Most businesses are “leaky buckets” when it comes to their customer base.
What does that mean? New customer acquisition is required to compensate for the loss, or leakage, of existing customers in order to maintain a constant level of customers in the bucket.
There are two ways to grow these businesses:
- Increase the flow of new customers into the bucket, and
- Patch the holes in the bucket where customers are leaking out.
The first strategy is exciting, expensive and endless as your organization scours the marketplace for new customers for your product or service. Typically, there is a sizable budget for marketing communications, collateral materials and sales incentives demanding constant investment in new ideas for sales promotions and prizes.
By comparison, the second strategy is simple, safe, and systematic as your organization focuses on the customer at hand, the customer you are already servicing, the customer who may stay and support the growth of your organization by purchasing more of your products and services and by referring new customers.
It is generally agreed that the cost of acquiring a new customers is 5 times the cost of servicing an existing customer so it makes good business sense to invest in customer retention.
So, what can be done to ensure that existing customers stay with the organization?
What better place to start than by asking your lost customers why they left and developing activities to counteract the leakage?
Some customers will have moved out of your trading area, some will have gone out of business or changed their business model in some way that eliminated the need for your product or service. These would all be considered uncontrollable causes of leakage.
Controllable causes are those where some intervention by your organization could have prevented the loss. For example, there will be customers who were driven away by poor service or lack of attention and there will be customers who were enticed away by a better offer from a competitor; in these instances, we believe that the loss was “controllable“.
When asked by a member of your own sales organization, customers will often say that they got a better price elsewhere; however, when an outside party asks the customer why they discontinued their business with your organization, it is more likely that the customer will provide a depth of insight to their reasons for leaving, which may or may not include pricing.
Not only will lost customers articulate their reasons for leaving, providing insight to the controllable versus uncontrollable losses, they will often tell you what could have been done to prevent their departure, who they are dealing with now, why they chose that specific competitor, and how you can begin to recover their business.
Think about the value of this information:
- You will have an estimate of the volume of business you will have to replace each year due to uncontrollable losses
- You will know what your organization needs to do differently to prevent controllable losses (e.g., areas for organizational improvement)
- You will know what you can do to recover the lost business – to bring back the customers who have already enjoyed dealing with your organization
- You will have insights to the competitor activities – what they are offering your customers to entice them to leave you – which can be counteracted with your own product, service and promotional improvements.
As you can see, lost customers can be a very valuable source of intelligence to assist you in stopping the leaks from your customer bucket as well as increasing customer acquisition through customer recovery.
