Many years ago, with substantially less gray hair, I was tasked with attending a seminar on the cost of acquiring new customers. The presenter, who possessed all the enthusiasm of someone running barefoot over a floor covered in Legos, came to the painfully slow conclusion that the cost of acquiring customers was too high, and companies should make every effort to retain their current client base. Despite my feeling that I was sent as a punishment to endure two hours of this monotone invocation, I walked way agreeing with the premise. Fast forward to my current position in the event industry, year over year customers allow you to increase profit margin as you learn to do things more efficiently. Logistic costs can be reduced with more accurate planning based on known customer retention. Inventory storage costs are lower as you become more knowledgeable about what annual equipment needs will be for your retained clients. Marketing costs are reduced since you have less capacity to fill in your calendar. In a small business environment, these are all valuable to maintaining your success. But at what point is it more profitable to move on to a new customer? When does the retention of a current customer become so clouded that the true cost is buried in nostalgia? Are you retaining a customer because you are afraid of what others may think should you choose to move on from that long time relationship? Has the fear of the unknown of where your next customer is coming from made the relationship toxic?
After a particularly painful interaction with a long time client, I started to reflect on the lesson learned that day, and my support of the premise. Perhaps there is a need to dig deeper into the concept of retaining customers to reduce cost. When uttering this phrase out loud, are you sure that you are looking at all the true costs of customer retention?
Loyalty Built on Price Alone
After a painfully bad experience for a client, a friend of mine asked me to describe what it feels like when an event is going wrong. I told him to close his eyes and imagine that 3000 people came to see a live band in an open field. Now imagine the sound system won’t work, and the field is on fire, and the stage is on fire and all the instruments have been stolen by the fire department, who lit you on fire before leaving. Now imagine the client can’t understand why the band isn’t playing, and blames you even though you did not start the fire. Foolishly, I uttered some words that will soon become a framed poster in my office – ‘luckily, we’ve had this client for many years and have given them a substantial discount to keep them happy, so I feel confident they will understand it was not our fault”….and then the phone caught on fire.
My old mentor used to say that if you try to compete on price alone, you will always lose. I’m sure he did not coin the term, but it’s accurate no matter who says it. A client whose loyalty is bought through substantial discounts, or free services, will never be truly loyal. There will always be the danger of said client jumping for a better offering, regardless of past performance. And clients whose loyalty is based on price are likely to be less understanding, and stick with you, when something goes wrong. Year over year, you leave money on the table, and take up capacity in your production schedule, for a client who does not value your services. Most likely, this client is not one that will generate other business for you through referrals because they are only focused on cost, and not the experience you’ve created for them. Client loyalty is the most valuable commodity a sales person can hold, but be sure that loyalty is built on your performance, and not the dollars you keep shaving off your price to keep them happy.
The Cost of Stress on The Team
Every company has that one client that generates substantial revenue, and an equally substantial amount of stress for your organization. Typically, it’s a client that is unusually hard to please, stingy with the praise and generous with the fault. A client that starts every re-cap with the list of twelve things that could have done different, and #3 on the list is, “The cotton candy could have been pinker”. The revenue you get from this client is quantifiable, but the profit does not account for the cost of stress on your team. The lost productivity on another, equally important client, because your team is busy trying to predict the unpredictable complaint. The loss in enthusiasm your team feels in servicing this client with new, exciting ideas knowing nothing will be good enough. If your “star” client is creating an atmosphere where there is minimal satisfaction garnered from the work being done, you will experience high turnover in key areas. If this occurs, the cost of that client is the money spent to attract, recruit and train a team who may or may not be any better at coping with the stress. If you are not prepared to draw a line with your client, and be honest with them, are they truly a client you want to retain at all costs?
Another Phone Call? Another Meeting?
Like many of you, we rely on a task management system to create efficiencies in our operation. The benefit of such a system is the ability to see into every bit of work taking place for a particular client. Useful, but also terrifying when your Task Inbox is full of back and forth conversations between your star sales person and the client. Every event assumes some level of cost for the back end administrative work, but are you tracking what that looks like? Every client will demand a level of attention with meetings, emails and phone calls. When a client starts to abuse that need, be sure you are paying attention. How many requests is your team fielding from the client because they keep changing their mind about particulars? How many phone calls and emails does your team send to a client requesting information that go unanswered? How many times is your team summoned to the client site because they have a concern that turns out be minor, or something already addressed? Is your Accounting department chasing said client for payment? In our haste to respond to the needs of our clients, we fail to see that the relationship is causing issues with other clients. You find you have less time for them, or less time to prospect for new sales. Your team may be so busy fielding requests from one client, something gets missed with another less vocal client who provides an equally important revenue stream. Soon, you many find your true cost of keeping one client was the loss of revenue from another.
I do not dispute that client loyalty and retention is great for business. It tends to lead to a known revenue stream, additional opportunities with the same client, and generous referrals that lead to new business. Be sure you are not painting all your clients the same, and examine any relationships where the true cost many outweigh the expense of moving on from that relationship.