I was once the marketing leader for an electronic components distribution company. We hired a consulting company to help us with our strategy and they asked us how many customers we “churned” each year. Unfortunately, we didn’t know the answer, so they asked us to guess. The consensus was that we lost about 10 percent of our accounts each year.
The consultant did the analysis and, unfortunately, we were churning well over 30 percent of our customers annually. The consultant told us that most of their clients vastly underestimated their churn each year and then they showed us the incredible value we could generate just by keeping more of the customers we already had.
As I moved on in my career both as an executive and later as a marketing consultant, I saw this scenario play out time and again. Businesses hugely underestimate their customer churn and have absolutely no idea what improving retention can do for their results.
Very small improvements in retention drive big results because retained customers don’t just add to one year’s results – they also tend to grow year over year. You also get a compounding effect as you retain more customers in subsequent years. The delta between what your performance would have been at your old rate of attrition vs your improved rate becomes a growing band of increased sales and profits and the impact on a five-year basis can transform your business results.
There’s much more to customer lifecycle management and while your finance department can often learn to do the analysis, they typically need some guidance about which measurements matter. If your marketing function is particularly strong, they can provide some insight but I frankly haven’t seen too many distributors with those types of skills in-house.
The question for distribution leaders is, what’s the opportunity cost you are paying by not knowing the behaviors of your customer base? How many are growing vs. declining over time? How many new customers are you onboarding? What’s your attrition rate? How much more value can you get from your enterprise by measuring these numbers, setting objectives for how to improve them and then putting programs in place to change the results?
This is an area of huge potential profit for most distributors but, as the old saying goes, you can’t manage what you don’t measure. Somebody needs to own the performance of your customer lifecycle. If you don’t know these numbers, then certainly no one is in charge of driving improvements.
You might be interested to know that the consultant we hired to teach us how to improve our customer lifecycle performance was Mark Peck, who founded and runs Apexx Group. I’ve hired him twice in my career and he’s one of the lead speakers at our upcoming sales optimization conference, Sales GPS, on June 26-28 in Denver. Mark is a leading expert both on managing customer lifecycle and structuring your sales, inside sales and customer service teams to drive breakthrough performance.
I hope you can join us at the conference but regardless, you must know the performance of your customer lifecycle to drive the best-possible profits.