Sales Get the Glory but Retention Gets the Gold
A salesperson at a software company is going to be celebrated internally and rewarded financially for landing a new 10,000-seat customer. How much reward goes to the team that keeps five or eight or 10 similarly sized customers happy, satisfied and contributing to the bottom line for another year? Not much. They're just doing their jobs, or so some would say.
Aug 2, 2013 5:00 AM PT
If you want glamour, status and prestige within your company, go out and get new customers. If you want to stay in business, specialize in keeping the ones you have happy and loyal.
Customer retention isn't flashy, and it doesn't earn extra pats on the back from executives or big promotions -- which is a shame, because it's usually more profitable over the long term than hauling in new accounts.
It can be a lot more profitable. Acquiring a new customer is six to seven times more costly than retaining a customer, according to Frederick Reichheld of Bain & Company.
Hanging on to customers is hugely profitable. A business that retained all of its customers for just one additional month could achieve an additional 3 percent of annual growth, according to Karl Stark and Bill Stewart of research firm Avondale. Retaining its customer base for four additional months could create double-digit growth without the need to acquire a single new customer.
The Long Game
Despite the reality of retention, most businesses don't emphasize it.
About 29 percent of respondents to a March 2013 study by MarketingCharts couldn't quantify their spending in terms of acquisition vs. retention, and 28 percent said the split was 50-50.
However, 37.3 percent said that the majority of their marketing budgets went to acquisition, while only 5.7 percent said the majority of their budgets were geared toward retention.
In 2009, the No. 1 goal of B2B marketers was new customer acquisition -- 62.2 percent of them said it was their top priority. If it's not the most profitable activity they can engage in, why is it commanding so much attention?
Part of it is cultural. A salesperson at a software company is going to be celebrated internally and rewarded financially for landing a new 10,000-seat customer. How much reward goes to the team that keeps five or eight or 10 similarly sized customers happy, satisfied and contributing to the bottom line for another year? Not much. They're just doing their jobs, or so some would say.
This is one of the sticking points for CRM: It's useful in achieving those flashy new customer wins, and that's usually why CRM is purchased. However, it's better at keeping customers happy by understanding who they are and their experiences with your business over time.
The detail that can be collected and added to prospect records is far richer once they become customers and you begin to develop a mutual history. Often, CRM success is based on the business's success at acquisition, and retention is ignored. Using acquisition as a sole criteria is not useful in judging a CRM system's effectiveness -- but it is good at exposing other failures in an organization. Sadly, those failures are often attributed to the CRM technology, and systemic problems remain and thrive.
The Big 'R'
How do you get past this? First, your management must realize that we're in a retention economy, and that sales in a B2B environment must be repeat sales in order to be truly profitable and productive. Next, there must be a recommitment to the "R" in CRM -- relationships.
Customers have no motivation to keep buying from businesses that neglect the buyer-seller relationship and neglect the customer as a result. Building those relationships requires better understanding of who each customer is in the context of the buyer-seller relationship, and that understanding should be drawn from the information collected in CRM.
New customers are important -- they give you business to retain, and that means that salespeople are still very important to your survival. They're just the first runners in the relay of the customer lifecycle, though. If you don't bring the retention players up to speed -- specifically, customer support and marketing -- there's no way you can win the race.