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.
A favorite business quote of mine which has been attributed to Peter Drucker, the management guru, is:
“If you can’t measure it, you can’t improve it.”
Think about it.
We track and measure lots of things in life. We have batting averages, Usain Bolt has his 9.58, mutual funds have rates of return and lately we have meteorologists constantly tracking weather information to predict the next storm.
If you think about the second part of the quote, you can understand why there’s batting practice, workouts, investment research and shifting weather models and forecast tools. These are just a few examples of how things are tracked and measured to look at things to improve; in these examples it’s averages, times, returns and accuracy.
Many companies track and measure the obvious ones in their basic financial statements. The Income Statement tells them how much they sold, spent and profit that was made. The Balance Sheet shows them what them what they have in assets, what they owe in liabilities and what earnings they’ve retained in the business. Some businesses will pay close attention to their Cash Flow too. It shows them how they got cash, where they used it and whether they made more or less of it during the period. But there are many other things you can measure in your business to look for ways to become more effective and improve business performance.
Awhile back I wrote an article that described how you can grow a healthy business by looking at your people, processes and systems. You can look back at that on my blog by clicking here if you like. One part of your business systems, should be to build a tracking and measurement system to gauge how you’re doing, in order to see how you achieve better results in your business.
In some of my work with business owners, I use a tool called The Business Physical which looks at 10 areas of a business. One thing we use the tool for is to gauge what steps the owner is taking to track and measure components of their business.
Let’s use four of the categories from The Business Physical to illustrate some examples.
Ways to track and measure results in your business.
Customer Service –Want to know how happy your customers are so you can measure customer service? Then ask them. Run a survey, ask them to complete a comment card or like you on Facebook. Want to know if you’re responding to customer problems quickly? Then measure response times or if you use trouble tickets measure satisfactory closure rates.
Marketing – Want to see how your latest coupon offer is going? Then measure your redeem rate against your distribution rate. Want to measure customer loyalty? Measure repeat purchases from existing customers. Want to check the performance of your latest advertising campaign? Then track new leads generated from it.
Operations – If you want take a look at the quality of your products, then track product return rates. If you have a service and want to measure quality, then track customer complaints or service recall rates. If you want to improve your order turn-around times, then measure and review the various steps in your order fulfillment process and so you can look for ways to make it more efficient.
Financial – If you want to set a goal to improve your account collections, then measure your average collection period on receivables. If you want to measure how you’re managing inventory to keep you holding costs in check, then calculate your inventory turnover.
Think about what you can measure and improve in your own business. Remember, if you can’t measure it (or you don’t), then you can’t improve it. Consider making tracking and measurement part of your overall business strategy. Tracking and measuring can help you see how you’re performing so that you set goals and can make improvements to get to where you want to be.
Previously, we looked at problems owners of growing businesses face and what problems in their operations could cause bumps in the road. In April’s post, Has Your Business Outgrown Your Employees, we talked about recognizing that maybe the people who got your business to this point may not be the ones that will take you further. Then, in June, Time to Hire for Your Growing Business, we looked at ways to determine how you can get the right people in your business to take you to the next level. This time let’s look at another problem in your operation – why not having the right systems in place can impede your progress and potentially throw you off your growth track.
Early Growth Operations
Small start-ups and early growth companies have similar characteristics. They have informal operations and process that center around the business owner and a few key employees. When growth begins, managing those short spurts of increased demand rely on a kind of grassroots effort to get work done. Because the organization is small, when issues arise they’re usually handled in firefight mode. The business counts on the heroism of some in the company to handle surges in demand. In addition, decisions often rely on gut feeling. However, at some point, “going with your gut” and “gutting it out” will only get your business so far.
Need for Operational Structure and Management
Not having the right systems in place to manage growth is one of the biggest problems that derail companies during growth surges. Don’t get me wrong, those grassroots displays of heroism and fire-fighting can be inspiring, exciting and downright fun if they are successful. But when they aren’t, they are frustrating, draining and costly.
Eventually, your business must put an emphasis on building out its operations to include business practices, processes and systems that will help manage increases in demand in order for it to continue on its growth path.
Growth at One Company
Let me illustrate with a story from one growth company. The company began growing as a result of a change in their business; it had altered the way it sold its products and services. This change was a great idea because sales surged almost immediately. The problem was that they made the change without putting the right systems in place to support the new way it was selling the products and services. After several instances of employee heroism and fire fighting, trouble eventually started to brew and customers were becoming unhappy.
Signs of Operational Weakness
One major area that showed signs of breakdown was the process of sales and filling orders. The company attempted to take orders from customers based only on product description and not by an established product list with standard descriptions and item numbers. The standard business practice of a formal product list was missing. As a result, different sales people used various descriptions when quoting to customers and some customers used their own way to describe products on their orders.
As you can imagine, chaos ensued. All of the non-standard descriptions and variations resulted in confusion, clarifying questions and errors that dramatically slowed the process of filling customers’ orders. Customers were upset and annoyed because some orders weren’t filled on time and some were actually filled incorrectly.
Weaknesses Cost Time and Money
The company didn’t understand or anticipate the problems caused by not having a system in place to handle the orders easily and effectively. Now the fire-fight of getting orders out the door, turned into a mad scramble of putting a system in place. The system needed to allow customers to be quoted correctly and consistently. It also needed to make sure that orders received would be error-free and could be filled without questions or multiple reiterations. Since they didn’t take time to put operational systems in place from the beginning, the errors and reiterations ended up costing them both time and money. This particular company was able to muddle through it’s early system problem. However, there was pain and frustration for the employees as well as dissatisfaction on the part of its customers.
Operational Process, Systems and Practices become the Gut
A growing company can rely on the old way for only so long before the old way is no longer effective. If your business is growing and you’re struggling to keep up, your systems or processes may need to be updated to reflect your current situation. Managing a growing business is not easy. Make sure you have the right processes, systems and practices in place so your business can run more effectively and efficiently, as you grow.
It’s common for a business to periodically hit a wall, have to regroup and figure ways to climb over or go around the wall. As companies grow they are continually faced with new problems and challenges that they must face. Growing a business can become a continuous process of remaking and redefining it to fit the ever-evolving circumstances. Usually, you will have to look at your people, processes and systems to match your ever changing company.
With Growth Comes Challenges and Problems
Even though a business may have started with just a few employees, modest sales and expenses and a local concentrated customer base, it will become very different as it grows. A company with 5 employees becomes very different when it later has 25 employees and still different as it becomes a 150 person company. In the same way, a company with 20 customers has different challenges from a company that has 300. While the company grows, the owner must manage through the problems and challenges that go along with it to make sure he is running the business and the business is not running him.
Sometimes it’s a good idea to step back from the day to day and review your business to see if you are on track and your business is healthy. By reviewing different areas of your business, you can determine where you are versus where you want to be. For example, if your company values customer service as an important area that differentiates you from the competition, but you do don’t have to right policies and processes to support that goal, or you are getting bad feedback from customers then, you may not be where you want to be.
One way to look at your business is to look at the functional areas that work together and are made up of people, processes and systems. This combination of elements will ensure that the business operates for its intended purpose and does so in a way that serves its customers, provides a good living for its employees and creates a profitable result for its owners. While there have been variations of the following concept, it is important that a business owner understands he needs the right people, doing the right things with the right tools in order to be successful.
The people that make up the business, the owners and employees, are key components for the organization’s success. The owner and management provide the leadership and strategy to drive the company’s purpose and set goals for the business. The employees and the team work that they use provide the effort toward the common goals that were set by the leadership of the company. The people part of the equation answers the questions do you have the right people and are they in right positions.
The process part of the equation answers whether your people are doing the right things. In describing process, we are considering process in the traditional sense – the interconnected activities that transform inputs to outputs. More specifically it is the procedures a company uses to develop, market, sell, produce and ship to and service its customers. In addition, the policies that the company follows to support that are also part of the process equation. Whether its policies on how the company deals with customers, employees and vendors or how the company conducts and records its business transactions, the policies support the process and procedures to ensure that employees are doing the right things.
Finally, systems are the last part of the equation. The systems that support the business can be viewed in two parts: (1) the high level organizational levels such as sales, marketing, operations, and finance and (2) the actual tools that these organizations use such as sales management and compensation methods, marketing and promotional techniques, operational plans and budgets and accounting and reporting systems. All of the systems used to support the business answer the third part having the right tools.
Many problems that a business faces can be tracked back asking this question. Do we the right people, doing the right things with the right tools. Stepping back, looking at the bigger picture and analyzing the people, processes and systems in your business can help you target the problems, analyze the challenges and make the necessary improvements to grow a healthy business.