if that client cancels early by buying out the rest of the contract. They do nothing for the loss in long-term revenue. That’s where customer retention becomes an imperative rather than just a “cost of doing business”. Most companies in most industries keep an average of ~78% of their clientele. With that in mind, here is another simple equation for you to consider: 5% = 95%! Yes…you read that correctly! A small increase in your overall retention rate, say 5% for example, can lead to a MASSIVE ROI…as much as a whopping 95% increase in revenue!
So what’s a company to do??
There are TONS of ways to increase customer loyalty to your brand. Treating the customer right with respect goes without saying (I hope). But in today’s competitive markets, that’s not always enough. Beyond that, there’s a slew of other options that range from loyalty programs to annual client cookouts. Use your imagination! At the root of EVERYTHING, though, is knowing your clients well enough to know why they’re still with you. Are they still with you because they know you’re going to keep them up to date with the newest stuff? Are they still with you because they know that you take care of them personally? Are they still with you because they know that 2 more months will get them a 5% loyalty discount? Or…are they still with you because they don’t have a better/competitive option at the moment?
If you can answer that question yourself, my hat goes off to you for your commitment to #kingdomclass! If you can’t answer that question with certainty, that’s not bad! That’s actually typical! What will you do to go above typical, though? How will you get that 5% increase? Take that multiplication exercise from earlier and apply it to your business. How much cash would you ultimately save by having a third party come in and help you work on your retention rate? Give us a call and find out!
