I have previously written about my reading The Knack: How Street-Smart Entrepreneurs Learn to Handle Whatever Comes Up
Norm’s Lesson
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 all — making fifty sales in a year and having a 100 percent customer retention rate, or making 100 sales a year and having a 50 percent retention rate? I’ll take the former any day of the week. Yes, you’ll have more sales during the year and you’ll wind up with the same number of customers at the end, but, if you lose one account for every two you land, you’ll 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 all the customers you signed up.
Real Life Example
It is always amazing to me that companies will offer huge discounts to people to get them to change to their service. I’m talking to you, cell phone companies and cable companies. In most cases, they are just cannibalizing their base by offering these discounts. Why? Most of the consumers who change, do so from a competing product. They are not just new to the marketplace. By offering these discounts to new users only, they encourage the churn in customer base. I know that when my introductory rate with Company X expires, I will look to change my service, since my rates will go up and Competitor Y will offer me a better deal. It is a short term fix that does nothing to encourage customer loyalty. Shouldn’t Company X look for ways to keep me on their books, since they “spent” a significant amount of money to acquire me as a customer? Yes, but since I joined up on the basis of a deal, others will too. Over the long haul, you will certainly not engender the type of customer relationship that you really want because your customers do not view you as a trusted partner. And in our connected world, being able to be trusted is one thing that will take your company to the next level.