Database: Stop the Churn
The conventional direct marketing wisdom has always been that it costs seven times as much to find and convert a prospect to a customer than it costs to retain a customer you already have. That specific number might not be accurate for some industries, but the basic concept crosses all business models.
No company that we know of has a goal of having fewer customers next year than it has this year. The objective is always to grow the business, and customer attrition makes growth more difficult. To put that in perspective, consider the example of a company with 1 million customers and a 10 percent attrition rate. The first 100,000 prospects it finds and converts to customers each year—usually at great expense—will not generate any growth. It will take that many just to keep from shrinking the size of its customer base.
The way to address this problem is to develop, test, manage and constantly improve a customer retention program. Here are the six keys to making a retention program really pay off.
Key #1: Deliver What You Promise
We’re not going to belabor this point because it should be fairly obvious to most people. If your products and services don’t meet your customers’ expectations, nothing else you do will matter much. If you have problems living up to your claims, fix those before you do anything else.
Key #2: Understand Attrition
Every customer you lose leaves for a reason. Here’s an example, taken from the health insurance industry. If a member (i.e., customer) lets a policy lapse, it’s usually for one of these reasons:
- He died.
- He bought his health care coverage through the company he worked for, and he’s no longer employed at that company.
- His spouse’s employer offered better family benefits or the same benefits at less cost.
- The company did something that displeased him greatly.
- A physician recommended to him by friends or family is not in the company’s network.
- He doesn’t like changes in the coverage.
- He feels as if he no longer can afford the coverage.
- A broker he was talking to about other insurance sold him on a different company.
In this scenario, there’s probably not much the company can do about reasons one through four. But reasons five through eight offer hope of saving the relationship. If the customer’s moved, the company can take the lead in helping him find a new physician. If he doesn’t like changes in the coverage or feels he no longer can afford it, the company can offer different coverage options more likely to fit his needs. And communicating with him in an ongoing and relevant way will make him more loyal and head off the probability that someone will talk him into switching. If the company can learn the reasons people let their policies lapse, then models can help to predict other customers that are at risk before it happens.