Street Smarts: An All-Purpose Tool Kit for Entrepreneurs by Norm Brodsky; Bo Burlingham

Author:Norm Brodsky; Bo Burlingham
Language: eng
Format: mobi
Tags: Small Business - Management, Success in Business, Entrepreneurship, Personal Success, Small Business, General, New Business Enterprises, Business & Economics
ISBN: 9781591843207
Publisher: Penguin
Published: 2009-01-02T00:00:00+00:00

CHAPTER NINE

Customers for Keeps

There is a basic rule of business that’s easy to forget, especial y when you’re competing with other companies for the same customers: Winning is not just about closing the sale. You win when you close the sale and at the same time lay the foundation for a good relationship that al ows you to keep the customer for a long, long time.

The name of the game is customer retention. Growing a business is much harder if you are constantly having to replace customers you’ve lost.

Which would you prefer, after al —making fifty sales in a year and having a 100 percent customer retention rate, or making a hundred sales a year and having a 50 percent retention rate? I’l take the former any day of the week. Yes, you’l have more sales during the year, and you’l wind up with the same number of customers at the end, but, if you lose one account for every two you land, you’l spend twice as much time, energy, and money to get them as you would if you made half as many sales but were able to hold on to al the customers you signed up.

I went through that with my messenger business, Perfect Courier. We regularly lost 25 percent of our customers every year, mainly because we were operating in an intensely competitive industry with no barriers to entry and almost nothing to stop customers from switching from one supplier to another if they could save a few dol ars. I’d wake up every morning and ask myself, “Which customer am I going to lose today?” People would switch suppliers for pennies. We’d sometimes lose accounts to competitors who we knew wouldn’t survive six months at the prices they were offering. The customer would say, “We’l come back when they go out of business.”

And yet we managed to make the Inc. 500 list for three consecutive years. We did it partly by coming up with mechanisms that would tie customers into our service—lor example, the invoices that showed them the amount of money they could charge back to each of their customers.

Because we were one of the very few messenger companies with a computer back then, we were alone in our ability to produce the invoices. Even with such tie-in devices, however, we stil began each year having to replace a quarter of our sales just to stay even, let alone make the Inc. 500.

So how can you make sure that you hold on to most of your customers? Clearly, it helps to be in an industry with high barriers to entry and numerous obstacles to switching suppliers, as is the case with my records storage business. But mainly it’s a matter of building strong relationships. No customer enjoys the process of switching suppliers. It’s a pain. It takes time and money that could otherwise be spent elsewhere.

The people responsible for the function in question have to get the rest of the company to buy into the change.

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