How should companies think about client retention?
A couple of years back I sat in an executive meeting where after a period of growth, the board were talking about client retention seriously for what seemed like the first time. They were losing clients and the impulse was to concentrate the organisation’s efforts on schmoozing key customers, to improve those relationships. The conversation reminded me of an account I once read:
A Financial Director (FD) strolls into a CEO’s office:
FD: “I have some good news and some bad news. Client retention is looking great, but we are not hitting our new business numbers.”
CEO: “OK, let’s focus our efforts on new business.”
The company re-organised, it launched a new sales and marketing campaign, and operations team focused on on boarding new customers. It was a huge success.
3 months later the FD strolls into the CEO’s office:
FD: “I have some good news and some bad news. “New business is looking great, but we are not hitting our client retention numbers.
CEO: OK, let’s focus our efforts on retaining business.
The company re-organised and the cycle started again.
The problem with this approach is that the CEO was taking away from one focus and giving it to the other, constantly shifting from winning new business to retaining customers, and never winning at both. If continued this would result is an slow downward spiral that we will end up costing massive amounts of investment to climb out of.
So what went wrong? and how should businesses think about customer retention?
You could argue that things went wrong when the new business issues were raised by the FD, maybe it could have been handled differently? I think the issue is goes back further, why was there a retention issues in the first place?
Too many companies act too late. By the time they see higher levels of customer churn it is too late to do anything. Instead companies should consider that all their customers are at risk of abandoning services at any moment. They should focus on delighting customers so that they do not feel the need to shop somewhere else in the first place. The effort and cost involved in taking this approach is actually much lower than acting retrospectively.
What else should businesses be doing to improve client retention?
Many businesses cite new challengers and market conditions when reporting below expectation numbers. Company strategist and leaders should look both forward and around them. They should ensure that they understand their market and prepare for these challenges up front instead of after they have had an impact on performance.
Most importantly businesses must ensure that they have a dual-focus on winning new clients and retaining customers, they must not have pivoting focus on these elements. The key is to build trust and retain it.