Why customers walk out the door

  • By Andrew Ballard Growth Strategies
  • Friday, October 23, 2015 4:09pm
  • Business

What is your customer-retention ratio?

You have most likely heard the adage, “It costs less to retain a customer than it does to replace a customer.” Yet, after a thousand phone inquiries I’m still waiting to hear, “We need help with a retention program.” Have you calculated your customer-retention ratio?

Depending on your industry, it costs three to 10 times as much to replace a customer than it does to retain them. This may be common knowledge, nonetheless, most companies direct more resources toward acquisition strategies than retention efforts.

Rule No. 1 of customer service: The customer is always right. Rule No. 2: If the customer is wrong, refer back to rule No. 1. The point is, even when a customer is wrong, pointing that out won’t make you right — or profitable. These statistics (from a recent customer-experience report by RightNow Media) identify the reasons customers leave:

• Customer moves or dies, 4 percent.

• A friend provides the service, 5 percent.

• Switches to a competitor, 9 percent.

• Product dissatisfaction, 14 percent.

• Lack of customer contact, 68 percent.

Competition has less to do with customer attrition than communications. In other words, we’re not losing most of our customers to brand X, we’re just letting them go.

Lean customer-centric manufacturers do continual quality process improvement. They constantly look for ways to increase productivity and quality while decreasing inventories and scrap rates. These quality and productivity principles apply to all businesses, regardless of size or sector.

Follow their “lean” sequence to develop a winning customer-retention strategy: analysis, objectives, strategies (better include regular customer contact) and measurement.

Analysis: Before you decide where you are going, you need to know where you’re at. Start by establishing a baseline. What is your current retention ratio? What percentage of your customers are you retaining vs. losing (on an annual basis)? Another important metric is the life cycle of a customer. A customer, like any other asset, has value. That value is measured by the lifetime market value of your average customer. Extending the lifetime market value of a customer is the most cost-efficient way to increase revenues.

Objectives: After you’ve calculated your baselines, establish (and document) realistic performance targets, e.g. increase customer retention ratio by X percent by X date, and increase the lifetime market value by Y by Y date. Your targets should be broken out into milestones. This way, you’ll be able to intervene and take corrective action if you are not pacing as planned. Be sure to communicate baselines and targets to your staff and stakeholders.

Strategies: Now that you know where you are going, the question is, how do you determine the best path to get there? The answer won’t be found in the boardroom. Ask your customers (including those you recently lost) and front-line staff — they know where the problems and opportunities reside. Gathering feedback, however, is only useful if you act on it.

Measurement: As you implement your retention strategies, continually track results. Your tracking milestones should coincide with your regularly scheduled staff meetings. During the report outs, discuss progress and things your team can do to improve performance and outcomes. Concentrate on the most effective strategies and drop or modify those that aren’t moving the needle.

Although disseminating policy is important, outstanding customer service has more to do with culture than communications. Another business axiom, “Culture eats strategy for breakfast.”

Management needs to actively lead by example. I’d opt for modeling over memos.

Recognition and reward are good ways to adopt a culture change and a more fervent focus on customer engagement. It is nearly impossible to have truly satisfied customers unless you have satisfied employees.

Happy customers stick around and refer their family, friends and associates to your business. So lowering customer attrition will, in effect, increase new customer acquisition. What it really boils down to is relationships, not policies.

Andrew Ballard is president of Marketing Solutions, an agency specializing in growth strategies. For more information, call 425-337-1100 or go to www.mktg-solutions.com.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.