SecurityInfoWatch.com contributing author Bob Harris is managing director for The Attrition Busters and brings over 30 years of alarm industry experience to his dealer business management columns.
This may sound like a silly question, but I'll ask it again. Do you know your customers? Do you really know them? Several moths ago I wrote an article about the cost of cancellations for alarm dealers. That article laid out a number of scenarios detailing the "direct out of pocket" cost associated with not saving certain customers who request to cancel their service. I also pointed out a variety of ways to get better at saving those customers who wanted to cancel their service, and how much money a successful effort in that area would add to your bottom line.
By working with several different industries, I now have a much more precise picture of what we are doing really well, and many of the things we are simply doing wrong as an industry. Let's start with revenue and profit. Many people in our industry still believe the old myth, "Eighty percent of revenue comes from 20 percent of our customers." As a result of this mindset, a lot of people seemingly ignore the retention argument. They believe that not every customer will positively contribute to profits. In reality, the 80-20 myth is considerably more extreme. Unless alarm companies really know their customers, the foundation of this argument simply won't hold water. Contributing to the imprecision of the 80-20 rule is our reliance on RMR as the end-all/beat-all measure. Unfortunately RMR is typically not a good judge of customer profitability. There is a big difference between revenue and profit! If you look at this with a pencil and a calculator, customers generating the most revenue are either the most profitable or the least profitable customers in a dealer's customer base. So, really being able to identify customer profitability is absolutely paramount to designing a successful retention program isn't it? Are you making an intentional effort to really get to know your customers?
Let's take this a step further. In reality, there are only three types of customers alarm dealer's have: Profitable customers, Break-even customers, and costly customers. Clearly, making concessions and going out of your way to retain every single customer without knowing which one of these three customers that person is wouldn't be a good idea for any business. Without accurately measuring the value of a given customer, and training your front line teams on what makes the difference, you may well find that lowering your price or giving away the store to save certain accounts can cost you big! At the same time, allowing profitable customers to silently defect would be even more catastrophic. I urge you to revisit my other article on the cost of cancellations for alarm dealers and see for yourself. As a result, the real solution to this challenge rests in knowing the value of each customer and then doing everything you can to help your employees learn which of your customers are the most valuable, and which ones actually cost you money.
So, getting to "really" know your customers is crucial to your long term ability to become better at reducing attrition and generating higher profits and organic growth. Still, too many are spending far too much money on big sales campaigns and advertising incentives to bring in new accounts compared to what they are investing in keeping what they already have. Very few are investing anything at all to help their front line teams learn better ways to communicate and nurture relationships with existing clients.
This is especially true when it comes to handling angry or difficult clients, conveying empathy, offering options and alternatives when they are not able to say yes, and having the ability to gather data on customers which will help you emotionally bond these customers to your company and create long-term loyalty. The ability to do all of this will give you a huge advantage when something goes wrong. It is clearly much easier to resolve a customer problem when there is some tangible relationship in place as opposed to when there is none. Most sales people could get much better at this also. A solid business relationship can create an open invitation for phone calls, visits, referrals, and additional work. Too many are missing the boat on this topic, and as time goes on it will cost you more and more unless you make some investment in effective training to help your entire company become better at knowing your customers and creating loyalty.
As good as you are, anyone can get better. Once you make the effort to identify and know your customers, you can focus your retention efforts in a considerably more profitable way. Some years ago, Harvard university professor W. Earl Sasser Jr. noted, "By reducing just 3 percent of your most profitable customer attrition, companies can boost profits by 25 percent to 85 percent." I believe that Professor Sasser could have added that you first have to know who your most profitable customers are before you start to find out what will invigorate your front line employees to become better at creating relationships to foster long-term customer loyalty. There is a big difference between revenue and profit. While we should all get better at reducing customer attrition, we must get better at identifying who our customers are. How well do you know your customers?