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Our goal is to reduce — by at least half — the annual rate at which we’re losing customers.”
So said the CEO of a Fortune 500 company to the authors of Follow This Path, published in 2002 as a Gallup Organization book.
Where do you rank customer retention?
“Customer retention ranks first among the management concerns of CEOs according to a recent survey by The Conference Board . . . ,” wrote the Gallup authors.
But that was 2002, and the world has changed dramatically since then.
Today, financial issues have replaced customer retention in the minds of CEOs and business owners in general, including franchisors, franchisees and industry suppliers. But the world is going to change again and when it does, customer retention will zoom back up as a top concern.
What a difference a small proportion makes
In fact, I’m guessing that customer retention still ranks among the Top 3 concerns. The Gallup authors pointed out why when they said “The effect of turning even a small proportion of ordinary customers into loyal customers leads to an average increase in profit per customer of more than 25 percent” — a point that may have originated with Frederick F. Reichheld in his best-selling and critical book, The Loyalty Effect.
One of the reasons I say that book is critical is because Reichheld pointed out that if you increase customer retention by just 5 percent you may increase profits by 25 percent to 95 percent . . . and that’s a principle that most business owners (especially in franchising) don’t know.
There’s money to be made by holding on to the customers you’ve got!
How many customers do you lose annually?
In a more recent book by Reichheld, he said that many companies now lose half of their customer base every 3 years — alarming, isn’t it? However, the average company, he said in The Loyalty Effect, loses half its customers every 5 years. Bad enough.
The story of two franchise companies
Imagine there are two franchise companies, let’s call them The Greatest Franchisor and The Average Franchisor. The Greatest Franchisor achieves a customer retention rate of 80 percent and The Average Franchisor enjoys customer retention at 70 percent annually. They’re both losing customers — and lots of franchisors at this very moment are saying, “I’ll take 70 percent retention!” — but The Greatest Franchisor holds on to 10 percent more customers (or franchisees). How does that work out financially for these franchise companies?
The greatest franchisor retains more franchisees
Assume that the retention rates hold constant and that each company attracts 30 percent more customers (franchisees) each year for ten years. The first year, The Greatest Franchisor starts with 100 customers. It loses 20, gains 30, so at the end of year one The Greatest Franchisor has 110 (franchisees) customers, a 10 percent net increase.
Meanwhile, The Average Franchisor starts and ends the year with 100 (franchisees) customers!
Almost double the customer base in seven years
Now it’s seven years later and The Greatest Franchisor has almost doubled its number of customers. By the end of ten years, The Greatest Franchisor grew its customer base by a factor of 2.59.
What happened to The Average Franchisor? Hmmm. It’s still got the same 100 customers!
Wow, a 10 percent difference did that?
A difference of just 10 percent created dramatically different results for these franchise companies.
Doesn’t seem like much, does it? Ten percent. But what a difference it makes.
Could be your new corporate goal
Imagine what would happen if the management team of every franchisor, franchisee and franchise supplier understood the importance of that ten percent.
So customer retention may not be the number one concern today — but shouldn’t it be? Really, what’s more important right now? Focus on the changes that are within your control.
Webinar: How To Capture & Keep The Right Customers
Interested in learning How To Capture & Keep The Right Customers? That’s been my most popular live seminar through the years and while I’m still teaching it at franchise conventions, the economy has discouraged me from scheduling a public seminar. That’s why I’m turning the seminar into a Webinar. In the near future I’ll post a date and time when you can get this valuable information live, online, when you join my Webinar. Interested? Franchisors: Line up your entire network of franchisees for this important information! Franchisees and Suppliers: Invite your most valuable customers to join the Webinar — in fact, pay for their registration as part of your customer retention plan! If you want the details sent directly to you, click here. Be sure to let me know that you want info about the HTC&K Customers Webinar.
Photo image by: valeblos
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