Successful businesses are excellent at client retention – that should come as no surprise. Learn the Do’s and Don’ts here.
Why is client retention important? Firstly, long-term customers provide steady, predictable cash flows which sustain the organization through peaks and valleys. Secondly, such customers are a great source of referrals and new business. A referral is the arguably the most inexpensive way to acquire new customers.
Thirdly, it’s much more expensive to bring a new customer in than to retain an existing one. This point has been talked over in business literature ad nauseum, yet there is still a lot to be desired in the way companies go about it. And finally, there are industries in which there are only a few potential clients available (however large). If you want to be in this space, you have to retain them.
I put a few simple ideas together but then felt that a touch of controversy never hurt anyone, so before I go any further, I have a confession to make. As a management consultant, I see a lot of brilliant people and well run companies. But I also see things I don’t like – dysfunction, intellectual sloth and incompetence.
There is a popular belief that a well written contract with clear service level metrics replaces the need to develop a relationship. Nothing could be further from the truth.
So, I felt a bit like Dr. Jekyll and Mr. Hyde and created two lists. The good list is full of solid advice which I suggest you follow. The bad (and the ugly) is the unsightly underbelly of a monster, a list of unsavory points which you should never follow. What’s more, you should be on the lookout for these practices being used on you. I confess to amusing myself while writing this short piece. However, I also know that it will be useful to the reader.
- Build a trusting relationship with the client. More than any other business, outsourcing requires being close to your customer. Both parties should be comfortable in pushing back, asking to do what’s right, fixing issues and bringing up difficult topics.
What does developing a relationship mean in this context? Well, having lunch together and talking about a recent vacation is fine. However, the emphasis should be on striving to understand your client’s business, priorities, limitations and pressure points. Customers appreciate that, believe me, because it does not happen often enough.
There is a popular belief that a well written contract with clear service level metrics replaces the need to develop a relationship. Nothing could be further from the truth. Try to hide behind SLAs and you will become a commodity. Develop a solid trusting relationship and you will become a long-term partner.
- Provide services that the client values, not ones you think they might want. Of course, if you follow the previous point, you will know your client’s business well. That will help you structure your offering to address the most acute issues and generate an enormous strategic value.
By way of an example, my phone company sometimes pretends that it values my business. They call me to tell how much my patronage means to them and then immediately try to flog a long distance plan alluding to the fact that I want to save money.
There are two problems here. First, I don’t need a long distance plan. With today’s technology this has become a non-issue. Second, they assume that I want to save money. A reasonable priority for them but not a priority for me, as far as long distance calls are concerned. When I ask them about services I am interested in, they don’t know what to say, because the person who calls me is reading a script. This is why my affinity-meter is at steady zero.
- If you’ve managed to build trust with your client and are delivering services that are relevant to them, it’s imperative that you remain on the lookout for other work that they may need. This calls for innovation and enhancement of your service offerings.
For example, you may have secured a large corporation as a client for HR services. You do staffing and handle normal transactional HR stuff. Then, as you develop your relationship with the organization, you find out that they are having trouble with administration and tracking of mandatory training. Why not fill that need as well?
One thing I need to mention here is that most clients know what they want but few know what they need. This means that you cannot merely ask your customer about these opportunities. You need to discover them.
- Provide services that only you can deliver. This is a very powerful tool, and here’s how I use it.
I conduct corporate training for project management, strategy, cost-benefit analysis and other managerial competencies for remuneration that amounts to a few thousand dollars an hour, with repeat business. Many companies do this kind of training, so how can I command such fees?
The problem with training providers is that they are focused on the task (running a session), whereas I am focused the result (mastering a skill). Because learning is experiential, I offer unlimited access to me via phone or email for a month or two, followed up by a formal call.
It costs me nothing because few people do call or email, but having that option is immensely valuable. It is hard for training companies to offer this kind of support, but easy enough for me.
The Bad and the Ugly
If you make it difficult or prohibitively expensive to your clients to leave, they will stay. This is achieved in a number of ways, of which I will discuss three.
To stress once again, never try this at home. Do watch out for these tricks done to you. This is not retention, this is entanglement.
- Set up a legal trap. Sometimes clients are either cavalier or too trusting when it comes to legal frameworks or agreements. All you need to do is slide a vendor-friendly “standard” contract in front of them and apply pressure to sign on the spot. Even large, ostensibly sophisticated companies fall for this. The daunting small print in excruciating legalese may contain exuberant fees for knowledge transfer or extreme termination penalties.
I am in for about $200 as a result of an oversight. We rent a postage meter which used to be very handy but no longer is, thanks to new ways of doing things. I called the vendor asking them to stop the arrangement which has been in place for years. Apparently, it is cheaper to just continue paying the monthly fee for another year than to cancel the contract.
- Be the only game in town and take full advantage of it. Does this sound familiar? Be a monopoly and you don’t have to work very hard to retain your clients. Where are they going to go?
The postage meter I just told you about is rented by a monopolist in this business. The customer service is poor, their processes are archaic (bills cannot be paid electronically, postage amounts can only be topped up with a manual cheque, etc), their supplies carry a huge premium.
Now, for the measly $200, they are rather prepared to have an unhappy former customer, instead of someone who raves about their attention to customer needs. It is no surprise that they are struggling operationally and financially. I predict that they will be out of business within five years.
- Play the black box game. Refrain from documenting your processes and rely on tacit knowledge instead.
A large online travel services company which became a household name, outsourced fulfillment of bookings and all customer services. It wanted to concentrate on marketing, product and technology development, instead of worrying about the trivia of fulfillment.
When the time came for contract renewal, the outsourcing partner quoted much higher fees which were unsustainable at the time. At that point that the travel company realized that they knew nothing about the complex fulfillment processes. There was no documentation. They were at the mercy of the vendor.
They managed to switch providers at the end of the day but the whole exercise was not inexpensive.
To conclude, you don’t have to offer rock-bottom prices to enjoy the loyalty of your clients. I hope this cursory review will help you foster it in a much more intelligent way.
Ilya Bogorad is the Principal of Bizvortex Consulting Group Inc. a management consulting company with clients worldwide. Ilya specializes in building exceptional IT organizations, decision making and business cases. He can be reached at firstname.lastname@example.org or +1 (905) 278-4753.