Lately I’ve been making a point of asking entrepreneurs what they like most about owning their own sign and digital graphics business. The most frequent response touches on how much influence and creativity they must command to meet their unique challenges each day. Every morning brings new turmoil and new triumphs. Each new year is as unpredictable as the last . . . or so it may seem on the surface.
Alas, if only business owners would take the time to study demographically the details of past sales, they would stand to glean invaluable insight into the future. Harvey Mackay, author of several excellent sales books including Swim with the Sharks . . . Without Being Eaten Alive, writes about the insurance industry’s Law of Large Numbers to explain events in a business’s life that can be anticipated and predicted. The analogy goes like this: Conscientious students of geo/demographic life event history should be able to forecast with uncanny accuracy how many similar occurrences—deaths, accidents and so on—will befall the average person in given year. Only problem is that they can’t pinpoint the exact victims in order to forewarn them of their impending misfortune.
At any rate and for many different reasons, sales attrition happens. Here’s the commonly accepted definition of sales attrition:
at·tri·tion/ n. The dollar amount reduction of sales within a particular customer account enjoyed in a previous 12-month period that was, for whatever reason, not repeated in the subsequent, most recent 12-month period.
This month, why don’t we look at what can be done about stopping the bleeding of such non-recurring sales?
First, determine your attrition rate
The process of classifying attrition is not that difficult, if you follow these simple steps. Research your sales history by customer for the past 24 months. Divide the sales for each account into two 12-month periods.
By way of example, see below for a partial chart of revenue for one fictitious sales territory within a sign business comparing Fiscal Year 2016 sales to Fiscal Year 2017.
Note that there is no such thing as negative attrition just because revenues were up overall. This sales territory grew 20 percent ($40,000 divided by $200,000) but its attrition rate was 37 percent ($74,000 divided by $200,000).
A business owner might pause in the analysis at this point and silently wonder: “Could you imagine, based on this one territory, how much our company would have grown if there had been no attrition in any of our territories?” To quote Cher from the film Moonstruck: “Snap out of it!”
In the 30-plus years of helping business owners and sales professionals manage attrition, I have never seen—nor can I realistically envision—zero attrition. It is going to happen. Actually, many different studies calculate the attrition rate in technical sales to be between 25 and 40 percent every year—and that’s in a typical territory or business. The best we can hope for is to anticipate it, try to prevent it, and minimize its effect on the growth of our business.
To manage attrition, understand its root cause
Let’s take another look at our table. Four of the eight accounts suffered attrition: A, D, F and G. Why? This is where you need to be brutally honest with yourself. No one likes to be reminded of shortcomings but, until you accept that there may exist a problem, you stand to repeat your mistakes.
There are three classifications of attrition: controllable, uncontrollable and value-added. Controllable attrition is, by far, the worst kind. Controllable attrition occurs when something you or your employees do (or neglect to do) fails to satisfy the customer’s needs, and/or fails to inspire them to order again. Common causes include late delivery, inconvenient sales practices, poor product quality, inattentive service, strained relations and breaking promises. This was the case in two accounts from our example: customers A and F.
You may notice that price is not suggested as a cause of attrition since the vast majority of people buy primarily on value rather than price. I have enjoyed the most spirited debates with business owners about what percent of the buying public bases its buying decisions solely on price. Most entrepreneurs will agree with me, though, that “people buy from people whom they like, trust and with whom it is convenient to do business.” Notice, price is not mentioned. But your capacity to be liked, your trustworthiness, and your convenient sales demeanor have as much—if not more—value in the eyes of the consumer as both customer service and product quality.
Uncontrollable attrition—as you may have deduced—is the result of some unforeseen circumstance. Occasionally, bad things happen to good customers and those bad things may negatively affect your business with them. Acts of God—such as a tornado, flooding or fire from a lightning strike—can cause customers to postpone placing an order until the crisis has passed or has been resolved. Sometimes orders are never placed or are cancelled completely because of the effects of a sluggish economy, labor dispute or slowdown, or—as in the case of account D in our example—the customer goes out of business.
The most intriguing type of attrition is the value-added variety. Let’s say you helped the aforementioned customer G launch its business enterprise. Two years ago, you were commissioned to design its company logo and signage. The company was so pleased with your logo design that it not only paid you for it, but had you do its channel letter entrance sign, all of the wayfinding signs, and a beautiful banner for its grand-opening celebration. Last year, it ordered the some additional and replacement signs, but nothing coming close to the order it placed two years ago.
Value-added attrition occurs anytime you can show a customer how to save money, but the result of your advice means less revenue for you. The moral of this story: It is better to become a partner with a customer and recommend only what the client needs, and suffer only a small, value-added loss than to allow a competitor in and lose the account entirely.
So when you analyze the attrition from our example, nearly 57 percent of it–$42,000 divided by $74,000–is deemed to be controllable. If you are being honest with yourself, typically you will have some influence or control over the lion’s share of attrition. Notice that about one-fourth–$20,000 of the $74,000–is uncontrollable and only 16 percent of the attrition is value-added. This is not an uncommon breakdown of attrition.
Reducing controllable attrition
Classifying attrition is not without its gray areas. When the circumstances of attrition in a particular account have you torn between two types, use controllable attrition as your default. For example, you bump into a long-time customer that has not done business with you in several years. When asked about when she may be in the market to place her next order, she mumbles something about trying a different approach to promotional signage. You catch yourself thinking, “What has changed? Have I not always delivered quality goods on time and within her budget? Why didn’t she call me, if she was looking for promotional signage? If her sign and graphics needs changed, isn’t that really out of my control?”
Nope. Customer apathy is always controllable. Let’s face it. You had a hand in creating your customer’s malaise by not remaining in touch with her when she was exploring new ways to promote her business.
Here are some suggestions to reduce controllable attrition:
- If your shop has a high rate of non-delivery incidents (e.g. late delivery or installs, broken promises), you must address this problem immediately. Get rid of, forever, any delivery issue that exists. Studies have shown that a non-delivery incident accounts for over 70 percent of the reasons why customers fire suppliers.
- Develop a business-wide attitude of under-promise/over-deliver. I realize you may want to do all you can to delight a customer, but only commit to what you know you can confidently deliver. When you give your word to a client, treat it as the sole opportunity that you will have to determine your trustworthiness. You may not get a second chance.
- Periodically, have a good reason to put your company’s name in front of your best customers. Every direct marketing resource I’ve ever read recommends contact with clients eight to 10 times over the course of a year—steady business or not. But do not inundate them with frivolous offers. Send them a birthday card. Celebrate the anniversary month of doing business with you with a discount coupon. There are always good reasons to have a sale—holiday, seasonal, clearance and so on—but, unlike the jewelry and lighting industry, every day shouldn’t be a “50 percent off” sale day. Develop a schedule of promotions for the remainder of the year.
- When you complete an order for a customer, ask when you may be able to serve them again. The moment you deliver the order should be the height of customer satisfaction. What better time is there to leverage the relationship?
- Have a third-party coupon printed on the back of your business card: “Referred by ______________. The bearer of this card will receive X percent off first order. The referring party will receive an appropriate acknowledging reward—such as, X percent off next order.” Include several of these cards with each job you complete.
- Invest in listening training for your employees and reward them when they practice effective listening skills with customers and each other. Many listening courses are available as half-day or evening seminars, in self-study, computer-based formats or as non-credit, continuing education courses at local community colleges. These courses are generally inexpensive. A modest investment in such training will yield your business a priceless return.
A thing of beauty
Don’t be afraid of developing a personal relationship with customers. Many of my best friends were people I first met as business acquaintances. If you were to ask today’s top salespeople in any field to list 10 people—excluding family—that they would trust with a secret, the key to their home or car, or to watch over a loved one, I would bet that well over half of the list would be customers or business associates. This is no coincidence.
Most people will do whatever it takes not to disappoint a friend. And, in general, that friendship is mutually reciprocated. When a genuine friendship blossoms from a business transaction, it is truly a thing of beauty. Good luck!