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Customer Value : Retention in B2B Services
Drilling Down Newsletter # 55: 4 / 2005

Drilling Down - Turning Customer
Data into Profits with a Spreadsheet
Customer Valuation, Retention, Loyalty, Defection

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Prior Newsletters:

In This Issue:

# Topics Overview

# Best Customer Retention Articles

# Retention in B2B Services

# Professional Services Retention

Topics Overview

This month, we're looking at Retention in B2B and Professional Services.  If your relationship with clients uses a "subscription model" you'll probably want to give this a read.

We also have a couple of great customer marketing article links.  First up is an article on Order Management, the unsung (and not widely known, particularly for small sites) hero of web retailing.  We also have an article talking about what is happening with the salaries, people, and culture in the BI field as Six Sigma Everything begins to take hold.  

OK, let's do some Drillin'...

Best Customer Retention Articles

Order management: The new DNA of retailers` multi-channel strategies
March 10, 2005  Internet Retailer

No kidding - good order management is absolutely critical; the cost savings in time and service issues are huge.  If you're a small to midsize online retailer, I can vouch for the Stone Edge Order Manager mentioned at the end of the article - it is one sweet app and has saved us countless hours in the "lab store".

The Dawn of the BI Director
March 20, 2005  DM Review
Yep, it's Six Sigma Everything rearing it's head.  When you are a master of the numbers and driving productivity enhancement, you can haul down the big bucks.  But, as analytics grow in importance, you have to make sure you make changes to company culture, e.g. failure is a learning experience and tying compensation to provable profit increases.

If you are a consultant, agency, or software developer with clients needing action-oriented customer intelligence or High ROI Customer
Marketing program designs, click here

Questions from Fellow Drillers

B2B Services Retention

Q:  I like your site and have been getting your newsletter for some time.

A:  Thanks for the kind words.

Q:  I'd like to buy your book, but have hesitation because I don't know if it will apply to my business.  Your website talks a lot about getting clients to take action or frequently buy.  I'm in more of a recurring revenue business - that means they buy reliably every month.  

I try to work to build loyalty among a group of captive users so they don't decide to leave and be loyal to someone else.  Specifically I'm in the payroll service business.  Something like a commercial uniform rental service would have similar needs. If you could be honest and let me know if your book also includes these scenarios, I'd appreciate it.

A:  These businesses really follow a "subscription" business model, if you think about it.  It's assumed customers will continue to buy until they cancel.  Usually the key to increasing profits in this model is the prediction of defection; if you can predict customer defection you can focus resources on customers most likely to defect.  

So for example, let's say you have a sales force that calls on major clients and they spend an equal amount of time with each one.  If you can predict defection, you can refocus this "service side" of a sale person's job to calling on high value clients who also have a high risk of defection, and have them solve whatever problems there are that lead to defection.

Now, you don't need the book to do this, though it may help, because it provides examples of this "subscription" model across many industries.  If you read the articles on Latency and Recency on the web site:

Comparing the Potential 
Value of Customer Groups

Trip Wire Marketing  (Latency)

you'll get the general idea.  Look at the behavior of your defected best customers prior to the defection and ask yourself this question: what were the warning signs?  Increase in Frequency of "trouble" calls or billing problems?  Falling Latency between errors, e.g. 1 problem a quarter, then 1 a month, then 1 a week?  Somewhere in the data is the story, you just need to find it and then set up reports or scans to alert you to when these trouble signs appear for any client, especially high value ones.

This article may also help you, since the business model is similar, people are expected to pay monthly until one day they just cancel:

Customer Retention and Modeling in the
Utilities / Telecom / Insurance Business

Hope the above at answers your question!



Professional Services Retention

Q:  I am very impressed with what I see on your site and have an interest in buying your book and your interest!

A:  Thanks for the kind words!

Q:  However, I'm not sure if your CRM and customer retention strategies will work for my target audience of small to midsized law firms.

I've been looking for help in providing an economic value model to support my premise that data base marketing, to an attorney's client base through personal correspondence and newsletters that contain real value to the client, will ultimately increase revenue through cross selling of services and referrals.  How will your product help me here?

Logic and best practices tell me that over a year or so this type of program could generate significant increases in revenue.  In addition, if actual client contact is done with satisfaction and retention in mind, the quantity of referrals from existing clients can go up dramatically.

Q:  Well, your thought process is logical and I'm not sure you need the book to accomplish what you want to do.  It's clear to me that this kind of contact, which is similar to what is done in tax accounting (for example with a quarterly newsletter) not only retains business but also creates it by mentioning changes in laws that may result in the need for services, e.g. "if you think you might be affected by this change in property statute xxx, please give us a call, we'd be glad to discuss it with you."  This kind of approach is really very much driven by external events (changes in the law), not the customer's behavior, so the book won't help you much with that.

Now, where the book might help is in longer term customer retention - what events precede the defection of a customer, how do we measure them, and how do we set up a system for "warning" us of customers with high potential to defect?  Here are a couple of examples from past newsletters:

Massage and Accounting Examples

Hair Salon Example

B2B Software Example

You are looking for "events" that trigger defection.  So, for example, let's say you look at defecting customers and find that 70% or so of them defected within 6 months after a divorce case with the firm.  Or, 80% of defectors were handled by a specific attorney and left 3 months after the case ended.  Or, 60% of defectors had a billing problem and left 30 days after the 3rd billing problem.  

These are the kinds of things you are looking for, the "triggers" that predict a defection.  Then you use either Latency or Recency to measure and track these events, and "warn" you so that action can be taken to prevent the defection from happening - follow-up calls, etc.

Not sure if you want to go that deep, but that's where the book takes you.  As far as the newsletter thing, if it didn't work, accountants wouldn't do it - trust me.

Hope that helps!



That's it for this month's edition of the Drilling Down Newsletter. If you like the newsletter, please forward it to a friend - why don't you do this now while you are thinking of it? Subscription instructions are at the top and bottom of the newsletter for their convenience when subscribing.

Any comments on the newsletter (it's too long, too short, topic suggestions, etc.) please send them right along to me, along with any other questions on customer Valuation, Retention, Loyalty, and Defection right here.

'Til next time, keep Drilling Down!

- Jim Novo

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