"Fool me once shame on you, fool me twice shame on me"
That's pretty much what it looks like for many organisations who don't value the metric of customer churn. They get fooled by the numbers. I'm talking about what I call the negative growth equation. This is where:
Number lost customers (churn) X average (customer spend) - new (customer acquisition revenue) = actual growth numbers.
Lets take an example: You start the year with 100 customers you win 100 new customers but lose 30 existing customers. You now have 170 customers.
- You've lose 30% of your existing customers (that's a lot)
- It costs you 2 weeks of man power to win one new prospect to generate average of £10,000 in sales.
- Your average existing customer spend is £30,000. £30,000 x 30 lost customers (£900,000)
You made £1 million in new business on 100 new customers but you lost £900,000 in customer retention sales. It looks like you've grown significantly from the outside but because the churn was so high you've actually grown by £1,900,000.
There are many reasons for customer churn, some are unavoidable but most reasons for customers leaving are solvable. With clear customer relationship strategies and customer fulfilment practices I've seen companies literally double and triple in size simply by choosing to focus on reducing their customer churn year on year.
You've spent so much time winning and keeping those customers. Why let your foot of the gas now and slow down your engagement?
I think it's because today we have a very linear view of customer churn when actually it happens in three stages.
- Emotional Churn - lack of desire to invest in the relationship
- Collaborative Churn - Lack of desire to accommodate
- Discontented Churn - Lack of distinction to stay (customer leaves)
Here is the challenge. When business is growing. No one really watches who's leaving unless the person leaving has enough significance to make a sales revenue dent in your business. Despite being able to see observable traits and behaviours with our customers that will help us proactively prevent churn. We wait for the last obvious signs of discontent. By then in many cases it may be too late..
But, Imagine if today customer churn was a financial line in your CFO and CEO's weekly financial report. How would that change the way you looked after your customers, ran your account management team or collaborated with internal departments and stakeholders?
We all know keeping our existing customers delivers 5-10 X more sales results than spending the same or more trying to attract and win new business. That doesn't make new business less important but it does offer a serious question:
Why isn't customer retention a standard sales metric in the sales industry?
The reality is for all sales leaders. Unless you really know that churn number and are cognisant about the signs of customer churn within your account management team you'll continue to be slave to negative growth (growth that is restricted by your ability to retain more of your customers at the average acquisition spend or above.)
The industry doesn't help much when it comes to real data on B2B customer churn as most of the information is based around SaaS companies. Whatever business you're in you can gauge some helpful insights for churn averages and measurement from this article HERE from Sixteen Ventures.
I want to focus on one thing in this post and that's raising awareness of potential customer churn indicators you can observe and respond to in your customer conversations.
After surveying over 80 Key Account Managers and managers of account management teams there were six customer churn indicators that came up in 74% of the B2B cases where clients had left or spent significantly less.
- They noticed their client had gradually become more distant and had almost stopped replying to or answer their emails for an extended period of time.
- Their main customer contacts had left and there were non replacements or other really established relationships in their business to speak with.
- They noticed their client had started projects with more than one supplier that they had the capability of delivering but didn’t come to them first.
- They were slave to re-structure and an RFP for consolidating suppliers.
- Their contact couldn't comment on what work they could do together for that year and the following.
- Their customer questioned the value of service and began asking for further discounts.
How to respond if you see these signs
- Get creative and honest in your communication. Where possible speak with a team member from your contact just in case something specific has happened. Be persistent and preserve.
- Start communicating with managers of the end users of your product and service. Understand their challenges or concerns. Compile this into a summary proposal you can share back with them and the potential new person so you demonstrate value and position yourself as a partner to their business.
- It sucks if you discover your client is using another provider alongside you. This may not be the easiest conversation to have but go in, be open and honest. Tell your client you’d like to explore ways in which they can benefit even more from your products and services, collaboratively look at how they might take advantage of your relationship and knowledge of their business today.
- This may sound crazy but, if you've been put in an RFP this can be great news. This is the time to go in and shape this RFP by using the insight you know of your clients business. If they’re consolidating this is not just about price but about differentiated value and a demonstrated understanding of their business. Get prepared, start speaking with contacts in your clients business. Go back with a set of questions they may have missed important to them with personal testimonials. This may go out to other potential companies. The immediate result is you become instantly memorable. In many cases I’ve experienced clients of mine fast tracking me to the final stage of their RFP before working with them again.
- Get creative and a measure of vulnerability will be needed. Questions like “what would be most helpful for me to know now while you consider your internal needs?” What would you say would be the most helpful action we could take for you and the business today?” craft questions that help you get closer to the emotional and practical needs of your client.
- In the situation where you may be being pressured with price it's important to first listen carefully. Not all discount conversations are there because of perceived drop in value sometimes its internal pressure. If it is a pressure based scenarios then you may need to be prepared to get creative with your customer around services and potential fee structures that still allow your customer to win internally but maintain value and margin. Point here is be patient and take your time listening beyond the words and valuing the context of their environment.
If you're a key account manager, sales leader of consultant responsible for and concerned with existing customer retention and growth Send me a LinkedIn request and get connected to my customer growth email series and mailing list.You can start the process of learning a new framework of thinking to growth. www.jermaineedwards.com
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