Customer Retention is Key to Profitable Growth

In my August column, “5 Ways to Reduce Customer Cancellations,” I wrote about reducing customer cancellation rates from a loss perspective. This month, let’s examine cancellations from a retention-growth perspective.

While a growing business constantly needs to capture new customers, the focus and priority should be to please existing customers. Companies that fail to retain and nurture their current customer relationships typically stall or flounder.

Say a company gains a customer through marketing or advertising, but loses another because it wasn’t paying the customer enough attention. It ends up with the same number of customers, but has lowered its profit margin because it costs much more to gain a new customer than it does to keep an existing one.

In Leading on the Edge of Chaos: The 10 Critical Elements for Success in Volatile Times, authors Dr. Emmett Murphy and Mark Murphy touch on three points relating to the proven value of customer retention:

1. A 2-percent increase in customer retention has the same effect as decreasing costs by 10 percent.
2. Companies that prioritize the customer experience generate 60 percent greater profits than their competitors.
3. Eighty percent of future profits will come from 20 percent of existing customers.

If companies appear to ignore their existing customers, those clients will be more likely to be influenced by competitors’ marketing and switch their loyalties. This loss of customers tends to come without warning; by the time they cancel, it’s usually too late to do anything about it.

Losing customers affects every area of business, especially one’s ability to grow. Following are suggestions to help prevent cancellations:

• Know (and control) your cancellation rate. As a general rule, monthly pest management service cancellations should be kept at or below 1 percent; monthly lawn and ornamental service cancellations should be at or below 2 percent. If companies don’t track it, they can’t control it.
• Control postponed services. Recurring skips are a precursor to cancellations.
• Communicate with customers. By remaining in contact, companies send messages to customers that they’re important to their businesses. You can accomplish this through various channels such as emails, newsletters and follow-up phone calls.
• Equip employees. Provide them with ongoing, companywide, customer service training focused on exceeding customer expectations.
• Implement a quality assurance program. There are numerous providers and tools to help monitor customer satisfaction levels. Among others, these include SurveyMonkey.com, Opiniator.com and CustomerLink.com. Other quality assurance actions include having supervisors preform ride-a-longs and ride-behinds, as well as recording incoming telephone calls for assessment and training.

Companies with high levels of attrition spend a lot of time and money on sales and marketing to replace the customers they lose. The profitability of every business is directly linked to its customer retention, which includes cross sales, add-on sales, renewals and referrals. Customer relationships are your most valuable assets. Protect them vigilantly.

You can reach Goldglantz, president of Pest Control Marketing Co. and author of “Marketing Matters,” at hgpcmcinc@aol.com.

Buy Marketing Matters by Harvey F. Goldglantz from the PMP bookstore at mypmp.net.