Here's the bottom line for retaining customers: You have just one choice -- Love your customers or lose them. Period.
Customer retention requires a 100% passionate commitment to keeping your customers for life. There's no longer any middle ground or gray area. Time is running out on outdated strategies to be highly profitable. Are you 100% committed to providing your customers with products and service that Wow! them?
To retain customers, your agency's goal must move from satisfying all customers to focusing its resources on its most profitable customers. These 'A 'customers produce 80% of your profit. They are the source of your future business.
Customer retention is an innovative profitability strategy that produces a 35% to 85% increase in profitability for every 5% increase in retention. Now, that's a Wow! ,especially since insurance has the highest customer-acquisition costs of any industry.
WIN BY RETAINING CUSTOMERS
Why is customer retention important? The top five companies in any industry have a 93% to 95% customer-retention rate. The rate for most insurance businesses is 78% to 86%. That amounts to losing approximately 18% of your customer base annually, which comes close to 50% of a company's customer base every three years. This customer churn is an inefficient, expensive way to operate.
A study of 17 industries determined customer retention to be the sole factor that had a positive correlation with long-term profitability. Not sales volume. Not market share or low-cost producers. Yet although customer retention was the only correlative with long-term profitability, most companies continue to measure sales, costs, and profits, but not retention. Why? Probably because the powerful economic potency of retention is not well understood and can be challenging to measure.
THE EIGHT KEYS TO CUSTOMER RETENTION
Here's an outline of key points to understand about customer retention:
- Retain Your Most Profitable Customers. Retaining the 20% of your customers that produce 80% of your revenue is the most important action that you can take to ensure your company's long-term profitability. This country (and specifically the insurance industry) is addicted to sales as the way to produce a highly successful company. I view sales as a two-part process: (1) acquiring the customers, and (2) keeping them. Thus, selling is not making a sale ,but creating customers and keeping them. Spending additional resources to secure your assets (your customers) is prudent and economically sound! In turn, they'll become more loyal and assist you as your unpaid sales force.
- Segment Your Customers to Identify the Most Profitable. Every company has three client segments: A, B, and C customers. Since your company can't be all things to all people, focus on what you do well and do it without fail for your most profitable customers. It's imperative to spend 30% to 50% of your time, efforts, and resources to delight these A clients!
- Focus on 'Moments of Truth. 'Identify why your customers initially came to your company, why they've stayed, and why they might leave. These are Moments of Truth (MOTs). A company needs to identify these MOTs to be able to please its customers repeatedly and reap the benefits. Jan Carlzon created this powerful concept when he took over SAS airlines in 1979 and turned it around in one year to make $70 million. Research showed that if many passengers put down their tray and found a coffee stain, they concluded that the airline was unsafe. They inferred that carelessness in housekeeping carried over to safety and engine maintenance. An irrational conclusion? Perhaps, but MOTs are powerful, specific pieces of data that people use to generalize about a company's products and services. What are your company's coffee stains?
- Consider Acquisition Costs. It costs the insurance industry 13 times more to acquire a new customer than to retain a current one. Since insurance has the highest customer acquisition costs of any industry, it reaps the greatest gain (or the greatest loss) by managing (or not managing) retention. A steady stream of lost customers will jeopardize the existence of many companies.
- Work for Referrals. The best source for profitable new customers comes from referrals provided by your existing A customers. An A will tend to refer another A, just as Bs tend to refer Bs, and Cs refer Cs. Because you already have plenty of Cs, only ask the As for referrals. Referrals are essential to a company's growth because they offer four economic bonuses: First, the average first-year revenue is five times greater for a referred A customer than a non-referred A. Second, referred customers have the lowest acquisition cost. Third, referrals have the highest sales hit ratio. Fourth, a referred A customer has a 92% retention rate after three years, as opposed to 67% for a customer acquired through any other marketing source. Your salespeople probably spend most of their time with prospects rather than asking current customers for referrals. This is not a profitable use of time.
- Thrill Your Customers. The goal of any company is to produce highly satisfied customers. These clients are six times more likely to repurchase, cross-buy, and refer new customers. The profit cycle will perpetuate itself. Remember, satisfaction is no longer adequate; make highly satisfied your goal.
- Negative Factors Add Up. People are loyal by nature. No one wants to find another dry cleaner, service station, grocery store, lawyer, and so on; we have better things to do with our time! This also holds true for your customers: They want to stay with your company. Customers leave because they have experienced four or five negative events. Most say they leave because of price. However, I've interviewed more than 300 former customers, and only 5% left solely because of price. There are always other factors, and price was the last straw.
- Treat Complaints as Gold Mines. Yes, they're pure gold mines. More than 19 in 20 dissatisfied customers (96%) don't complain; they just walk away quietly. Only 4% complain. Thus, when a customer calls and complains, imagine that he's the spokesperson for the 25 people who are lined up behind him and you will have a more accurate perspective. Guess what? Complainers are your most loyal customers. In fact, they're saying, I don't want to leave your company. Please help me stay! Because they cared enough to take the time to complain, they're providing free market research. Treat them royally! In contrast, your least loyal customers are non-complainers because no one remains totally content indefinitely. So, call your A non-complainers and ask how everything's going. They might just about be ready to leave you!
CONCLUSION
As mentioned before, customer retention requires a 100% passionate commitment to your customers. Do you want to be way ahead of your competitors? Can you commit to customer retention?
If you just keep on doing what you've been doing, you'll keep on getting what you've been getting. So, be bold! Be daring. Be wise. Take risks in proven, innovative areas. Customer retention is the most potent activity that any company can undertake. Time is no longer on your side. Do it and do it now!