The Secret To Business Growth – Revealed!
Today we reveal the biggest secret to new business growth. It is not actually a new concept or the latest technology or business tool, but rather an age-old truth that so many in business either forget, ignore or possibly, just never gave much thought.
The secret to new business growth is client, customer or patient retention. It may sound simple, it may even be incredulous to some, but the facts speak for themselves. Ignoring churn or customer turnover will be the death of many new businesses this year. Businesses focused on chasing new customers or patients often ignore the ones that fall off the back end, and while new customer acquisition is extremely important, especially for a new business, neglecting existing clients is a death sentence.
Alex Shultz, VP of Growth for Facebook.com is quoted as saying “Retention is the single most important thing for growth.”
So what is customer retention? We’ve all heard the coined phrases … Stop the bleeding, close the barn door etc. but let’s look a little deeper at what it really means. Customer retention is the ability of, or actions taken by a company to REDUCE CUSTOMER DEFECTION.
Let’s look at why it really matters in cold hard numbers.
According to Inc. Magazine’s Business Encyclopedia, if your company or practice gains 20% in new clients or patients this year, but only retains 85% of your current base, your net gain is actually just 5% (20% gain – 15% defection = 5% gain). The energy and expense of growing your business 20% only returned you 5%!!
Looked at differently though, if you had increased customer retention to just 95% you would increase that net gain by two thirds to 15% total business growth. I’m sure I don’t need to explain the benefit of 0% customer defection, which is in effect, the Holy Grail. But being realistic and taking into account that some clients will move, some may die and others you will simply have no control over, the fact remains that customer retention, by reducing customer defection is key to continued and effective business gain.
So, now that we have made the big reveal on the “secret” to business growth. Let’s touch on a few things that will help you master the art of reducing customer defection. Many experts agree that the cost of acquiring new customers is somewhere between 7-10 times that of keeping an existing client or patient, yes doctors, these principles apply to your practice too. If we can agree that it is at least seven times more expensive to find a new customer than to keep one … that is not only a huge expense, but a great waste if we are letting clients defect out of the back door.
Real money too. According to research by Bain & Co. – as little as a 5% reduction in defection can improve your profitability by as much as 75%. So where do you start stopping the bleeding? This question will of course be different for each type of business, but there are certain principles that will apply regardless of whether you run a business, a practice or a company of any size.
First, you need to determine why people are leaving. It sounds simple, but so many businesses have no clue why churn is such a factor. The easiest way to find out of course, is to ask. A quick email, a letter if needed, a follow up phone call or even a web form, but regardless, in some fashion, you need to reach out to defectors and ask them politely, why they jumped ship. In fact, it is good practice to ask current customers how likely it is that they would recommend your product or service to friends and colleagues. This is called a Net Promoter Score (NPS) and what you are looking for, is a score above 50.
If you score over 50 it generally means that your current customers are telling their friends about your business. A low NPS is a warning sign that the opposite is taking effect and serious reputation damage may be taking place without you being aware of it.
Always ask the question in a fashion that does not require clients to identify themselves to get a true response, by adding it to your website or in an email using a service like Wootric. But in the end, finding out why is critically important to a successful customer retention program. If you determine there is a problem with your product or service, then fix it. If you determine you are attracting the wrong customers, then fix your marketing. The reasons customers leave generally fall into one of four, or a combination of these four factors, with product and price leading the way for most businesses, but may have a markedly different line up for medical practices, law firms and other service related businesses.
• Product – does it meet the need or perform as promised?
• Price – Is it fairly and competitively priced in your market?
• Service – does it exceed expectation? What is the customer experience?
• Message – Does it tell the right story, to the right audience?
If your product is simply not performing as it should or as promised, tap the brakes. This has to be rectified immediately, no questions asked. Business 101 … deliver what you promised, or it’s over.
Price becomes an issue when a similar product works as well that cost less, or the perceived value is less than what a customer paid. The first is a competitive issue and needs to be address accordingly, the second is a little harder to nail down and must be handled with messaging. Setting the expectation of value received is tricky sometimes and may require a professional copywriter and graphic designer.
The service issue may be resolved with what we talked about above, making sure that your NPS score is above 50 and doing things to make sure the customer’s expectations are not only met, but exceeded. Turn customers into evangelists for your business.
Messaging is critical. Image, copy points, brand, advertising, marketing … these are all elements of an effective message. Sometimes (almost always) better left to a professional as mentioned above. Your message is everything. It shapes the perception of your product, sets the expectation of your customer, builds value in the mind of the consumer and sets your service or product apart from the competition. This is no small order and requires a deft hand and market insight. Many business owners believe they are in the best position to craft the marketing message, but time and again we see businesses fail on the strength of their marketing. Doctors, be doctors, lawyers practice law, leave your advertising creative to an expert in the field. Most business owners would never cut their own hair, or drill their own teeth, but will easily take on the critical role of marketing their business.
The way we see it … a business owner’s time is best put to use stopping customer defection, so that the efforts put forth in new client acquisition by the marketing team yields the highest return on investment.
Director, The Ad Buyer Agency