VIEWPOINT IF YOU LEAVE ME NOW…
ALL BUSINESSES LOSE customers although few people understand the actual cost of this customer churn/loss on a business. We regularly see merchants who proudly share their growth success through customer acquisition: ‘We grew by £2M this year’. However, further investigation shows they actually grew by twice as much; the unfortunate truth is they let over half of the revenues sneak out the door, and the £2M was just the NET growth, which was the result of the customer churn or ‘drift’. • Bain & Company state that a 5% increase in customer retention results in more than a 25% increase in profit • Forbes has concluded it costs 5X as much to attract a new customer than to keep an existing one2 • Marketing Metrics report that the probability of selling to a current customer is 60-70% and only 5-20% to sell to a new customer3. A recent survey showed that 70% of business leaders believe it is cheaper to retain rather than acquire a customer, yet companies keep spending more time and money on finding new customers than keeping existing ones! Customer churn can be measured in two ways. First, the number of customers who stopped using your services or buying your products. Second, the amount of revenue lost
from customers in each period. In builders’ merchants, there is a third way: customers who have relegated you to secondary supplier after you had been the primary supplier with a significant fall in revenue, which is called customer drift.
Customer churn
Part of the reason why preventing customers leaving is not a priority for most businesses is because is not that simple to do. First, there is limited visibility of when a customer may leave until it is too late. And second, the current methods to identify when someone may leave causes too many false alerts as they are based purely on revenue. For instance, when a customer is between projects, and spend falls it may trigger a false churn alert. To understand and prevent churn
there is a 5W’s approach, which can be summarised as: • Who is going to churn? • When are they going to churn? • What products have driven the decision? • Where are they located? • Why are they likely to move? So, the worst case is if a customer stops all spend at once. It is usually driven by a major event at either the customer level, such a finance problem or at the branch such as a significant failure. However, the most usual customer churn is a
result of a competitor attempting to steal your customers. It typically takes several months from the first signs although the sooner you have the visibility, the greater the chance of keeping them. Particularly when actions are linked to other information such as: What products are under attack and Why? For example, has your service level fallen or product availability changed?
One of the most quoted reasons why customers start to respond to a competitor’s approach is a lack of meaningful engagement. This can be caused by loss of a branch-based salesperson to a competitor and in one case it cost the business over £1M of revenue over two years. The ‘go-to’ option to analyse customers for churn is excel or analytical tools, which the business can use to analyse ERP data. However, the analysis is only done after the customers have already churned.
When a competitor starts the ‘attack’ the typical approach is a land and expand strategy, starting with a product group which has higher margins that they can trade with. These early attacks are very difficult to spot using in house tools as revenue changes are small. The second problem is that many current tools trigger too many false alarms. It can be caused by either
Alan Timothy, CEO of
Bubo.AI, looks at how merchants can turbocharge their sales growth by preventing churn – or loss – of existing customers.
a customer placing a large order, such all the bricks for a house in one month and then rightly not repeating this level of spend the subsequent month, triggering a sudden revenue decline. Or when a project ends but the follow-on project has not started.
The way forward Pre-written churn tools such as
bubo.ai cbx can identify the probability of a customer churning up to 12 weeks out, allowing time to react. They can supply additional information on products and underlying data to use in the response. Next stage functionality will also be able to monitor the interventions, taking data from tools such as CRM for branch contact and i-snapshot for sales visits and then make a recommendation on the best response given the circumstances. These tools are offered via a dashboard There are lots of companies and courses to tempt people with the new business mantra, which is one of the reasons why 44% of companies focus on customer acquisition compared to 18% on retention. In the example above, the merchant that achieved 5% net growth could have achieved a doubling in growth if they had invested in keeping current customers. BMJ
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www.buildersmerchantsjournal.net February 2022
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