Sunday, 30 September 2012

Customer Retention

By: Richard Stone
In the face of rising costs incurred by attempts to win new customers, the need for good client relations is, at present, very important both for industrial concerns and the service industry and therefore forms part of any good sales training. Experts believe that companies in the service industry could raise their profits by 100%, if they succeed in stopping 5% more clients from going over to the opposition.

Research was carried out in order to establish the cost of one lost client and the contribution long-term clients make towards covering costs.

A credit-card company discovered, for example, that £51 must be spent to win one new credit-card customer. In the first year, the client makes £30 profit for the company, and in the fifth year £55. The five year profit runs to £220. An industrial cleaning firm earns £980 per client in five years, a wholesaler £577 and an auto repair workshop £306.

The advantages of long-term client relations

As a rule, customers of the service industry buy more from year to year. As a result the costs reduce and the contribution made by the client towards covering costs increases. It becomes easier and cheaper to work with the client, the more the company increasingly gains from the experience.

Companies with loyal, long-term customers can often charge more for their products and services. Many salespeople are happy to pay a few pounds more for overnight hotel accommodation, if they know that they will be well looked after. Loyal, long-term customers are also good publicity. Locally, clients will frequently perform an invaluable word-of-mouth publicity for your product or for the service you provide. Building societies found that someone else recommends every third house buyer.

If a company reduces the customer fluctuation rate, profits soar.


A credit-card company calculated that by reducing the annual client loss rate from 20% to 10%, the client's contribution towards covering costs would increase from £134 to £300. If the rate falls by a further 5%, then the profit per client increases from £300 to £525.

Ways of reducing client fluctuation

As manager, what can you do to reduce the number of your customers who go over to the competition?

1. Collect as much information as possible on each of your customers. Ascertain the sector, the requirements, the sales habits and trends, expansion, proportion of costs going on salary and on materials, as well as the profitability of the customers. If customers "jump ship", check your data to see whether the customers belong to a particular category - for example, a group of companies which uses an above-average amount of materials.

2. Repeatedly make your employees aware of the value of one customer to your company. Ensure that forms part of any sales training they receive. Both employees in dispatch and in the warehouse as well as in production and sales departments must be made aware of this fact.

3. Make your entire managerial staff aware of client problems. Ensure that every member of the company's managerial staff works in the customer complaints department or in the customer claims department at least once a quarter.

4. Do not allow any customer to just walk away. Talk to him on the telephone, send him questionnaires, make personal visits, in order to find out the reason for his "jumping ship".

5. Look out for the warning signs. There is trouble ahead if clients reduce their business with you by 50% within one year. By talking to the client, discover where you can throw the "life-belt".

6. For nurturing their ties with devoted customers reward sales people, office staff and the customer service department employees. An equipment manufacturer pays his staff a 2% bonus, if the customer remains with his business for more than three years. Such bonus schemes are also operated by insurance companies, magazine publishers, building societies and mail-order companies.

Implementing these points will have a beneficial effect on customer retention and therefore company profits. Also covered on effective sales training are many techniques to help retain clients.
Richard Stone is a Director for Spearhead Training Limited that runs management and sales training courses that improve business performance.

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