Everyone in vending and institutional foodservice hopefully understands and recognizes the need to maximize account retention. Lucrative new customers in today’s economy are harder than ever to find. Given the high cost of replacing a lost customer, it makes more sense than ever to structure your operations in a way that will maximize account retention.
Are you investing as much as you should in account retention? Can you quantify your investment in this critical area?
Whether or not you deem it important to quantify this cost, there is no dispute that the cost of replacing a lost account can be quantified. Experience has proven that for every piece of business you lose, it takes approximately three new accounts to cover the financial loss.
I realize this is a generalization. It is a combination of lost revenue between the time an account is lost and when another one is obtained. It includes the revenue lost during that period, along with the associated costs of removing equipment, sales efforts to get a replacement, and new installation.
Quantify account replacement costs
To quantify these costs in your mind, it helps to determine the value of your current business. A simple but useful formula is to multiply the average length of a contract by the annual profit. If the contract is three years and the annual profit is $20,000, then the value is $60,000. The average length of most contracts in our industry is closer to five years or more.
If you have a 5-year contract and it is cut short by two years, you have lost an additional two years of revenue you had planned on which again will be very difficult to make up.
Another important set of metrics are your account attrition and retention rates. They provide tools to keep track of your successes and failures. These are numbers that should be shared with your staff on a regular basis (at least monthly); they serve as a “team scorecard.” They provide useful benchmarks by which to measure the team’s performance.
Set tangible goals
By quantifying these numbers, the team can have tangible goals, which are important motivators for any business.
Federal Express has a client retention goal of 99.9 percent.
Set a minimum, realistic retention goal for each year and work to improve from the previous year. Obviously, you want to be as close to 100 percent as possible. How close are you? If you are not there, why not?
Have minimum acceptable goals, track the progress monthly, and illustrate the progress in a chart. Monthly and annual progress charts will be meaningful to your staff.
Tracking client retention is part of the performance grading process of a service company. The ongoing goal is to maintain your client base each year and build on it. You need to know your starting point to move forward.
Also, by tracking client retention, you will be able to react to a lost account in terms of what went wrong and what needs to be done not to lose more business.
Tracking account retention is also critical for budgeting and financial planning.
Contract terms are key for retention
Account retention goals need to be realistic to be meaningful. Hence, management plays an important role in making sure that a customer is not “oversold.” In a competitive business climate, management must be sure that the terms of a contract are manageable for the departments and individuals responsible for meeting those terms.
For instance, if your company promises to respond to service calls within one hour, the service department must have the ability to do this. If not, the customer will become dissatisfied and leave.
A service agreement should be written in a way that makes it feasible for the company to deliver on its promises. For example, the contract should give the vending company the freedom to review prices after a reasonable time period. The contract should also commit the customer to a length of time that will allow the vending operator to provide the level of service it agrees to provide.