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STREET SMARTS

Keep Your Customers

It's hard to make the Inc. 500 if you're always churning clients.

Norm Brodsky is a veteran entrepreneur.

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There is a basic rule of business that's easy to forget, especially when you're competing for customers. Winning is not just about closing the sale. You win when you close the sale and also lay the foundation for a good relationship that will allow you to keep the customer for a long, long time.

The name of the game is customer retention. Which would you prefer, after all--making 50 sales in a year and having a 100 percent customer retention rate, or making 100 sales a year and having a 50 percent retention rate? I'll take the former. Yes, with the latter you'll have more sales during the year and you'll wind up with the same number of customers at the end, but if you lose one account for every two you land, you'll have to spend twice as much time, energy, and money recruiting clients.

I speak from experience. My messenger business, Perfect Courier, lost 25 percent of its customers every year, mainly because we were operating in an intensely competitive industry with no barriers to entry and almost nothing to stop customers from switching from one supplier to another if they could save a few dollars. We managed to make the Inc. 500 list three times partly by coming up with ways to tie customers into our service. For example, we had invoices that itemized the fees that law firms, advertising agencies, and the like could charge back to their own clients. That's easy to do now, but in 1980 we were one of the few messenger companies that had a computer, without which itemizing would have been almost impossible. This slowed the attrition rate for a while--until our competitors caught on and began offering the same service--but we still began each year having to replace a quarter of our sales just to stay even. That's tough. I suspect that the majority of companies on this year's Inc. 500 list retain a high percentage of their customers from year to year.

So how can you make sure that you hold on to most of your customers? Clearly it helps to be in an industry with high barriers to entry and numerous obstacles to switching suppliers, as is the case with my records storage business. But mainly it's a matter of building strong relationships. Listen, no customer enjoys the process of switching suppliers. It's a pain. It takes time and money that could be spent elsewhere. The people responsible for the function in question have to get the rest of the company to buy into the change. They have to meet with new suppliers. They have to negotiate new agreements. Why would they go through all that? Usually it's because they're really upset with the current supplier.

That said, it's also true that customers do not treat all suppliers alike. Everyone makes mistakes, but not everyone loses accounts as a result. In some cases, the customer's people say, "They're a good company. Let's give them another chance." In other cases, they say, "These people can't do anything right. Let's find someone who can." What's the difference? It almost always has to do with the relationship that the supplier has cultivated with the customer.

That did it. I called Paul and demanded that the boxes be picked up immediately. I also told him we were taking our business elsewhere.

I'll give you an example from my own experience as a customer. We have a supplier for the custom-printed storage boxes that we use. Because we're often pressed for space, we insist that the boxes not be delivered until we need them. Several months back, the supplier suddenly dropped a huge shipment on us at the worst possible moment. I was angry and complained loudly. I warned our contact--a salesman named Paul Gruskoff--not to let it happen again. He assured me it wouldn't.

Then, a few weeks ago, we found ourselves short on space and called Paul to tell him not to deliver the next shipment of boxes. He said, "No problem. Just let us know when you want it." Shortly thereafter, we got a call from our warehouse people asking where they should put all the boxes that had just been delivered. That did it. I called Paul and demanded that the boxes be picked up immediately. I also told him to send back the die with our logo: We were taking our business elsewhere.

And I was dead serious. I provide excellent service to my customers, and I expect the same from our suppliers. If one of them can't provide it, I'll find someone else who can. Paul was persistent, however. He kept calling me for a week until I finally agreed to see him. When we met, he apologized profusely, took complete responsibility for the mistake, and asked for another chance. He reminded me how often he'd come through for us in a pinch. Overall, we had a great relationship, he noted. Why throw it all away? He had a point. I relented.

You begin to build that kind of relationship not when the sale is closed but when the initial contact occurs. When I call on a prospect for the first time, I don't even talk about our company. I spend the whole visit just trying to learn all I can about the people I'm dealing with--what they like, what they don't like, what their style of business is, how their company works, what their policies are, and so on. I don't have to make a sales pitch. The prospect knows why I'm there, and I know that no decisions will be made at the first meeting. Mainly, I look to build rapport and understand how the customer likes to do business.

The point is, you need to find out in advance what it will take to keep the customer happy after you've closed the sale. For instance, I want to know how long the customer waits to pay its bills. If you don't ask about that, you could be headed for trouble. You may assume the customer will pay in 30 days, as is your policy. Its accounting people may assume they can pay in 90 days, as they do with their other suppliers. When you call up after 45 days and discover that you're not getting paid for another 45 days, you're not happy. You pressure the customer's people, and then they're not happy. The relationship goes downhill from there.

And whose fault is that? I say it's your fault for not inquiring beforehand about the customer's bill-paying policy. If you'd known what it was, you could have built the carrying costs into your proposal, decided not to take the business, or simply agreed to accept the terms. In any case, you would not have had the bad feelings engendered by a misunderstanding that could easily have been avoided.

But beyond learning what you need to know to keep from inadvertently souring a relationship, it's also important to use the period before the sale to build the trust that will let you hold on to the customer. That means going out of your way to show your intention to do whatever is necessary to ensure that the customer will be happy after the sale.

Paul apologized profusely and reminded me how often he'd come through. Why throw it all away?

A few months ago, we found ourselves competing for the business of a medium-size law firm. Its representatives came to visit us, see our warehouse, meet our people, and assess our capabilities. We gave them the usual tour. Afterward, we told the firm's records manager that we'd like to visit his offices in Manhattan. He was surprised. Nobody else had made that request. "Why?" he asked.

"I could probably think of 20 reasons," I said. "For one thing, I want to see how long it takes to get up and down on the elevators. I also want to see what the building looks like. And I want to see how you do things. Maybe we can give you some suggestions."

"What if we don't select you?" he asked.

"So we'll have spent a day with a couple of nice people," I said.

As it turned out, we were the only contender that bothered to visit the law firm. When the bidding began, most of the other records storage companies were quickly eliminated. Of the three finalists, we were the most expensive. The records manager contacted our salesperson and said, "We want you, but there are certain things in your package we can't live with. You can have the account if you're willing to make some changes."

"Why do you want us?" our salesperson asked.

"Nobody else came to our place," the records manager said. "Nobody else asked us the questions you asked. You're the only one who understands how we operate."

We had to make certain concessions, but we did get the account, and we had the opportunity to get it for one reason: We'd built a relationship. To be sure, our ability to keep the customer will depend ultimately on our performance. All the relationship gives you is breathing room--the chance to recover, and learn, from the mistakes you will inevitably make. But in business, as elsewhere, that can be the difference between success and failure.

Norm Brodsky (brodsky13@aol.com) is a veteran entrepreneur whose six businesses include a three-time Inc. 500 company. His co-author is editor-at-large Bo Burlingham.

You begin to build that kind of relationship not when the sale is closed but when the initial contact occurs. When I call on a prospect for the first time, I don't even talk about our company. I spend the whole visit just trying to learn all I can about the people I'm dealing with--what they like, what they don't like, what their style of business is, how their company works, what their policies are, and so on. I don't have to make a sales pitch. The prospect knows why I'm there, and I know that no decisions will be made at the first meeting. Mainly, I look to build rapport and understand how the customer likes to do business.

The point is, you need to find out in advance what it will take to keep the customer happy after you've closed the sale. For instance, I want to know how long the customer waits to pay its bills. If you don't ask about that, you could be headed for trouble. You may assume the customer will pay in 30 days, as is your policy. Its accounting people may assume they can pay in 90 days, as they do with their other suppliers. When you call up after 45 days and discover that you're not getting paid for another 45 days, you're not happy. You pressure the customer's people, and then they're not happy. The relationship goes downhill from there.

And whose fault is that? I say it's your fault for not inquiring beforehand about the customer's bill-paying policy. If you'd known what it was, you could have built the carrying costs into your proposal, decided not to take the business, or simply agreed to accept the terms. In any case, you would not have had the bad feelings engendered by a misunderstanding that could easily have been avoided.

But beyond learning what you need to know to keep from inadvertently souring a relationship, it's also important to use the period before the sale to build the trust that will let you hold on to the customer. That means going out of your way to show your intention to do whatever is necessary to ensure that the customer will be happy after the sale.

Paul apologized profusely and reminded me how often he'd come through. Why throw it all away?

A few months ago, we found ourselves competing for the business of a medium-size law firm. Its representatives came to visit us, see our warehouse, meet our people, and assess our capabilities. We gave them the usual tour. Afterward, we told the firm's records manager that we'd like to visit his offices in Manhattan. He was surprised. Nobody else had made that request. "Why?" he asked.

"I could probably think of 20 reasons," I said. "For one thing, I want to see how long it takes to get up and down on the elevators. I also want to see what the building looks like. And I want to see how you do things. Maybe we can give you some suggestions."

"What if we don't select you?" he asked.

"So we'll have spent a day with a couple of nice people," I said.

As it turned out, we were the only contender that bothered to visit the law firm. When the bidding began, most of the other records storage companies were quickly eliminated. Of the three finalists, we were the most expensive. The records manager contacted our salesperson and said, "We want you, but there are certain things in your package we can't live with. You can have the account if you're willing to make some changes."

"Why do you want us?" our salesperson asked.

"Nobody else came to our place," the records manager said. "Nobody else asked us the questions you asked. You're the only one who understands how we operate."

We had to make certain concessions, but we did get the account, and we had the opportunity to get it for one reason: We'd built a relationship. To be sure, our ability to keep the customer will depend ultimately on our performance. All the relationship gives you is breathing room--the chance to recover, and learn, from the mistakes you will inevitably make. But in business, as elsewhere, that can be the difference between success and failure.

Norm Brodsky (brodsky13@aol.com) is a veteran entrepreneur whose six businesses include a three-time Inc. 500 company. His co-author is editor-at-large Bo Burlingham.

Last updated: Sep 1, 2006

NORM BRODSKY | Columnist

Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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