Tag Archives: churn

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Lasting Client Relationships Help Your Business Thrive

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Freelance professionals and all business owners and leaders understand that they must periodically calibrate (and re-calibrate) their business entity so that it will be positioned to survive and thrive. While evaluating the potential success of growth strategies that appear to be capable of building a client list that enables you to achieve your revenue goals, do not overlook this basic business growth strategy—establishing good client relationships.

Good client relationships are foundational to the development of a healthy business and typically result in a potent client list, robust repeat business, consistent referrals and a low client churn rate. Implementing inbound and outbound marketing strategies in order to energize revenue is always necessary, but the process is usually time-consuming and by that metric alone, is expensive.

Recognize that you can enhance the value of your client list quantitatively, by adding more names, and simultaneously follow a qualitative approach to building the roster, when you prioritize the development of good client relationships. Establishing positive relationships with clients is a savvy marketing strategy that can play a supporting role in growing the number and quality of your active clients. Client relationships can support conditions that encourage client loyalty, repeat business and referrals, while simultaneously discouraging client churn. That the process of retaining clients and persuading them to continue doing business with your organization can be influenced by good relationships is so fundamental it is sometimes overlooked.

Beneficial client relationships are built on trust that’s born of the fulfillment of expectations (e.g., excellent project work and timely invoice payments), as well as transparency, communication and collaboration. More like partnerships than the usual transactional agreements between clients and vendors, clients with whom you’ve established a good relationship provide stability, inspire creativity and drive innovation that results in project outcomes that often exceed expectations. Below are qualities and practices that promote the development of beneficial client relationships that will pay dividends to both you and your clients.

1. Agreements, specifications and contract

It is a given that good client relationships begin with ethical and transparent business practices that are introduced during the initial project or product discussions between yourself and the client. Project specs or desired product solutions govern work agreements and performance milestones. Project contracts or sales agreements are intended to facilitate a smooth and productive collaboration and ensure that both the client’s interests and your interests are fulfilled. The quality of these discussions is integral to the establishment of creating good client relationships and transparency is key.

2. The customer experience

The quality and consistency of the customer experience your organization delivers is another building block of beneficial client relationships. The fact is, when your organization delivers an end-to-end efficient and satisfying customer experience, those with whom you do business will be happy to see more of you. When you (and your team) make it possible for clients to trust your expertise, professionalism, integrity and ability to meet or exceed expectations, you’ll be on your way to establishing mutually rewarding client relationships that can bring both tangible and intangible rewards to your organization (and the client’s).

As you shape the customer experience your company presents, be aware that “thank you” is a powerful word in every language. Saying “thank you” to your client for doing business with you shows appreciation and everyone likes someone who appreciates them. “Thank you” has the power to nurture and sustain positive relationships.

3. Communication and collaboration

You can build lasting, mutually beneficial relationships by facilitating good communication with your clients. Regular communication is integral to supporting collaboration, enabling innovation and producing outcomes that will likely meet, and may exceed, the client expectations. Honest and ongoing communication is crucial to gaining client confidence; be certain to keep your clients fully apprised of the project’s progress, challenges, or changes. Regular updates and transparent reporting demonstrate accountability, promote cooperation and enable proactive problem-solving that drives successful results.

As well, keep in mind that while technology enables communication at any time or any place, it cannot replace the value of face2face communication. When scheduling client meetings, suggest in-person chats whenever possible, as a way to encourage a good relationship. The Harvard Business Review reports that 95% of business leaders believe in-person meetings are essential for building stronger, more meaningful relationships. Alternating meetings between the client’s preferred location and your own shows consideration and empathy, attributes that are also integral to relationship-building. Keep in mind that business decisions are often influenced by personal relationships.

4. Listening and empathy

Effective listening is a cornerstone of relationship-building and good relationships are the foundation of business and diplomacy. Active listening is a demonstration of empathy and respect, and it builds trust. The ability to listen effectively is a valuable leadership skill and despite appearances, listening is active, not passive, and requires the listener to be fully present. When you invite your client to share information ask questions and perhaps brainstorm ideas, you validate his/her priorities and concerns and demonstrate your commitment to the development of a positive, long-lasting relationship.

Empathy allows you to see the world through the eyes of others and listening is a crucial enabler of the process.  Empathy helps you to effectively comprehend your client’s feelings, aspirations and challenges. Clients who feel as if they are understood will also feel that they are valued, making them more likely to become and remain loyal to your organization and more likely to reward you with repeat business and referrals. 

5. Flexibility and patience

Beneficial relationships rely on flexibility and patience. For example, there may be times when your client must grapple with unexpected challenges, such as time line changes or budget constraints. In these situations, your willingness to be adaptable and propose alternative approaches to meet revised client needs will demonstrate your commitment to the project and his/her organization, promotes trust and is likely to significantly strengthen the relationship.

Thanks for reading,

Kim

Image: © Skynesher for Getty Images.

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Subscription Model Spotlight

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The subscription-based business model is an American classic. From the newspaper that the neighborhood paperboy delivered every day to your parent’s house, to the magazines you looked forward to receiving from the mailman each month and, of course, the Book-of-the-Month Club, founded in 1926 and enjoyed by your grandparents, millions have bought subscriptions over the years. We trust the process.

As the e-commerce revolution lured millions of newspaper, magazine and book readers to digital formats and software as a service (SaaS) introduced a menu of business services that make back-office operations much faster and efficient, the number of products and services available by subscription has exploded. There are now hundreds of subscription-based businesses to indulge you, from cable TV and movies to goodie gift boxes for you (Hot Sauce of the Month Club) and your dog (Barkbox).

Subscriptions are the original recurring revenue business model, able to bring a fairly predictable amount of money into a business at predetermined intervals, making subscriptions adored by business owners (and increasingly, Freelancers). Customers also appreciate subscriptions: they make obtaining frequently used products or services more convenient and often less costly, since there is almost always a discount offered as compared to the price of a one-off item. Plus, time is saved and inconvenience spared when there is no need to repeatedly make purchases; a subscription guarantees that your order is complete and payment settled just once a year and renewed annually as desired (and sometimes renewed automatically, which means you do nothing beyond reading the renewal confirmation if no changes will be made).

What’s not to love? Monthly (or annually or quarterly) recurring revenue represents predictable cash-flow and every business owner wants it. The smartest, most forward-thinking business owners and leaders, including Freelancers, are brainstorming ways to integrate a subscription service into their company’s offerings. The good news is that the acceptance level of subscriptions in the general population makes it relatively easy to persuade prospective customers to buy. Persuading subscribers to renew the deal, however, can be another kettle of fish.

So, if the idea of selling your products or services by subscription comes to mind, first ask yourself which of your products or services customers regularly purchase throughout the year but might prefer to order and pay for just once a year and save themselves time and money? Float the idea with two or three of your steady customers and heed the reply. Adopting a subscription model requires serious forethought and planning and this is especially true for many B2B service businesses, where value is intangible and not always immediately recognized. For example, the value of software subscriptions is continually demonstrated with tangible and actionable information that’s generated on a regular basis and by frequent use of the platform by the customer. The value of leadership and Emotional Intelligence coaching, however, can be less immediately obvious.

Subscription business model experts reveal two critical success factors—perceived value and the subscriber experience. Regarding value, subscribers accept a recurring subscription fee when the product or service subscribed to consistently demonstrates its worth. Should the subscriber feel that s/he is not receiving value that justifies the subscription cost, the possibility of service cancellation is imminent. The benefits derived from the product or service subscribed to must be front and center in the subscriber’s mind. S/he must clearly witness or perceive the expected value, preferably through a noticeable, if not measurable, improvement in whatever need the service or product addresses.

Regarding the subscriber experience, quality control and the consistency of the expected outcomes delivered by the product or service are key. There is an ongoing need to maintain, and periodically upgrade, the subscriber service and experience delivered. Subscribers tend to expect service enhancements at regular intervals. Suggestions of other critical factors you may want to examine as you and your team evaluate the potential viability of a subscription model for one or more of your products or services are below:

1. Is the subscription model is right for your business?

 As noted above, do yourself a favor and confirm that enough of your customers will feel it advantageous to commit in advance to the purchase of one or more of your company’s products and/or services by subscription. Is it important to customers to reorder what you sell on an ongoing basis, or are sales typically intermittent or even one-off? Discuss with your accountant the amount of monthly subscription revenue needed to make offering subscriptions feasible for your entity. If you get a green light to move forward, it will then be necessary to develop strategies that promote and defend subscription revenue and minimize subscriber churn (i.e., cancellations). Be prepared to develop marketing campaigns that describe to current and prospective customers how buying your product or service as a subscription service will make life easier or doing business more cost-effective for them.

2. Subscription or retainer fee?

Even if you do a steady business with a certain client, for example, providing payroll solutions or website maintenance and security, a retainer agreement may be more appropriate than a subscription (both generate recurring revenue). A retainer fee is a fixed amount of money that a customer pays to a company/consultant in advance and for a specific period of time, typically, a month, quarter, or year. The retainer fee covers an agreed-upon scope of work or number of hours that the company/consultant agrees to provide to the customer. The customer can use the consultant’s services as needed, up to the limit of the retainer agreement. If the customer does not use all of the hours or services included in the retainer, the consultant still keeps the entire fee; if the customer exceeds that limit, the consultant can charge extra fees or negotiate a new retainer.

A subscription fee is a recurring fee that a subscriber pays to a company/consultant for access to a predefined service or product. The subscription fee is billed monthly, quarterly, or annually and the subscriber can cancel (sometimes) or renew the subscription at any time (usually toward the end of the billing period). The subscription grants access to the product or service, which the subscriber can use as desired. The consultant/company provides the product or service on a continuing basis or provides access to an online platform or membership access site.

3. Try before buy 

Consider offering a short free trial to allow prospective subscribers to experience the advantages of subscribing to your product or service—first month free, for example. Tempting current customers and prospects with a sample of your subscription service could convince a number of them to sign up and pay. Furthermore, you’ll make subscribing still more attractive when their pricing options are uncomplicated. Offer one standard monthly (or quarterly or annual) fee; if you also sell premium and/or economy versions of your product or service, price those subscriptions accordingly.

4. Set clear expectations:

Set clear expectations from the start of the subscriber relationship. Customers must understand what they’ll receive for the price they’ll pay–services, products, tools and/or supporting technologies. Subscriber info should walk customers through what the subscription offers, the level of support available from your team and company contact info.  Ensure that prospective subscribers fully understand the value they’ll receive, tangible (the product or service) and intangible (training, additional info and/or support).

5. Discounts for longer-term subscriptions

The monthly fee should reward longer subscription commitments—24 or 36 months, for example—with correspondingly progressive discounts. While some subscribers desire only short-term use, others will use your product or service basically forever. By offering subscribers a variety of subscription options and offering deeper discounts to those who agree to pay upfront for long-term commitments, you’ll have a better chance of attracting more subscribing customers and increasing recurring revenue.

6. Easy or automatic renewing

The subscription model is an excellent vehicle for customer retention, but your organization must implement strategies to further remind subscribing customers of its relevance to them and provide various incentives for renewing the subscription. Make renewing frictionless and enable subscribers to auto-renew (with an opt-out option). When you make renewal easy for subscribers, they’re more inclined to do so.

7. Quality control and customer experience

Subscriber satisfaction is not to be taken lightly; it is never a given. Ideally, you’ll find it in your budget to assign or hire (W2 or 1099) a subscriber experience specialist who will be responsible for ensuring that expectations are met. That person will also document and report on the turnaround time for resolving issues, as well as any recurring problems. Proper quality control offers you much-needed insight into subscriber concerns, which will drive ongoing service enhancements and continue to enhance subscription value. 

Furthermore, marketing experts have convincingly demonstrated that personalized communication is a deciding factor in reducing churn, building loyalty and re-engaging lapsed customers/subscribers. Your organization should collect as much subscriber data as possible and apply that info to generating email updates and personalized special offers that aim to encourage renewals. The goal is to maintain subscriber enthusiasm and reinforce the convenience, enjoyment and/or habit of subscribing. You want to avoid disengagement, complacency, or other dissatisfaction that may result in a lapsed subscriber.

8. Don’t skimp on packaging

If your subscription is a physical product, invest in premium packaging. With all due respect to the U.S. Postal Service, your product deserves better packaging than a flat rate priority box. While your physical product will require shipping, it is highly recommended that you avoid the temptation to save money by packing and mailing yourself. Instead, find a fulfillment house and outsource packing and shipping.

Your logistics provider will fulfill subscription orders for your product, packing and shipping those orders directly to subscribers in a way that effectively communicates the value of your brand and enhances the subscriber experience. The fulfillment center will also manage product inventory and store the inventory.

Thanks for reading,

Kim

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5-Star Client Onboarding Leads to Smooth Sailing

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Hallelujah, you’ve just brought in a client, and a good one. You and the team are psyched to start working and prove your bona fides but may I suggest that you slow down and present what might be called a “soft opening” for your new client? While you want to honor deadlines, it’s good business to first give new clients a proper introduction to your company, an opportunity to understand how his/her team and yours will pleasantly and efficiently get the job done.

This first order of business is a powerful move purposed to set the stage for a mutually satisfying working partnership. As it is for so many important goals, when your intention is to develop positive and long-lasting client relationships, it makes sense to begin with the end in mind. When you consider the big picture you’ll realize that an effective client retention strategy actually starts with good onboarding.

Onboarding is a series of choreographed actions that introduce new clients to your company and show them how to access and utilize the value in your products, services and organization—-everything that made them recognize you as The One. Your onboarding program sets the tone for productive client-company relationships, signaling that client expectations will be met and reconfirming that selecting you to do business with was a wise choice. Ideally, the onboarding experience you present will amplify your clients’ trust and confidence in you and your organization, resulting in referrals, recommendations and repeat business.

Onboarding is integral to client retention and limiting client churn, meaning one-and-done assignments. I don’t have to remind you that it costs at least five times the resources— your time and money—- to land a new client than it does to keep those you have. There will always be one-off projects but continually starting at zero and chasing prospects is expensive in terms of time, money and energy.

The top two reasons for client churn are 1) the client doesn’t understand your product; and 2) the client doesn’t know how to obtain the expected value from the product. Your thoughtfully designed and well-presented 5-star onboarding protocols can solve both problems. Here’s how you can greet new clients and start persuading them to become long-time fans and devotees of your organization.

Onboarding building blocks

Along with a welcome email, in which you thank the client for choosing your company over the other potential options and letting the client know how excited you are to work together, a 5-star onboarding recipe can include all or some of the following. Making the client and his/ her team feel confident in and comfortable with you and your team is the onboarding purpose.

  • Video tutorial
  • Live online or in-person product training
  • Follow-up video or phone call to confirm that the client is properly using the product or service purchased and is satisfied with the results and outcomes (and to troubleshoot where necessary)
  • In- person or videoconference meeting to introduce your project team and the client’s team, to discuss roles, milestones, invoicing schedules, reporting updates and the like
  • Company logo swag items and/ or a gift basket delivered to the client

The good news is that your new client already likes and trusts you and believes in your product or service and that’s why the decision to work with your organization was made. Build on these front-loaded advantages by creating an onboarding method that shows clients how to have positive experiences when using your product or service and working with your team. Your onboarding process is a follow-up step of the promises made in your sales talking points.

The onboarding process has lasting benefits for your clients and your business. Onboarding makes clients’ lives easy. It is vital to lowering client acquisition costs, increasing client retention, increasing the average lifetime value of clients and supports business growth.

Thanks for reading,

Kim

Image: Super yacht Saint Nicolas (230′ 4″/ 70.2 m) at the 2018 Cannes Film Festival

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5 Business KPI Metrics to Follow

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Success in business is a numbers game and every business owner and leader would be wise to pay attention to certain metrics, which are Key Performance Indicators. Depending on the business, owners and leaders may follow the daily sales receipts, weekly gross sales, monthly inventory purchases, monthly in-house projects and of course the big three monthly, quarterly and annual financial documents—-Income Statement (Profit & Loss), Cash Flow and Balance Sheet.

KPIs are like vital signs and lab tests; they indicate the health of the organization. Owners and leaders examine, analyze and confirm the venture’s health (read: profitability) or discover and diagnose a problem, for which a strategy is devised to provide the treatment.

Today, we’ll dive into sales and marketing KPI metrics that business owners and leaders would do well to monitor—-Lead Conversion Rate, Sales Cycle Length, Client Acquisition Cost, Churn Rate and Client Lifetime Value. When steps are taken to bring these KPIs into what represents an acceptable range for your industry, a tangible positive impact on the organization will result.

Lead Conversion Rate

Grab a spoon, Love, and get ready to taste test our flavors of the day—-TOFU, MOFU and BOFU. I promise that you’ll enjoy them all, most especially BOFU. Let us begin.

Marketing = Lead Generation, the fuel that feeds the sales engine that keeps the business moving forward. This KPI reveals the strength of the company’s marketing strategies and tactics. First, verify that the marketing mix is actually producing leads that convert to sales. Second, leads that converted to sales should be examined to discover which tactics enabled conversions. Bonus points will be awarded for discovering which marketing tactics bring in a particular type of client—-low or high dollar volume, repeat business or one-off, or a certain product or type of project.

Marketing announces the presence of a business to its target audience and it’s designed to both arouse curiosity and inspire confidence in the product, service, or company that is featured. The intent of marketing is to entice target audience members to linger and browse the marketing outreach. These early-stage browsers are leads at the top, the front door, of the marketing/ sales funnel. They are called TOFUs, Top of the Funnel. Most TOFUs are window shoppers.

Now let’s suppose a TOFU decides to follow the company blog, or interact with the business on Instagram or Facebook. Or maybe the TOFU finds an e-book and after reading the promo, requests a copy. TOFU will then advance through the marketing/ sales funnel and enter the Middle of the Funnel. TOFU will become a MOFU.

MOFU is where lead conversion really begins. MOFU is a fish on the line. To become a client, MOFU must be skillfully led into the VIP Room at the Bottom of the Funnel, BOFU, where intentions are revealed, needs are discussed and commitments are confirmed.

How to do it? If MOFU is in deal-making mode, those who subscribe to the blog or newsletter, or especially those who request an e-book, white paper, or case study, will contact the company to ask for additional information. MOFU will ask to schedule a 15- minute free consultation. If you meet MOFU at the virtual workshop you presented, there will be a request for follow-up. “Can we Skype?”

A well thought-out marketing/ sales funnel draws in TOFUs that sometimes become MOFUs who have reason to turn themselves into BOFUs. That is effective lead generation.

Business owners and leaders must continually review the operation of the marketing/ sales funnel to ensure that a good number of prospective clients are entering at TOFU. They will monitor the percentage of MOFUs who advance to BOFU and the percentage of BOFUs who become clients.

Sales Cycle Length

Determining how long on average it takes for TOFUs to become MOFUs, then BOFUs and finally paying customers, is useful for cash-flow planning. There may be no way to shorten the marketing/ sales funnel journey and speed up the sale, but getting an idea of when money will arrive, or will not, is essential.

If there are recognizable points in the funnel when it may be possible to speed up the sale, that will be money in the bank. When a prospect reaches MOFU, demonstrations of the company’s expertise, VIP clients, superb customer service, or sterling reputation can be presented to convince the prospect to continue the sales journey. BOFU is the time to make tempting deals—-a desirable upgrade that costs little to deliver, for example. Get the deal done as quickly as possible.

Client Acquisition Cost

It is worthwhile for every business owner, business leader and Freelance consult to ascertain the ballpark cost of the time and money associated with bringing in new clients.

After calculating the time spent writing a newsletter and/ or blog; the time devoted to perfecting social media posts and uploading, to say nothing of creating, videos and photos that support the company’s brand story; the time needed to create a presentation that will be delivered at the chamber of commerce or other venue, along with the Power Point slides and hard copy hand-outs that are typed up—-what dollar value should be attached to the labor devoted to promoting the company, its products and services, and yourself as its public face? Get your arms around that one, will you!

I estimate that I spend 10 -15 hours/ week on marketing activities (mostly this blog) and I’ve allowed myself to claim $35/hour as the wholesale value of my labor (because creating content, taking blog photos and typing are not all billed at the same rate). I’ve decided it’s fair market value to claim that I spend 50 hours/ month, $1,750/ month, on marketing. Wow!! Am I getting the right ROI on client acquisition? Maybe I can learn to type faster? It would help.

I am not signing a new client every month. However, I do get repeat business, plus the occasional referral, and that lowers my customer acquisition cost significantly. This is yet another reason to exceed client expectations and provide superb customer service, so that repeat business and referrals are more likely to be received and marketing dollars will produce a greater ROI. Furthermore, if it’s possible to determine which marketing activities attract high dollar volume projects, prioritize those tactics.

Client Churn Rate

Business experts often warn that it costs at least five times more to acquire a new client than it does to retain a current client. Surprisingly, many, if not most, companies lack a client retention strategy and action plan. The rate at which clients stop doing business with an organization is called the churn rate.

Churn rate is calculated by counting the number of clients that no longer use company products or services, expressed as a percentage of the total client list. % churn rate = # Defections / # Retained If there are 50 clients on the company roster and 5 haven’t made purchases in 12 months, then the churn rate is 5/50 = 0.1 x 100, a 10 % churn rate.

If the company churn ratio creeps up through the year, the culprit could be inadequate customer service. Include a short survey with your invoice to encourage clients to tell you how to improve their customer experience.

Client Lifetime Value

Unless the company has history with a client, lifetime value is a projection, an educated guess. Nevertheless, it is important to think strategically about every prospect, since some are worth pursuing and others, not so much.

When evaluating marketing activities, Freelance consultants, business owners and leaders will examine the revenue potential of the target audience and decide the level of resources that should be devoted to the client acquisition process. This KPI, actual or projected, reveals the amount of revenue that can be generated, in a year, or perhaps a quarter, by way of a particular (or the average) client.

When considering prospects who could become clients, prioritize and invest marketing resources only in those with high revenue and/or repeat business potential. Don’t waste resources on low dollar volume clients. Follow the money.

Thanks for reading,

Kim

Photograph: Kim Clark. Trading prices are the KPIs of the New York Stock Exchange.

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Multiplication Table: Inclusive Interpretations of Business Growth

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I’m not much of a gambler, but I’ll wager that at least 75% of those who aim to track the growth of their business or self-employment venture follow just two metrics—net profit and market share (or the length of the client list). The two are reliable indicators of business performance and so most will look no further. But if you think about it, limiting one’s assessment of a business to just two metrics is short-sighted and will not yield a comprehensive measurement of business performance. Furthermore, focusing exclusively on revenue means one is likely to overlook other metrics that demonstrate growth.

A business is a complex organism that consists of numerous variables that play a role in its success or failure. In order to thoroughly measure the performance of a venture, Freelancers and business owners would be wise to look beyond the usual suspects and broaden their view and understanding of what’s going on.

It’s a beautiful thing to regularly monitor Key Performance Indicators. It’s even better to know which KPIs, when considered together, will accurately reflect the state of the venture. Revenue and profit are the king and queen of KPIs, but forward-thinking business leaders also monitor less obvious but still powerful growth indicators.

Let’s consider two metrics that matter in every business, churn and referrals. Churn occurs when customers who could reasonably be expected to at least periodically do business with a company instead sever contact and take their business elsewhere, presumably to a competitor. The opposite of churn is customer retention. Referrals are recommendations of potential customers to a business, made by current customers of that business or those who are familiar with the business. A business leader should not only monitor referrals and the churn rate, but also create strategies to encourage the former and discourage the latter. Let’s talk about it.

Churn

A high churn rate indicates that the business is not retaining customers and this has an adverse effect on top line (and bottom line) revenue and profit. Now the type of business must be taken into consideration. Wedding planners, for example, can be expected to do business with a bride only once and repeat business is rare. But if customers are severing contact with a business and seeking out a competitor, it signals a big problem and an urgent need for corrective action.

Limiting churn has a positive impact on customer retention. It has been demonstrated by a number of researchers that it costs a business at least five times more to acquire a new client than it does to keep a client. Reducing churn is an indirect multiplier of revenue and profit and is therefore worth the effort.

A well-written customer survey that communicates the company’s commitment to meeting or exceeding expectations and creating a positive customer experience may yield a surprise or two and, most importantly, information that is actionable. Finding opportunities to have face-to-face conversations with customers who have remained may also surface information that will clue business leaders in on modifications that should be made.

Referrals

I am in business to help business leaders identify goals and strategies that will take their venture to the next level. I also frequently collaborate on the branding, marketing, content marketing and social media campaigns associated with that process. Reducing churn to increase customer retention, as well as bolstering referrals, supports both the top and bottom lines of a business.

A great way to pump up your referral numbers is to launch a campaign focused on referrals themselves. The simplest referral campaign is to just ask a customer to “tell your friends.” Another useful tactic that can motivate customers to make referrals is to offer a 10% – 15% discount off their next order, or a product or service upgrade, for every customer who is referred and makes a purchase.

The referral process can be taken online with an easy referral link in team members’ signature blocks. Offer incentives to existing customers, extra services that are valuable to those making referrals to you.

Referrals are a huge vote of confidence because they signal that the company is trustworthy, dependable and doing something right. Referrals are the warmest, most qualified leads a business will encounter and often little more than clarifying the choice of specific product or service features and confirming a delivery date and price are all that’s needed to close a sale. Yippee!

Happy Chanukkah, Merry Christmas and Happy Kwanzaa! Enjoy your favorite holidays and thanks for reading,

Kim

Photograph: © The School Run

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Combat Customer Churn

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If you’re ready to greenlight a business idea that you feel has money-making potential, then it’s time to create your road map to entrepreneurial success! Learn to build a Business Plan that will become both the foundation and launching pad for your exciting new venture. We’ll take a deep dive into all the ingredients of a basic Business Plan, including how to evaluate the profit-making potential of your business idea; define your ideal customer groups; evaluate competitors; develop a savvy marketing and social media plan; and build a solid financial strategy that will sustain your dream.  Thursdays March 28 & April 4 6:00 PM – 9:00 PM. Register here .

Every business owner works hard to add new customers to the company roster. Customer acquisition is a key component of an owner’s role, but attention must also be  paid to customer retention. It’s critical that business owners/ leaders develop a customer retention strategy for the organization—and implement it!

Depending on which study you believe and the industry you’re in, acquiring a new customer costs anywhere from 5 to 25 times more than the cost of retaining an existing customer.  Consider the time and resources utilized to recruit even one new customer, to say nothing of prospects whom you pursue and do not win.  It’s much more cost-effective and efficient to keep the customers you already have happy.

The phenomenon called churn refers to losing customers and the metric that measures the rate at which customers are lost, as compared to customers on the roster, is known as the customer churn rate. “Customer churn rate is a metric that measures the percentage of customers who end their relationship with a company in a particular period,” explains Jill Avery, senior lecturer at the Harvard Business School. The churn rate is measured during any month, quarter, or year, depending on the industry and the product or service that your company supplies.

In other words, if your business begins the quarter with 400 customers and ends with 380, the customer churn rate is 5%, since 20 of the 400 customers no longer do business with the company.  Avery goes on to say that many business owners/ leaders prefer to monitor and report churn rate’s opposite: customer retention rate, or how many customers remain. Both calculations tell the same story.

Changes in a company’s churn rate could signal that something is working well (if the number goes down) or needs addressing (if the number increases).  When you notice that an unexpected number (or percentage) of customers whom you’d expect to be more than just one-offs instead decline to do business at least intermittently, it’s time to take action and stanch the hemorrhage. The usual culprits are customer service failing,  products/ services that are not fulfilling customer expectations, or the presence of an aggressive competitor.

Churn is more than a metric to occasionally monitor. The future of your business depends on understanding why customers might leave and knowing what you can to do to retain those who may be ready to jump ship.  Avery advises that “Looking at churn rates by customer segment illuminates which types of customers are at risk and which types may need an intervention. It’s a nice simple metric that tells us a lot about when and how to interact with customers.”

Likewise, it’s important to study your customer acquisition channels. They don’t all yield equal results, so examine each to learn if customers coming through a specific channel have a higher churn rate than others.  Acquisition channels failing to deliver the best customers as you and your team define them will be discovered, so you can decide whether or not it’s worth continuing to fund that channel, or instead shift resources to channels that more consistently deliver the premium customers.

According to InsightSquared, a Boston marketing and sales analytics company, reducing customer churn by 5 % can increase profits by 25 % to 125 %. InsightSquared also found that 70 % of customers it polled leave not because of the product/ service purchased, but because of poor customer service. Further, 91 % of unhappy customers will not do business with your company again.

Other common issues to address include a lack of customer engagement or support, poor product-market fit and the user experience. It is essential to identify company weaknesses and shore up any products/ services that need to be better attuned to trends in market preferences, customer service protocols, or customer engagement that builds loyalty.

A mistake that business owners/ leaders make is to look at churn as simply a number, rather than as an indicator of customer behavior.  Questions to ask include:

  1. What is the company doing to cause customer turnover?
  2. What are customers doing or thinking that causes them to leave?
  3. How can we better manage customer relationships and diminish the churn?

That said, a high churn rate can be the result of poor customer acquisition efforts. “Many firms are attracting the wrong kinds of customers. We see this in industries that promote price heavily up front. They attract deal seekers who then leave quickly when they find a better deal with another company,” Avery says.

Finally, there is no standard acceptable churn metric. Avery cautions, “The truth is that what’s acceptable varies widely by business model and is largely dependent on how quickly and efficiently a company can acquire customers and how profitable customers are in the short and long-term. Some business models thrive despite high churn rates and others rely on low.”

Instead of fixating on a certain number, smart managers look at the churn rate of prior years and ask themselves what they might improve. “It’s really a metric that shows how well you’re managing your customer relationships, and you can usually always improve your performance in that area,” Avery says.

Before you assume you have a retention problem, consider whether the problem instead turns on customer acquisition.  Avery concludes, “Think about the customers you want to serve up front and focus on acquiring the right customers. The goal is to bring in and keep customers who you can provide value to and who are valuable to you.”

Thanks for reading,

Kim

Photograph: 1950s, photographer and location unknown