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.
If the contract says that the food machines will be filled daily as needed, it should commit the customer to a period of time that allows the vending company to realize a profit. Hopefully, by doing this, you will end up with a longer term contract.
Retention relies on every employee
Vending operators will find that it pays to make sure that all of their employees understand the importance of client retention. There are many tasks involved in a vending operation, and many of them have a direct bearing on account retention.
A well organized warehouse, for instance, will make it easier for drivers to find the products they need faster. The driver that cannot find what he needs is more likely to leave the warehouse without having all of the products he needs to meet customers’ expectations. In this scenario, the competence of the warehouse staff has a direct bearing on account retention.
Know the client’s needs
Employees should also be taught to view the clients as partners. It is important for management to distinguish between “clients” and “customers” for their employees. Both are important, but the employee should see the client as an entity that they will have a long-term relationship with.
The vending operation serves customers, but the client represents all the customers.
The business relationship with the client begins at the signing of the service agreement. As soon as the contract is signed, the vending operations management should hold a client expectations meeting. During this meeting, the vending operator should meet or make arrangements to meet all of the key personnel at the account.
Key account personnel can include the facilities manager, the human resource manager, a union steward (if applicable), and possibly an accounting staff person. This meeting is held to get input from the client relative to what they expect from the vending company. It is an open dialogue to initiate a friendly relationship.
Prior to installation, it is necessary for a second meeting, the “transition meeting.” This is to ensure the client understands all the timing and steps necessary to make a smooth and seamless transition to the new service provider.
As part of the transition meeting, the results of the expectation meeting are shared with all vending employees involved so the vending staff understands what the client expects.
Following the installation, the next step is client orientation. The vending account manager sits down with the client contact and reviews all aspects of how the vending company will work with the client contact and manage the business.
For example, the vending account manager may talk about a weekly or monthly meeting with the client contact and what that agenda might be. The account manager may talk to the client about billings, refunds, etc.
In vending companies where the sales and marketing functions are separate from operations, it is critical for the two sides to meet when a new account is acquired. The sales side must clearly communicate the account’s expectations to operations.
The loyalty factor
Once the service begins, the vending account manager should develop a “loyalty factor” at the account. This does not have to be written down, but the account manager should make it a point to know several people within the client organization that his company has gotten to know and who they can rely on for solid information about how the company is performing.
This “loyalty factor” usually consists of two or three influential people within the client organization. It helps protect the vending company if the key client contact leaves by speaking to the new client contact about the value of the vending company. This loyalty factor helps maintain account retention.
On an annual basis, a vending operation should have a third party from within the company visit each site to evaluate the service and determine if any changes and/or enhancements are needed to meet and exceed customer expectations.
This person will also provide another perspective of how the client contact views the performance of the vending company. This is one more “value” factor the vending company brings to each client.
It is very important for the vending operator to know the client’s financial goals.
The vending account manager must meet with someone from the account regularly to review how well the account’s expectations are being met.
In situations where the client receives a financial reward from the vending operator, it is important for the operator to conduct regular financial reports and communicate them to the client. The operator must be proactive in explaining monthly variances.
The level of account retention will often depend on the quality of communication between the vending operation and the account.
Client relations management
Client relations is a field unto itself. There are various training programs available to vending operators who wish to improve their client relations skills. There are also new software tools available to facilitate these efforts.
It is imperative to have client retention training for the vending staff. Review why accounts are lost and use this information as part of the account retention program. Be able to identify “red flags” when dealing with a client:
• The client is not meeting/communicating with you or the manager.
• Payments are slowing down.
• Competition is in the lobby.
• The company has been acquired.
• There is a new client contact.
There is much to say about client relations management. I will simply say that account managers should do their best to develop friendships with the clients. Friends don’t cancel friends. Establishing an honest friendship with the “web of influence” can save a lot of business.
The goal is not to be personal friends with each client contact, but it is paramount to be friendly with each client contact. Know about them, their families and spend time with them talking about them and things they like. If you can carry this one step further, take them to lunch or to a sporting or entertainment event.
The vending company should be as visible to the account as possible without impeding their operations.
• Visible in terms of having the route driver on premise so the client contact and customers can see him or her.
• Visible in terms of the regional person stopping by during the time that the customers can see him of her.
• Visible in terms of the “third party critique,” and visible in terms of the machine, the facade and the products within them.
Lost Accounts: What To Do
When an account is lost, for whatever reason, the vending company should hold what is called an “exit” interview or a “post mortem” meeting. This is an important component of the retention program.
Losing business is emotionally and financially difficult, but the “exit” meeting with the client is an opportunity to learn more about why the business was lost and improve the likelihood of retaining other business. Keep in mind that by holding this exit meeting with the client, there is always the opportunity that you may be asked to come back as their vending company some time in the future.
Identify the cause for the loss
Whenever a piece of business is lost and for whatever reason, the key players of the vending company relative to the lost account must meet and discuss openly the reasons why an account was lost and what can be done in the future to prevent this.
In some instances, the vending company will discover that someone on staff is not performing their job. In other cases, the vending company will learn that a competitor is offering a service that the company must also have to be competitive.
There will also be instances in which a competitor has promised something that isn’t realistic. If the current vending company suspects this to be the case, there is a strong possibility that they may recover the account in the future. The “exit” interview creates the opportunity to gain this valuable information.
Keep in mind that one in three lost accounts may come back to you, so don’t burn any bridges along the way!
Operators can make “lost account recovery” another companywide goal.
Even if you don’t recover the account, it is always helpful to leave people with the best possible perception of you. It could result in a future referral. The “exit” meeting makes this possible.
There are some things that a vending company must be careful never to do. They are:
• Never take an account for granted.
• Never get comfortable; you are the contractor, not an employee.
• Never get caught up in gossip circles.
• Never say “no” to a reasonable customer request.
There are also some things that a vending company must be careful to always do. They are:
• Be positive.
• Dress professionally.
• Possess a “can do” attitude.
• Speak highly of the client.
• Be proactive.
• Provide “value.”
• Exceed the client’s expectations.
There is a myriad of value added factors a vending company can provide its client and the vending company must deliver this everyday, such as pricing, clean machines, working machines, minimum or no refunds, promotions, updating the machines and keeping the machines full with the right products at the right price.
It is vital for a vending company to not look at a client as just another piece of business or just an account, but to understand their business model and work with them where possible to meet and fulfill the client’s plan/strategy where and when appropriate.
The point here is not to say “no” to a client, but to work with them to come up with a “win-win” solution. This results in a solid business partnership that will strengthen the retention process. Keep in mind that clients want a business partner when outsourcing any service.
It is a lot easier and more profitable to keep your current clients than it is to chase new ones. Client retention should be a foundation of your business.