7 easy steps to reduce churn and increase your bottom line...a 5% increase in customer retention...

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7 Easy Steps to Reduce Churn and Increase Your Bottom Line Data-driven insights from The Kini Group

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7 Easy Steps toRe d u c e C h u r na n d I n c r e a s eYour Bottom Line

Data-driven insights from The Kini Group

5 Ways to Drive Profit Growth in 2016

We all want margins to look like one big climbing mountain, not a hilly roller coaster. But if you’re constantly bleeding customers, your biggest focus must always be to replace them to keep margin from falling into the red.

And gaining a new customer is 5 to 25 times more expensive than retaining an existing one.

On the other hand, building your customer base by letting fewer of them go has quite the alluring return. Research from Bain & Company shows that a 5% increase in customer retention results in a 25-95% increase in profits.

Holding on to as many of your profitable customers as possible is in your best interest. Read on to learn about seven steps to scientifically and sustainably reduce your customer churn.

Let’s get started.

Churn is really bad for business.

Source: Harvard Business Review

5 Ways to Drive Profit Growth in 2016

1 GET AHEAD OF THE PROBLEM

First, before any plan of attack can start to form, your team needs to understand which of your customers are in the process of leaving already or are at a high risk of taking their business elsewhere soon.

You can put a lot of effort into customer satisfaction surveys and in-depth conversations with your accounts to gauge their levels of loyalty and/or satisfaction with your company. However, the historical sales data you already have at your disposal has 95% of the answers you need.

Using this data, map out each customer’s purchases over time. Which are spending less? Which are purchasing fewer volumes? Which are changing their product mix to less profitable products?

Tip: Don’t forget to take their situation into consideration. If you know a customer’s company isn’t doing well or that a market is shaky, a downward trend may have nothing to do with your products and services.

Once you have this list of customers, you can start building an action plan to stop their impending exit in its tracks and turn things around.

5 Ways to Drive Profit Growth in 2016

2 PRIORITIZE PROFITABLE CUSTOMERS

Once you have your list of customers at risk of churn, it’s time to rank them by profitability. You can do this with a simple profit waterfall analysis.

Beyond overall profitability by account, here are a few other ways to build your list of customers you can’t afford to lose:

1. Highest invoice price per product2. Highest final or “pocket” price – after discounts, rebates, and allowances – per product3. Highest overall quarterly profits by customer4. Highest quarterly profits by customer segment

Protect the biggest threats to your profits by going after your cash cows first. It’s often found that the top 20% of your customers drive 80% of your profit. If any of the customers on your list fall within that 20%, these accounts absolutely must be addressed first. Have your top salespeople and account managers reach out to them to see what they want and what they’re not getting from your company, and utilize the entire profit waterfall to measure each and every element of value delivered to the customer.

5 Ways to Drive Profit Growth in 2016

3 GET TO THE SOURCECustomers leave for all sorts of reasons. Most are related to the relationship between their costs (i.e. your prices) and the value they perceive in what they’re getting. The actual causes for churn are usually very subtle.

Your team needs to dig into the accounts of those who currently are or are considering leaving. Scour your historical sales and customer data for the real reason they’re about to jump ship.

Does a smaller volume order follow a price increase or a product recall? Do less frequent and shorter calls indicate they are working with a subpar account manager? Thorough analysis on good data almost always reveals the truth.

This can feel overwhelming at first, so we recommend starting with the four most common sources of customer churn.

5 Ways to Drive Profit Growth in 2016

4 MOST COMMON SOURCES OF CHURN1. Inferior Product QualityIf your product leaves customers unsatisfied, they will find a replacement. Product quality should always be a top priority, and complaints about it should be taken very seriously.

2. Poor Customer ServiceCustomers will leave a phenomenal product behind because of terrible customer service. Bad news travels faster than good news, and unhappy customers share their stories much more often than satisfied customers. Carefully monitor your customer complaints related to your team and pay special attention to a string of complaints from one customer account.

3. Sharp or Poorly-Executed Price IncreasesWe all have to raise prices at one time or another. Inflation and rising material costs directly impact your bottom line, and if you want to remain profitable, you have to keep inching the prices up. Unfortunately, a lot can go wrong during a price increase. Focus on transparent, well thought-out communication during these pricing changes for your best chance at success.

4. Failure to DifferentiateIf you don’t stand out from the crowd or fail to provide more value than your competitors but have a dangerously similar price, you have a problem. Choosing your product over your competitor’s directly next to it on the store shelf can easily turn into a gamble of whatever mood the buyer is in that day.

Build a strong churn reduction strategy with a better understanding of the sources and how badly they affect your bottom line. Once you have this first part of your plan together, it’s time to pair these corrective tactics with your customer strategies that are already working.

5 Ways to Drive Profit Growth in 2016

4 UNCOVER YOUR BEST CUSTOMER STRATEGIES

Do you know what works best for you right now? You’d be surprised at how many people don’t know what drives the most success for your business. With a little enlightenment, you can bolster your churn reduction strategy without reinventing the wheel.

Using your profit waterfall analysis, find your overall most profitable customer accounts. Within that list, find your customers within the “safe zone” - the ones you don’t have to worry about losing anytime soon. These are your best accounts. These are the customers you have the most to learn from.

What makes them happy? What needs is your company filling for them? What account management approach works best for them? What kind of prices are they paying?

Chart out each of these accounts and look for patterns. Here are a few places to start your search:

Purchase time: Are these high-profit customers purchasing on the same day of the week or within a specific financial quarter? They’re either vulnerable or highly interested during these times. That means it’s the perfect time to target them for sales.

Marketing campaigns: Did these customers recently purchase something in a completely new product line after seeing a new piece of your marketing campaign? Did a new and highly profitable customer find you from this campaign? Leverage its messaging and tactics with other existing customers. Pour more money into the campaign. It’s working.

5 Ways to Drive Profit Growth in 2016

Sales rep: Some sales and account reps are just better than others. If you find a trend of your most profitable customers being tied back to one rep, analyze how his or her behavior is different and reward him or her for it. Even better, incentivize this rep to train others on his or her methods.

Differentiations in onboarding: Does your product or service require some sort of training? Do you A/B test your methods to determine which work better than others? What insights can you glean from your data?

Dedication to customer service: Customers who are always calling with questions typically feel unprofitable to companies for the simple reason that can be a drain on resources. However, sometimes these customers feel taken care of; they like the personal touch. As a result, they balk less at price increases and remain loyal to your brand.

This is only the tip of the iceberg. Good analysts can find dozens of data points like these to point to. Make this analysis a regularly scheduled report, monthly if possible, to stay on top of your most profitable strategies.

FIND THEPATTERNS

5 Ways to Drive Profit Growth in 2016

5 PILOT YOUR STRATEGIES

Once you have a list of successful customer retention strategies found within your most profitable accounts, it’s time to implement them for your struggling customer accounts.

To ensure they work on a different segment of customers, start with a test run to gauge account response. This pilot gives you a chance to tweak your pricing, value, customer service, and other strategies based on their feedback before rolling out the initiative to all churning customers.

Make this pilot an intensive and ongoing learning process to stay on top of new and profitable strategies.

5 Ways to Drive Profit Growth in 2016

6 L E T UNPROFI TA BL EC U S T O M E R S G O

The profit waterfall you built earlier in step two is still useful. It reveals your unprofitable customers – those who are too expensive to keep. These accounts hit your bottom line hard by costing more money than they bring in. By identifying these customers and finding a way to turn them around, you immediately impact margins in a positive way. Start by getting your sales and account management teams informed and on your side. They need to know how each customer affects the company’s bottom line and their role in it at the end of the day. This means sticking as close to the target price as possible and minimizing discounts, rebates, and allowances for these unprofitable accounts – and also, driving profitable product mix.

When your teams reach out to these accounts in an attempt to turn them around, they must tread lightly. Instead of creating sticker shock by increasing prices or removing discounts and rebates from their deals, consider offering customers alternatives to enrich product mix. You can upgrade or downgrade them to more profitable products or substitutes.

If that doesn’t work, slowly adjust individual pricing structure terms, such as rebates, payment terms, discounts, allowances, and freight terms to manage their profitability in your favor within a targeted timeline.

As a last resort, eliminate your unprofitable customers from the equation. “Firing” customers isn’t ideal, but it’s an option if they’re not creating material operational efficiencies or acting as loss leaders for a specific strategic purpose. In fact, handing them off to your competitors to deal with can be as strategic as making them profitable for yourself.

5 Ways to Drive Profit Growth in 2016

7 SET UP PREDICTIVE AND PREVENTATIVE MEASURES

Ongoing churn analysis is time-intensive and therefore costly. After all, your team can’t spend every moment worrying about churning customers. Instead, put your data to work.

Launch predictive analytics to catch accounts trending downward and therefore identify customers in the process of churning.

We recommend you set up custom alerts to inform you when an account is in danger, and even have it suggest the best course of action based on the account’s data.

Founded in 2002, The Kini Group is a pioneer in gross margin improvement through advanced business analytics.

The company’s proprietary suite of business analytics frameworks, offered through the KiniMetrix SaaS solution, provides companies with visibility into:

1. Key commercial metrics 3. Areas of pricing improvement 2. Volume improvement opportunities 4. Potential margin improvement

ABOUT THE KINI GROUP

KiniMetrix TrueView Basic

Identify opportunities for sales program improvement, analyze your profits to find additional margin growth, and reduce expensive customer churn. Learn more.

KiniMetrix TrueView Plus

Determine the true impact of price increases, understand the impact of mix on your bottom line, and create real-time alerts for transactions that affect your bottom line. Learn more.

KiniMetrix Optimum Performance

Establish sound pricing discipline, and wash out the effect of principled drivers of gross margin variation. Learn more.

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