July 26, 2016
The second law of thermodynamics states that unless acted upon by outside energy, a system will either have the same or more disorder as time passes. In the world of business, the one person who lives this principle out on a daily basis is the Sales Manager.
The job of the sales executive is to get new business while simultaneously keeping existing accounts healthy, and well, wealthy! It is, after all, a well-known fact that acquiring a new customer is significantly more expensive than retaining an existing one. Some claim the cost can be three to thirty times higher. However, ask Sales Managers who have lost a customer and they will tell you what it means to maintain the relationship.
Is it easy to tell if a customer is at risk?
I have often asked Sales people if they found it easy to predict if an account was going south. Their answers are mostly similar. They usually go like this:
“Sometimes you can tell you’re not going to be able to retain the account. It is gradual, takes time, and is mostly beyond my control. But then most lost accounts are like a gut punch that land from nowhere! Those are the ones that bite the most and are most likely irreversible.”
This is completely understandable. When you’re an enterprise sales executive who manages multiple accounts, you can be too busy to see the early signs of defection. And you know what would help? An Early Warning System (EWS)! EWSs are often used in the defense industry or in natural disasters to detect possible attacks or tsunamis before they can inflict much damage. The world of Sales needs an EWS that can help predict possible customer churn.
How do you identify these early signs?
Sometimes a dissatisfied customer can hide in plain sight. If you look close enough, their buying behavior can provide clues to how they’re feeling about doing business with you or if they’re cozying up with a competitor. Let’s take the example of Bren, an account manager for a company that sells RFID products – tags, readers, the whole enchilada. We’ve identified five of Bren’s customers who’re possibly ‘at-risk’.
- A customer orders once every 15 weeks this year. If the average frequency with which a trucking company buys from Bren’s company was 10 weeks last year, Bren should definitely be worried that this frequency has decreased over time. If anything, over time a satisfied customer should buy more frequently or at least with the same frequency as before. So why is their average frequency up by 5 weeks this year? Bren should sit up and dial his buyer contact immediately.
- Another company hasn’t placed an order in 14 weeks. The recency of the last purchase is an even more accurate metric of account health than frequency. If the customer has been ordering their products with an average frequency of 8 weeks and it’s already been 14 weeks since their last order, Bren must call them immediately. In fact Bren should probably have called them when it was 7 weeks since the last order. But with 150 accounts to manage, such a metric can be easy to miss.
- Another’s latest order size is far below average. A golf ball manufacturer is a regular buyer of Bren’s company’s RFID tags with which they create their premium trackable balls. Their average order volume is about 250,000 units and the latest order is only 100,000 units. If this is not because of any fluctuation in the demand of golf balls or because their business has decided to reduce its manufacturing volume, it may be a cause of concern for Bren. Ensuring a consistent order volume over time is important for sales executives like Bren.
- No order from Arizona or no order for RFID readers. A packaging company’s plants in Dallas and Arizona order RFID tags as well as readers from Bren’s company. If for a particular month, the Arizona plant does not send in an order or if it orders only tags and no readers, these can be worrying trends for Bren. He should follow up to see why something like this has happened and what he can do to revive the business.
- The most straightforward – bookings fall to $100K. Historically, if bookings from a retail chain are $500K per quarter, it can be worrying if they book only $100K this quarter. Also if the average revenue across all retail customers is $2 million, it probably implies that Bren hasn’t penetrated this account enough yet. As a result it’s important to track absolute as well as relative revenue from an account.
Armed with real-time knowledge of all these metrics for all of his accounts, Bren can safely say his accounts are healthy or, if there are signs of a problem, he’s already on top of it. An early warning system of sales intelligence can protect a business from potentially losing large and important accounts. Is your sales team aware of and equipped to tackle ‘at-risk’ customers?