Customer acquisition costs can be deadly things. Many people tend towards inertia, so change is more than just a swap - it's a risk. It's tough to convince someone to change even if things are bad. After all, the devil they know may be predictable and manageable. It's even harder to convince them if things are adequate. So, customer acquisition costs are a major hurdle companies are always looking to overcome. They're constantly looking for ways to attract new customers for less time, money, and energy.
Here's the problem: many companies focus so much on the initial sale, that they forget the critical importance of maintaining that customer down the line. This is a disastrous tendency, because it means all your hard work must be redone, and your costs continue to rise.
YPO member Mattias Knaur believes that customer retention is the real key to success. Knaur is an entrepreneur with an undergraduate degree from Vienna University of Economics and Business, a Masters from LSE, and an MBA from Dartmouth. After beginning his career at Hewlett-Packard and HSM AG, he joined a group of entrepreneurs who founded Solera Holdings. In only 3 years focusing on customer growth and retention, the company went from operating in 31 countries to operating in over 60, tripling in value by the time they took it public. After this success, Knaur became the Founder and CEO of Pepper Oaks Capital, which invests in midsize service companies, as well as the Founder and CEO of Annuity Management Group, which specializes in revenue lifecycle and customer success management for technology firms.
On an episode of my podcast 10 Minute Tips from the Top, Knaur shared what he's learned about attracting, and then maintaining, customers:
1. Think beyond the original sale.
Knaur's experience has taught him how to increase subscription and decrease attrition at an enterprise level. He says, "Basically, what I do, I've focused for the last 16 years on recurring business services." He believes there's a basic disconnect in the logic used by many companies: they don't think long term. He starts with a basic premise: "Winning market share is something completely different than managing market share." He laments, "The whole system is focused on the up front - winning market share. The lifecycle of the solution is maybe 10 years. But the lifecycle of the service contract is 2 to 3 years. So you suddenly have 2, 3, 4, 5 renewal periods. And nobody focuses on that." Those renewals don't happen automatically, and the process can be bulky. That can drive away customers and create waste in your company.
2. Make it easy for your customers.
With all these loose pieces flying around, things can get complicated for the customer. Knaur emphasizes the importance of simplifying the process for the customer. He explains, "You have this whole tsunami of sourcing and information, but the customer only wants a bundled, one contract. So if you don't do that, the small stuff is kind of left behind." He also pushes his team to consider structural support for the customer - that also helps the company retain them. He says, "If you win market share, you want to work with as many players and distribution channels and sales partners as possible. If you manage market share, it's all about standardizing. So then it's a little bit like the train system. Once you have one track in the ground, you put as much load on it as possible. And we really standardized end-to-end the entire renewal process." Knaur works to build trust with customers, saying, "You need to be the neutral expert and specialist, so at the end of the day, it's a structural plus a market driver."
3. Align your team.
Knaur believes that a well-functioning team is able to better retain customers. This was a real challenge when he started working with Solera Holdings. He recalls, "When we bought the division, we were 31 countries and 49 languages. How do you communicate?" Ultimately, they decided to use the universal language of numbers. Knaur says, "We developed a framework which was based totally on numbers, because once it's numerical, everybody can understand it." He emphasized with his team all the obstacles that challenge customers, and made sure they knew how to fix them. When a team can communicate well with each other, it is more likely to be able to communicate well with customers, too.
On Fridays, Kevin explores industry trends, professional development, best practices, and other leadership topics with CEOs from around the world.