Once a year I hold an annual planning meeting with the members of my sales team. When someone tells me I’m needed in any day-long meeting I cry a little on the inside, because as an entrepreneur, I like to be in the middle of the action, not in a boardroom. But every year this meeting is different, because we get to spend a full day figuring out how to grow the business — something every entrepreneur loves.
These are the topics we discuss in this meeting:
If you are a business owner, I want you to pay special attention to the second point on the above list: attrition plan and goals. Many companies fail to include this in their marketing and sales planning strategies, and, as a result, they struggle to build a solid customer base.
I found out years ago that growing a company is much more difficult when you are constantly losing customers. To be clear, I’m not suggesting your goal should be to keep 100 percent of your customers — that would be silly. Not every new customer is a good fit for your business, nor is 100 percent retention a realistic goal. But you do want to keep a vast majority of your customers. Starting with a plan to minimize customer attrition allows the rest of your marketing to grow the business, because you aren’t trying to make up for lost customers before you can start adding new ones.
When I work with entrepreneurs who are stuck or simply aren’t growing fast enough, the vast majority of the time, one of the major problems suffocating their growth is an unknown or inaccurate attrition rate. Frankly, there is no excuse for not knowing this number with absolute certainty. Once you know your number, it’s easy to make a plan to start adding value and building relationships that decrease your attrition rate. This may be the single most important step to actually increasing the growth your business can make, because two primary things happen:
1. The longer a customer has been with you, the more money they spend with your business.
2. The longer someone is your customer, the more opportunities you have to get referrals.
These reasons make sense for most entrepreneurs, and they are enough to make business owners focus on decreasing customer attrition. For those of you who like numbers, here is some attrition math.
Number of customers = 500
Desired annual growth rate = 33 percent
New customer goal = 165 new customers per year, or 14 new customers per month
On the surface these numbers seem totally achievable. Fourteen new customers per month is reasonable for any business. The problem is that I left out one very important factor: monthly customer attrition, which in this case happens to be 2.4 percent, or 12 customers per month.
All of a sudden, the required 14 new customers per month is now 26 new customers when you factor in the customers you lose each month. Neglecting attrition is why most companies stall out with their growth. If you aren’t factoring in attrition, when you finally look up at the end of the year, you’ve actually only grown by 24 customers, which is only 0.4 percent per month, or a 4.8 percent annual growth rate. When you understand just how destructive attrition can be to the growth of a business, you can see why it’s the second item on our marketing meeting agenda. As a company, Bright Startups has aggressive goals for growth, with plans to nearly double in size, but I know from previous experience we will struggle to hit them with even a small increase in total customer attrition. Your attrition KPI (key performance indicator) is incredibly important if you want to grow your company more than a few percentage points per year, but few people know their business’s attrition rate, and even fewer have a plan to fix it.
How to Keep Attrition Low
The first step is to realize that simply having a good product or service isn’t enough. Thanks to the Internet, people have more data and a nearly unlimited number of choices for other providers, including no provider at all. If you are reading this and you’re in a small niche like I am, you’re not immune. If you’re a lawyer or a dentist or someone with massive competition, finding ways to focus on retention is a must if you want long-term growth.
The next step is to build a relationship. I first learned this few years back in business. I found that the customers I interacted with the most and built a friendly relationship with handled problems differently than customers I barely knew. When a customer I didn’t know called up with a problem, you could hear the frustration in their voice; they were getting ready for a fight.
They would talk down to me and sometimes yell. When someone I had a relationship with called with a problem, that was not the case. The conversation was totally different. I can’t recall a time I was yelled at. In those cases, we had a conversation about the problem, and we fixed it together. Once I realized that the relationship was the key, my goal was to have a relationship with as many customers as possible.
As you track your attrition numbers, remember that a program like this takes time. You should start to see results from your efforts in six months, and good results within a year. Like any relationship-building campaign, you don’t become best friends overnight. But if you are committed to more growth — and ultimately higher profits — make sure you have a budget and a plan for customer attrition. Done correctly, it will be a turning point for your company and its growth in 2016.
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