The Silver Lining In Lost Business

Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Shachar Shamir, co-founder at Ranky.

Too often, marketing and sales folks work hard to move leads through the sales funnel, only for some of those customers to leave after making their first purchase.

While companies rightly celebrate new customers, it’s not the first purchase that brings value. What’s really important is what that first purchase indicates: the potential for a loyal customer with a high lifetime value.

While some companies focus most of their marketing and sales efforts on customer acquisition, a dependency on one-time customers is not sustainable.

Existing customers may generate as much as 80% of revenue at top companies, Pini Yakuel, CEO of the relationship marketing platform Optimove, told me, and they are responsible for nearly four times more monthly transactions than new customers. Existing customers also tend to recommend their favorite companies to their friends, essentially promoting their favorite products or services by word of mouth.

Loyal customers who buy time and time again are critical to a company’s success. Losing them is far more devastating than failing to convert a lead.

Still, lost business doesn’t mean marketing efforts have gone to waste. There is a silver lining: When brands lose customers, they gain valuable information that they can use to improve their future marketing and sales efforts.

Focus on retention

With retention marketing, even just a little bit of effort goes a long way: Increasing customer retention rates by just 5% increases profits by 25% to 95% [PDF].

When brands lose a customer, the first place to look is their company’s marketing efforts. How much time and how many resources are spent acquiring new customers, as opposed to retaining existing ones? How often do brands follow up with customers after they close a deal?

If brands rarely continue to market to existing customers after they’ve made their first purchase, or if the marketing efforts aren’t enough, that may be the reason those customers are sending their business elsewhere.

The loss of a customer can help brands analyze where they went wrong in their retention marketing campaign. Maybe the retention marketing wasn’t sufficiently targeted, creating the impression that the company was disconnected and apathetic. Or maybe existing customers were misread and marketed a product or service they really weren’t looking for.

Analyzing when customers were lost can reveal a lot about why they left – and can help brands improve their retention marketing efforts to ensure it doesn’t happen too often.

Change public perception to match self-perception

In the spring of 1989, the Harvard Business Review published an article with a timeless lesson that makes for a valuable case study today: A company’s perception of itself might be different from the market’s perception of the company.

As much as companies change their offerings to better suit the needs of the market, those efforts won’t have much effect if that’s not how the offerings are perceived by the market, found David Greene,  who recounted an initially disastrous loss of a huge customer.

It can be hard to pinpoint positioning as the source of a company’s problems, since it requires unbiased third-party analysis and brainstorming potential criticisms. But if a company is losing customers, the culprit may be wrong positioning, which, if changed, could help change public perception and make the company more successful with future customers.

Accept that customers aren’t always a good fit

Companies often like to think that their product is the best option out there and that their competitors don’t stand a chance.

Too often, sales reps are so determined to close a deal that they successfully convince a customer to buy – even when they know that the product doesn’t fully address the customer’s needs. This habit needs to change. When customers aren’t a good fit, companies may have convinced them to buy for the short term but they likely can’t be retained in the long term. And long-term retention is important because it’s more profitable to retain customers than to acquire new ones and dissatisfied customers can damage a company’s reputation.

That leads to an important truth: Not all customers are good customers.

When brands lose a customer, they learn more about which customers aren’t the right fit and which they shouldn’t spend valuable time and money on. They also gain insight into long-term versus short-term priorities; unless a company is especially desperate, it’s usually best to let some mismatched leads go.

Identify similar customers and change your approach

In some cases, the loss of a customer is a matter of differences, but in other cases, the product is a perfect fit but the marketing and sales efforts fall short.

While lapsed customers are certainly frustrating for the marketing and sales teams that closed the first deal, they nonetheless supply those teams with valuable insights for future customers. Just as losing a customer can bring intangible long-term benefits to a company, such as signs that it needs to change its messaging, it also brings with it very real benefits that companies can leverage for future customers.

The customer might be gone, but the company may still have his or her data that could be used to identify other people who are similar and help the company figure out how to be more successful with future candidates. 

Losing customers is difficult in the short term, particularly for young or cash-strapped companies. But in the long term, it provides valuable lessons. I’m optimistic that, just as our personal losses teach us all to grow, professional losses can teach companies to grow, too.

Follow Ranky (@rankyteam) and AdExchanger (@adexchanger) on Twitter.

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