Customer Retention and Recovery

“If I could change one thing, I would take the negative implications out of telling management the truth.” Jack Welch

READY?


PREMISE: A business cannot afford to lose

customers from it’s top 20%


IF: Your business has 100 customers, it’s likely that 20 of them yield, on

average, 1,600% of the profit vs. the boMom 80%


PREMISE: Pursuing new customer

acquisiQon is 1,000% more costly

that keeping exisQng customers


PREMISE: It takes 16 new customers in the boMom 80% to

replace 1 customer in the top 20%


Never lost a key customer? No key customers at risk?

þ No – have a nice day þ Yes -‐ let’s keep going


What’s going on in your

organizaQon?


Do you REALLY want to know?


How much do you REALLY want (need?) to know?


The 7th C of Credit

• Character • Capacity • Capital • Collateral • Condi9ons • Cash Flow • Customers (s9ckiness, profitability, ABC)


Feedback...

Basing decisions on

facts...


Opinion without facts is opinion


What do you KNOW about your business? ?  Where is the business coming from? ?  How much does it cost to get? ?  How much did it cost to acquire a (the) customer (CCA)? ?  How much is a (that) customer worth to us (LTCV)? ?  What is the value of our salespeople? ?  What is the value of our customer service people? ?  Are we paying sales OR customer service too much OR too liOle? ?  How reliable are our sales forecasts? ?  How can we make them more accurate? ?  How dependent are we on which customers? ?  How much are orders cos9ng us? By type? By customer? ?  What opportuni9es are we not pursuing? Why? Why not? ?  What DON’T you know? (too busy?)


The Pareto Constant Isn’t…but it IS average

On AVERAGE, 20% of any business’s customers account for 80% of all sales.

The 20% group represents a 4:1 ra9o of your results, in the reverse, the 80% group produces 20% of results.

Hence, the results raQo is 4/.25 or a 16:1 raQo of return.

A dollar spend on each group with equal effec9veness, will yield $4.00 from the 20% group and 25¢ from the 80% group

.


Why 80/20 = 16:1 •  If, on average, 20% of any business’s customers account for

80% of all sales….then…. •  The 20% group represents a 4:1 ratio of your results (80÷20) •  In the reverse, the 80% group produces 20% of your results, or

a .25:1 ratio (20÷80). •  Hence, the results ratio between average accounts (or

members of each 80/20 group) is 4/.25 and this represents a 16:1 ratio of return.

•  In terms of where you spend your time and money, a dollar spent on each group with equal effectiveness, will yield $4.00 from the 20% group and 25¢ from the 80% group (because it will have to spread over 4 times as many customers with less revenue each….essentially a 4:1 ratio with results magnified 4X).

• If your customer revenue contribution ratio was 90/10, the resulting contribution ratio would be an astounding 81:1


Where to apply the effort…or, what happens if you don’t… Annual Sales Profit %

15,000,000.00$ $900,000.00 6%number of customers 200

average sales 75,000.00$ 4,500.00$ top 20% of sales 12,000,000.00$ 720,000.00$ 80%

average top 20% 300,000.00$ 18,000.00$ bottom 80% of sales 3,000,000.00$ 180,000.00$ 20%

average bottom 80% 18,750.00$ 1,125.00$

# of 80% customers to replace one 20% customer = 16

Annual Sales Profit %7,500,000.00$ $450,000.00 6%

number of customers 150average sales 50,000.00$ 3,000.00$

top 20% of sales 6,000,000.00$ 360,000.00$ 80%average top 20% 150,000.00$ 9,000.00$

bottom 80% of sales 1,500,000.00$ 90,000.00$ 20%average bottom 80% 9,375.00$ 562.50$


# of customers down by 25% Average sales down by 33% Profits down by 50%


What’s wrong with the math?

•  If, on average, 20% of customers account for 80% of sales….for that ratio to result in a 16:1 profit contribution ratio….

•  The assumption is that all customers are equal and all transactions are equal, in terms of time, effort and costs.

•  The assumption is bad ( i.e., MAY be bad as it is not based on the facts) but it is extremely useful to determine factually HOW bad.

•  Big customers often don’t produce big orders but lots of small ones resulting in a higher total order cost.

•  Big customers often know their impact on your business and demand more (and costlier) attention.

•  Big customers may have no potential for growth only decline, while small customers may have great future potential.


Focus….but how? Ø Concentrate on leveraging ALL your resources….people, 9me and money

Ø Where is the leverage point?

Ø THAT’s the first decision…..

Ø What 20% of your (or your firms’) ac9ons create 80% of the results?

20% 80%


Becoming more profitable doesn’t change the contribuQon mix of your customers

Annual Sales Profit %15,000,000.00$ $900,000.00 6%


top 20% of sales 12,000,000.00$ 720,000.00$ 80%average top 20% 300,000.00$ 18,000.00$

bottom 80% of sales 3,000,000.00$ 180,000.00$ 20%average bottom 80% 18,750.00$ 1,125.00$


Annual Sales Profit %15,000,000.00$ $1,350,000.00 9%


top 20% of sales 12,000,000.00$ 1,080,000.00$ 80%average top 20% 300,000.00$ 27,000.00$

bottom 80% of sales 3,000,000.00$ 270,000.00$ 20%average bottom 80% 18,750.00$ 1,687.50$



Cause...

And affect...


Lonely at the top…


Feedback is good….do you REALLY want it?


Playing BINGO with sales? S A L E S

"We're on target to meet quota."

"We'll never lose that customer."

"If we deliver that order late, we'll lose all our

business with them."

"We have to lower our prices."

"The customer doesn't care about

guarantees."B

"The customer just got a new

purchasing agent that had a

relationship with our competitor."

"Our customers will only buy new

products."

"The competitor told the customer that they can deliver in 10

days."

"You can tell me the truth."

"If you don't bring in your quota

three months in a row, you will be terminated."

I

"The customer loves me."

"Our customer service is hurting

our sales."

"We'll never get that customer

back."

"We've got the wrong

salesperson on that account."

"We've got to meet or beat the competitor's

price."

N

"If there was something wrong,

I'd tell you."

"We don't need to lower our prices."

"We've got all the right products."

Our customers are not interested in new products /

services."

Our competitor has better pricing."

G

"Our competitor has better products."

"The previous Account Executive

ruined this account."

"I can never meet quota with that

territory (customer)."

"We offer better value than the

competition so we don't need to compete on price/"

"If there was anything wrong,

I'd know."O


Employee Training?


Are your people talking to each other? …………. are they listening?


“I want people around me who will tell me the truth … even if it costs them their job. “ Samuel Goldwyn


A teachable moment


Where would everyone rather be? Why?


Home / Work?


Know (and make sure your people know) the consequences to commitment


Awareness

The FIRST step in the soluQon


The Abilene Paradox … why it’s difficult to manage

Organiza9ons frequently take ac9ons in contradic9on to what they really want to do and therefore defeat the very purposes they are trying to achieve. It also deals with a

major corollary of the paradox, which is that the inability to manage agreement is a

major source of organiza=on dysfunc=on.


The challenge in managing “agreement”…. Leaving Abilene…

Chris Argyris in Interven'on Theory and Method: A Behavioral Science View (Addison-‐ Wesley, 1970) gives an excellent descrip9on of the process of “owning up” and being “open,” both of which are major skills required if one is to assist his organiza9on in avoiding or leaving Abilene.

ü  Gegng feedback…..see Jack Welch’s quote at boOom of slide ü  Segng the stage to enable feedback…see source below ü  Recognizing if you really do that ü  Finding someone who can ( and trus9ng to listen ) ü  Rewarding feedback, including “not punishing” ü  Being aware of where you are ( are you IN Abilene?) ü  Being sure that you are correct about your loca9on…

i.e., stopping to ask direc9ons.


Is SALES EVERYone’s job? Form DOH! To DUH! and in between…

"   Sales "   Marke9ng "   Product Development "   Manufacturing "   Management "   Shipping "   Quality Assurance "   Tech Support "   Recep9on "   Purchasing "   Human Resources "   Finance "   Customer Service


“Seek the advice of a good consultant”


Who knows what to do???


If you knew what to do, who would do it?

The Leadership Conundrum


SO.... 1.   Get the facts 2.   PriorQze 3.   Plan 4.   Act 5.   Measure 6.   Repeat


OR.... Do it yourself... What’s the cost of NOT doing it?

Customer Retention and Recovery

Business

negative implications

jack welch

results ratio

profit contribution

ratio of return

resulting contribution

customers downby

average sales downby