Maintaining a happy customer base makes life easier, it’s a universal truth. These clients leave stellar reviews, they sing your praises to their peers, and they refer new customers to your business. Again, this is common knowledge, but there’s a deeper layer to the benefit of keeping your clients happy: it costs a lot more to replace customers than it does to retain them.
Let’s take a look at it from a real-world perspective:
- Your customer base: 5000
- Your cost per sale (CPS): $150
- Your cancellation rate: 1.5% per month
In order to maintain that same level of success, you would need to acquire 900 new customers per year. At a CPS of $150, that will cost you $135,000, and that’s just to make what you made last year.
If you wanted to grow by 10% this year, you would need to acquire 1400 new clients at a cost $210,000.
20% you say? You’d need to bring on 1900 new customers at a cost of $285,000.
“Ain’t nobody got a marketing budget for that” - Me
At this point, it should be abundantly clear that it’ll be much more cost effective to retain the customers you already have. You already worked so hard to get them on board, why wouldn’t you try harder to keep them? It all boils down to the fact that improvement will always be key in customer retention, as there will eventually come a time that you won’t be able to outsell your cancellations if you don’t seek to better your practices. A daunting task no doubt, but you aren’t the first to be in that situation, and you surely aren’t the last. The good news is, we’re here to help you proactively tackle just such a situation. Let’s take a look at a real-world story that is close to home…
The Case Study on Customer Retention
In 2014, Donnie Shelton, the owner of Coalmarch and our sister company Triangle Pest Control (TPC), sent Jesse Rehm, CEO of TPC, a classic 4:00 am text prompting him to dig into their customer retention numbers.
Clearly, it was something Donnie was hung up on, but why? In 2014, Triangle Pest Control was seeing great success. They were providing effective treatments, they were known for great customer service, and they had a team that they had a lot of pride in. Things were great, but there was still a lingering retention problem.
The problem? Their customers expected everything they were providing. They expected effective treatments, great customer service that is prompt and helpful, and a friendly and knowledgeable team. What was missing was something above and beyond - delivering an excellent customer experience was the only way to truly impress their customers.
After taking some time to dive into their numbers in PestPac, the TPC team came away with two clear realizations.
- They found that the first year of a recurring pest account was the most susceptible to cancellation, with a significant reduction in year 2.
- They also found that their hybrid services had a much lower cancellation rate in year 1, and since those particular customers stayed with them longer than 12 months, they should be pushing this more profitable service over the recurring pest control service.
The TPC team then took it a step further and broke it down by when cancellations were happening within the customer lifecycle. They found that most cancellations were occurring in months 8, 12, and 16 (I will teach you farther down how to figure this out). They also found that if a client stayed with them for at least 16 months, the likelihood of cancellation dropped by 50%. And even more telling, when they retained a customer for 12 months versus only 6, this showed a 300% increase in their profitability. In other words, if you have a profitability problem, you should start here.
The proactive plan
So, knowing the cancellation numbers and their effect more intimately, TPC instituted a customer retention system that focused on proactive and reactive elements. To get ahead of the problem, they now use those top cancellation months to schedule out surprise reciprocity.
Can you imagine if Time Warner Cable called you up randomly to say this? “Hi Sarah, This is Kyle from Time Warner Cable, I was calling to thank you for being such a loyal customer and I’d like to give you a free month of service to continue our valued partnership. Thank you for all that you do.” I don’t know about you, but I would be stunned. And as soon as the shock settled in, I’d immediately tell all of my friends and family about it, I’d probably write a good review, and I’d be a loyal customer for life.
So TPC decided to call clients and give customers discounts and free services out of the blue for being a valued customer. In month 7, they call their client with a $5-10 credit toward next month’s service. In month 11 they provide a free add-on service for month 12, and come month 15 they offer a full free month of service to that long-standing and dedicated customer. TPC does this even past the drop off months, to keep that customer loyal for life.
Using reciprocity in a strategic way is easy to implement, track, and improve over time, and the minor costs associated with these freebies (relative to acquiring a whole new customer) have gone a long way to bolster their overall retention - and profit.
To infinity and beyond
But that wasn’t enough for TPC. They wanted to go above and beyond to show immediate value to their customers. Technicians began to give their regular services a more personal touch - bringing the newspaper to the front door, taking up empty trash cans, or offering to assist with bringing groceries into the house. Customer service was making the much-needed evolution to customer experience. Now, even if a client isn't home when the technician comes by, they include a note in the leave-behind, noting the service they paid for but also the helping hand they provided. This ensures you get the credit that might otherwise go to a neighbor or significant other.
The reactive plan
Despite these good deeds, cancellation calls do still come in. Fortunately, TPC's customer service representatives are empowered to offer discounts on services and, on occasion, free month(s) of service. In fact, they have the power to offer free months of service up to the cost per sale. That empowerment of the CSRs is monumental on a number of different levels. Not only has this increased trust strengthen customer satisfaction and retention, but it has also increased the productivity and happiness of the company’s CSRs. Empowering and trusting your people, and avoiding the awkwardness and irritation that comes with “well let me talk to my manager,” will almost assuredly result in fewer cancellations.
So how effective has all of this been? After the first year of the program, TPC ended up seeing a 37% reduction in cancellations year over year. In 2013 that cancellation rate hovered around 28.5%, but come 2014 it was now at 17.7%. They ultimately saved more than $71,000 in recurring revenue in the first year of the program alone. And if they had maintained the same cancellation rate of 28.5% this year, they would have lost almost $383,000 in recurring revenue. That new cancellation rate of 17% is something to be proud of, and the dedication to improve was furthered by placing emphasis on the employees.
Continuing to improve
Hiring the right people became the next step in an ever-evolving process. During every interview, no matter the role, they ask, “What is the difference between customer service and customer experience, and what do you think makes a bigger impression on the customer?” The answer to this reveals if the candidate is a good fit for the culture, and also sets the candidate up on the right path by understanding that the customer experience is the top priority.
They also have begun training new hires to adapt to retention strategies from the outset and have regular assessments of that customer experience knowledge. This ensures that all team members have an idea of the status of any given customer, and inspires them all to work harder to keep those customers year after year.
Lastly, TPC tied customer service scores and retention numbers to employee bonuses so they’d have a stake in the game. This is the quickest way to encourage your team to make an impact - and it takes a lot of the work off of your plate as an owner/manager.
The bottome line: If you don’t hire, train, and incentivize your people on this, you won’t be able to sustain the results.
How to get started
At this point, you’re probably asking yourself, “How can I be sure I’m doing all I can to maximize retention rates?” I'm going to help you by giving you a straightforward roadmap to getting there. I have simplified the process that TPC went through to make this easier and more digestible. Below is the step-by-step process for retention success.
1. Identify your top cancellation months
A. Get the data
First, you need to take a snapshot of your customers with 2-3 years' worth of data and place it into a spreadsheet. The information you will need for each customer is...
- Start date
- End date
- Service or package
- Number of months on service
- Reason for canceling
B. Filter by canceled and by service
Now out of this set of data you need to filter it down to only include canceled accounts. Duplicate this tab before moving to the next step so you can use the overall data set for other insights later.
C. Separate by service
Then separate the information by each service you offer so that you can track any differences in cancellation rates per service. You'll want to have a different tab for each service or package you want to track before moving on to the next step.
D. Sort months serviced from A-Z
For each tab you will need to order this from A-Z by the column with number of months on your service. This will make it easier to digest what you are looking at. Also, for this column of data, it is SO important to remember that you are not looking at January-December, you are looking at months 1 through infinity. This is the entire customer lifetime you are looking at, not 2018.
E. Count up canceled accounts per month
Once you have this in the correct order, use the count function in Excel or spreadsheets to add up the number of accounts canceled in each month of the customer lifecycle (M1, M2, M3…remember not January-December).
F. Find the outliers
From here, look to see which numbers stick out as highest cancellation months on average. These are where you should focus your efforts during the next step.
2. Develop a proactive plan for drop off months
By utilizing TPC's strategy or by creating your own, have some fun with this process. Learn what your target audience cares about, and tailor this to meet their needs. A little goes a long way with reciprocity, but be sure to deliver it in a way that connects with your audience. Once you have determined what you are able to give away to keep your customers, you should develop phone scripts for your CSRs to effectively communicate this nice gesture. An example script for your CSR could be:
“Hi Mrs. Brown, this is Josh from Triangle Pest Control. On behalf of the entire team here we would like to give you your next month’s service for free because you are such a valued customer. We have already applied this to your next service, so there is no need for you to do anything, we just wanted to let you know.”
You can also decide what extra things you’d like your office staff or technicians to do for your customers to go above and beyond. You could write thank you notes at month 1, birthday cards for their children or pets, send out a holiday card from your team, help out with tedious tasks like the garbage cans, or donate your services or time to a good cause. There are so many ways to do more, so pick what you and your team are most passionate about!
3. Create reactive scripts and processes
Next, you will want to take that initial set of data (the one I asked you to save) and filter it by the reason for canceling. Once you do that, you should be able to identify the top reasons for canceling so that you can either fix the problem or, if it’s because of circumstances outside of your control, develop phone scripts and processes for your CSRs to follow when someone calls in to cancel.
If there is a glaring reason people are leaving that can be fixed, do not leave that untouched. If there is an underlying problem when the customer calls to cancel, there is very little chance of saving them unless you fix the root cause.
4. Train employees on the what, why, and how
And lastly, you need to train your employees on the what, why and how. They need to know what they can do to retain and delight customers - this is the proactive and reactive retention strategies you have come up with. They need to know why they should care - think employee incentives, company revenue and profitability goals, and so on. And lastly, they need to know how they can fulfill these needs - employees will love processes and scripts to help them accomplish their goals.
Also, encourage your employees to think up new and creative ways to retain and delight your customers. They are the ones who speak with the customers on a frequent basis so they should feel empowered to come up with new ways to serve them.
You have all of the creative liberties in the world at your disposal! Getting the numbers first is key, then plan on meeting with your team. Brainstorm all of the ways you can further differentiate your brand from your competitors. What is the one thing you can do that sets you apart? Making this process a team effort will not only hasten a proactive plan but will build on the strengths of your core team and allow you all to flourish together on the road ahead.