We live in a world of cut­throat com­pe­ti­tion. If you want to grow your busi­ness and stay ahead of your rivals, your mantra bet­ter be Sell. Sell. Sell., right? Focus on your sales team, and throw your weight around the new– busi­ness acqui­si­tion model.

Yet…It’s com­mon knowl­edge around con­fer­ence tables that retain­ing a client is much more cost effec­tive than the price of obtain­ing new clients. Com­pa­nies study their cus­tomer churn rates with the same inten­sity they put toward their quar­terly finan­cial statements.

Indus­try aver­age churn rates vary, but esti­mates in the telecom­mu­ni­ca­tions sec­tor state that annual churn rates range between 10 and 67 per­cent. Other indus­tries claim to have a churn rate of 50% every five years. For many com­pa­nies, the cost of acquir­ing, rather than retain­ing, cus­tomers is 10 times higher.

Low Sat­is­fac­tion, Yet High Retention?

You may have seen some of AT& T’s stats prior to them los­ing exclu­siv­ity of the iPhone: their cus­tomer sat­is­fac­tion (CSAT) rates were at 23%, yet their churn rate was 8%. (You can bet they sent a Christ­mas card to Steve Jobs.) Pretty remark­able, espe­cially when you look at their competition’s rates. Verizon’s CSAT rate was around 49%, with a churn rate of 7%.

How did they do it? Why did 77% of dis­sat­is­fied clients keep renew­ing their AT&T wire­less plans? Ana­lysts attrib­uted reten­tion to two fac­tors: AT&T’s iPhone exclu­siv­ity and the wire­less carrier’s fam­ily and cor­po­rate plans. (To put the rates in con­text, in the non-AT&T world, one sur­vey found that 70% of cus­tomers leave because of poor service.)

You can bet that the indus­try will be closely mon­i­tor­ing how AT&T revises their reten­tion strat­egy, now that the iPhone isn’t exclu­sively in their back pocket, so to speak.

Churn Rate: Does Your Com­pany Need to Shift its Attention?

Com­pa­nies com­plain about their high churn rates and bemoan how expen­sive it is to acquire new clients. CEOs walk around car­ry­ing cof­fee cups embla­zoned with “If we don’t take care of our cus­tomers, some­one else will.” Yet, when you study how the major­ity of com­pa­nies allo­cate their dol­lars, clear pat­terns emerge: sales teams are given a far greater share than cus­tomer ser­vice rep­re­sen­ta­tives. Com­pen­sa­tion plans and orga­ni­za­tional struc­tures are weighted toward new clients, rather than exist­ing ones.

Reten­tion: New Focus for Your Company

The sim­ple answer is to focus on cus­tomer reten­tion. How? Well, if 70% of cus­tomers who leave claim it was because of poor ser­vice, you can cer­tainly start by fig­ur­ing out how to deliver value to the peo­ple pur­chas­ing your prod­ucts. Nar­row in on your reten­tion strat­egy by under­stand­ing what you’re doing right and rem­e­dy­ing what you’re doing wrong. Some research may be in order.

First, find out what you’re doing right. Yes, go for the good news first. Iden­tify what “loyal” clients look like and reach out to them for some research (offer an attrac­tive incen­tive or discounts—customers will bite). Deter­mine what they enjoy about your prod­uct or ser­vice, and take notes on what influ­ences them to be loyal to your busi­ness. You’ll see pat­terns emerge.

Then, fig­ure out what you need to fix. Fig­ur­ing out how to improve the cus­tomer expe­ri­ence will take a holis­tic approach. Here are some ideas:

• Con­duct cus­tomer sat­is­fac­tion sur­veys to iden­tify weak­nesses and strengths (this is dif­fer­ent from look­ing at your loyal clients—here, you’ll be ask­ing more com­pre­hen­sive ques­tions, on a scale, about your services)
• Do fre­quent price com­par­isons in your indus­try to gauge whether your prod­uct is priced too high or low
• Con­duct a cohort analy­sis among cus­tomers who started using your ser­vice at the same time and track them for a period of 6 months to a year. By look­ing at a group that started using your ser­vice in the same month, you’ll start to see pat­terns emerge if you change your prod­uct, pric­ing, or if your com­pe­ti­tion makes a big move
• Iden­tify the rea­sons why your cus­tomers leave. If they switch ser­vice providers, ask for their input so you can track the decision-making process and adjust accordingly

Finally, Allo­cate More of Your Bud­get Toward Your Priorities

If reduc­ing your churn rate is truly a com­pany pri­or­ity, shift a pro­por­tion­ate amount of your bud­get toward reten­tion, instead of acqui­si­tion. Invest in your cus­tomer ser­vice train­ing for your customer-facing agents, and make low-churn a com­pany cornerstone.

Peggy Car­law is the founder of Impact Learn­ing Sys­tems, a lead­ing train­ing com­pany spe­cial­iz­ing in improv­ing com­mu­ni­ca­tions between front-line employ­ees and cus­tomers. Peggy is co-author of sev­eral books pub­lished by McGraw-Hill, includ­ing Man­ag­ing and Moti­vat­ing Con­tact Cen­ter Employ­ees and The Big Book of Sales Train­ing Games.

Peggy Carlaw

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