Managing customer acquisition and attrition is a fine-balancing act for most organizations, while for others it’s a horrifying feat. With sales and business development at the top of almost every company’s agenda, it is surprising how many companies have little, if any, internal intelligence on client attrition.
Managing client attrition and acquisition in order to achieve sales growth requires more than just knowing which customers have left the organization, it also requires understanding why and where they go. This understanding is important and required in order to target replacement customers at a lower cost of acquisition and/or at the same or higher margin. However, let’s not forget that at this stage there is merely a replacement of a lost client, meaning that from the start the sales organization is spending more at a decreased profit margin (client attrition erodes profitably even if clients are replaced at a one to one or better ratio since it is always less expensive to maintain a current customer than to acquire a new one).
Nevertheless, without this understanding most sales organizations are akin to a hamster on a wheel. When obtaining new clients at the same or less rate as the number of customers that are lost, a causal effect is produced—a less efficient and more expensive sales process. Conversely, sales organizations that have slower client acquisition and lower attrition may find it difficult to grow, unless of course they are able to further penetrate their current customers, thus increasing revenue at higher profit margins than that of the acquisition of a new customer.
So what’s the punch line… today we are seeing glimmers of an economic recovery, and thus client organizations are becoming better positioned to seek out competitor services and or products, notwithstanding that the competition for the same customer is higher than ever. Therefore, we are faced with the art and science of calculating a formula that allows a sales organization to manage and/or prevent client attrition while at the same time increasing new customer acquisition. As mundane as this post may feel, just know that most companies have little to no control of this practice and thus find themselves living the ups and downs of a turbulent revenue stream.
Does your organization have a method to address this issue? If so I would be interested in hearing about it.
jsaintjohn
Your blog post is both apt and timely. I previously worked for a Mid-west bank as a Sr. Relationship Manager. I was charged with the development of new business in addition to managing, maintaining and ultimately growing my existing client base. Our biggest issue—once the company had decided to invest in growing our team and our business—was maintaining a healthy balance between client acquisition and retention. Our existing clients had been neglected and taken for granted prior to the bank’s implementation of its expansion plans. As a result, we were experiencing attrition among long-term, profitable clients.
It can take many years before a new client acquisition replaces the higher profit margin of an established, long-term customer. Therefore, we began identifying our clients by level of profitability and ranked them accordingly. We defined our highest-level clients as “Blue Chip” clients (e.g., top 20% by profit margin) and assigned a designated customer support team in addition to having a designed Relation Manager. We also made a concerted effort to ensure that all clients, regardless of their level of profitability, received an on-site visit annually. Finally, it was imperative that we created opportunities all year long with our clients to practice and deliver open and value-added communication. Anything less will create opportunities for your competitors to take your business away.