“Our largest customer just told us that they’re going in a different direction and don’t need us anymore!” – VP of Sales
I’ll never forget the look on that executive’s face. Shock, disbelief and fear; deep fear.
Almost 50% of our sales were going away. A customer that paid us for our services, month in and month out for about 15 years was gone, just like that.
And with that, a few years of struggle began for the company that I had just started working for less than two years before. Replacing that amount of sales was going to take a while.
How can companies avoid this? Is there a way to, at least, reduce the risk of it happening to your business? What things should you look for in your business to make sure the same fate doesn’t happen to you?
Five Reasons Your Sales Numbers Are At Risk
Dependent on a Few Customers
This is what happened to my company. We were moving happily along with this large international customer providing them technical services for 15 years. During our business relationship, we worked hard and gave them very good service. Since they were by far the biggest customer, they got a lot of our attention. Sure, it was great to have a customer like that; the sales came in like clockwork. The problem was that we didn’t do a very good job managing our sales and marketing to be less dependent on a few customers. Because we hadn’t grown enough, the loss of that customer was a huge problem. When we got the news, it was like a death in the family.
Industry / Economic Changes
I think we all understand how the economy can affect sales because we’ve been living (and struggling) through it the last several years. Industry changes can be a little different depending on your own industry. For example, in construction, the industry shifted when the traditional single family home gave way to the even larger houses a few years ago. Now, something called “tiny houses” is gaining traction in some regions. For restaurants trends like “fast-casual”, mobile ordering and even rising food costs are changing the landscape for the industry. Technology has affected many industries especially in media where digital music, streaming movies, and online media are doing a number on the music, Movie Theater and newspaper industries. Industry and economics can put your sales at risk if you don’t keep up and adapt to the changes.
Commoditization puts sales at risk too. Many products became commodities over the years and some have even become “un-commoditized”. A commodity is a product or service that is mass-produced, with relatively little variation and is widely available. Since it’s widely available with little variation, consumers will be more price sensitive. Think sugar. You typically don’t care about the brand, you just need sugar to make cookies or sweeten your coffee. Coffee was another example until Starbucks®, gourmet coffee and K-Cups came along. Now, stroll down the coffee aisle in any grocery store, there are multiple flavors, strengths and brewing methods to choose from. When I started drinking coffee in college there wasn’t much choice – coffee was coffee!
Competition puts additional risk on your sales. There is always someone out there who will compete either directly or indirectly with your business. Direct competition competes on product or service, price and convenience. Direct competition tends to have similar overall business goals. Examples in the restaurant business might be McDonalds® vs. Wendy’s®. Indirect competition will compete with similar products or services but may differ in its business goal. Indirect for the restaurant industry might be McDonalds® vs. TGI Fridays®; you can get a hamburger at both but they have different business goals as well as variations in the products they offer. Replacement competition offer similar products and have similar business goals but may be different in the way they reach that goal. One example that has changed an industry is the digital camera; this replacement competition has all but put the film and film camera industries out of business. Knowing who your main competitors are and what their strengths, weaknesses and goals are will benefit you when trying to ward off the competition.
Your Own Company
The last reason your sales could be at risk may be what you’re doing or not doing. It is easy when you’ve been in business awhile to forget what got you here and what differentiates you from other businesses offering the same product or service. Customers change and what they value can change too. If you’re losing sales, it may be that you need to look inward to make sure what you offer still provides your customers the quality, value and good service that got you customers in the first place. Letting any of these slip can create an opportunity for customers to look for competitors to fill their needs. Listening to your customers and prospects can also help you make improvements so that you stay competitive and on top of your game.
Now that we’ve identified some of the reasons that your sales are at risk, let’s look at some things you can do to combat these in your own business. Here are some things that you can consider:
In the company that I worked for they didn’t try to expand until after they lost their biggest customer. For us, we relied too much on one customer, so we increased our sales efforts to capture more customers and generate more sales. We also created a new product that added brand new sales and reduced our reliance on one customer. Expanding can include increasing your geographic region, offering products in a new previously untapped market, or focusing on growing a specific segment. As a result of our lost customer we also implemented a sales management tool that helped us focus more on where our sales were coming from, showed us how concentrated they were among our customer base and also helped us better forecast future sales. Growing and expanding your customer base can not only increase your sales, but also make you less reliant on one or even a few customers.
I mentioned that we offered a new product, but it was already technology that we had in-house. Our innovation involved an effort by product management to get the technology ready for sale to complement our existing customer base. Creating a new product or even a new service that complements your current product or customer base is a way to grab a tighter hold and ward off competition. Another way to innovate is to find a new way to deliver your products or services. We see that in the music industry with things like iTunes®. Amazon® revolutionized retail with its easy order and delivery model and locally I see it with restaurants grabbing sales by delivering food to the beach. Another way to transform and innovate is how you engage customers to aid in obtaining feedback and improving your products and services. Customers can provide a wealth of feedback that was very difficult and expensive to collect before social media and the internet.
Packaging is another way to stand out from the crowd. Bundling your product or service with something else can set you apart from the competition. Packaging your products with a warranty, service contract or some other offer can help differentiate you. Cable companies and wireless carriers offer bundles at lower prices to capture more customers and make their product “sticky”, as customers rely on them for more and more services. Some restaurants have bundled too – think value meals and free refills. Computers have been bundling software for years and airlines and hotels have also teamed up. Even my auto insurance company bundles a roadside assistance in with my policy, which allowed me to cancel my stand-alone roadside plan.
Keep Your Risk Low
It was almost 20 years ago that we lost that customer and I still remember it like it was yesterday. It was a difficult time but we managed to bounce back and grow even larger. Business has many risks and one of those risks could be lost sales. Part of your business management plan should be to keep an eye the risk factors that exist in your business. Listen to the market, the industry and don’t forget your customers too. Take steps to manage your risks to keep your sales levels where you want them.
So, is your customer base safe?
Lately, I haven’t been a very loyal customer. In the last few months, I’ve changed four suppliers of products and services that I’ve been using on a regular basis for years. In each case, a different trigger began my process of thinking about switching or at least shopping around. In one case, the trigger was a big price increase. In another, a price increase combined with my feeling that the product quality had degraded. A change in a government regulation caused me to take a deeper look at another product that I had been purchasing for years.
In each case, the supplier handled it differently; some handled it well, others very poorly. Some worked to keep my business, but others did nothing; I just heard crickets as they say. It got me thinking about customer retention what companies can do to manage it.
One theme here at Business Rx is people, processes and systems help grow a healthy business and the same is true for customer retention. Studies show that customer retention has a very positive effect on your bottom line. An often-cited study by Bain and Company found that increasing customer retention rates by 5% would increase profits by 25-95%.
You may be asking yourself, what do people, process and systems have to do with it?
Depending on the type of business you have, people can have a huge effect on satisfaction, loyalty and retention. Think about the entire experience your prospects have from the minute they contact your company to the time they use your company years from now to buy another product or renew a service.
Have you put in place a customer-focused philosophy?
- Is your overall tone for the company one that values its customers?
- Is the staff trained with customer satisfaction in mind, whether it’s greeting them, servicing them, resolving complaints, thanking them for their business, or even providing a little something extra for loyal customers?
- Does the company focus efforts to see red flags when they arise like increased service calls, decreased usage or visits, or customer inquiries about price increases or service changes?
- Does your staff engage them to get feedback and look for ways to improve your products or services with the customer in mind?
I mentioned that in each of the cases I shopped for a new supplier, there was a different triggering event. In one case, the trigger was a sharp price increase. When I called to ask the reason, it was clear that the company had no process to try to address retention because they never tried to retain my business.
What processes can you consider for customer retention in your business?
- Are processes optimized to enhance the customers experience as they work with you?
- Are there effective procedures to handle repairs, returns, complaints and refunds?
- Is there a process to ensure reasonable response times for customer problems as well as processes to ensure accuracy of the response to your customers?
- Are there procedures in place to escalate or follow-up on issues that need a higher level of attention to satisfy the customer?
- Have you put in place internal feedback mechanisms that use recurring customer issues to make improvements to your company’s customer service processes and policies?
One of the suppliers I left did make an impression on me that would encourage me to consider them again in the future. In contrast, there was another that while they had a system to consider my concerns about leaving, they offered no real options to keep my business.
What systems can you put in place that helps your satisfaction and retention?
- Do you have a system to identify or anticipate potential triggers that could negatively affect your customers’ feeling about your company and its offerings?
- Are there systems in place that help customers engage in loyalty programs, encourage referrals and create further customer engagement and feedback?
- Given the popularity with online reviews, are there systems in place to properly deal with negative reviews?
- Is there a system to obtain feedback like satisfaction surveys, response cards or customer reviews?
- Based on the feedback, is there a system to review, prioritize and make improvements to your products and services, processes and systems?
I’m sure that for some of the companies I left, they felt that I was a secure customer for them. I faithfully paid my bills for years, never complained and moved along without a problem. Then a trigger caused me to review the relationship.
All businesses, at some point, face customer retention and satisfaction issues. Make sure you have good people, processes and systems to help you manage your customer relationships and drive up your retention rates, along with your profitability.