By Ian Heller
President, Modern Distribution Management
I was once the marketing leader for an electronic components distribution company. We hired a consulting company to help us with our strategy and they asked us how many customers we “churned” each year. Unfortunately, we didn’t know the answer, so they asked us to guess. The consensus was that we lost about 10 percent of our accounts each year.
The consultant did the analysis and, unfortunately, we were churning well over 30 percent of our customers annually. The consultant told us that most of their clients vastly underestimated their churn each year and then they showed us the incredible value we could generate just by keeping more of the customers we already had.
As I moved on in my career both as an executive and later as a marketing consultant, I saw this scenario play out time and again. Businesses hugely underestimate their customer churn and have absolutely no idea what improving retention can do for their results.
Very small improvements in retention drive big results because retained customers don’t just add to one year’s results – they also tend to grow year over year. You also get a compounding effect as you retain more customers in subsequent years. The delta between what your performance would have been at your old rate of attrition vs your improved rate becomes a growing band of increased sales and profits and the impact on a five-year basis can transform your business results.
There’s much more to customer lifecycle management and while your finance department can often learn to do the analysis, they typically need some guidance about which measurements matter. If your marketing function is particularly strong, they can provide some insight but I frankly haven’t seen too many distributors with those types of skills in-house.
The question for distribution leaders is, what’s the opportunity cost you are paying by not knowing the behaviors of your customer base? How many are growing vs. declining over time? How many new customers are you onboarding? What’s your attrition rate? How much more value can you get from your enterprise by measuring these numbers, setting objectives for how to improve them and then putting programs in place to change the results?
This is an area of huge potential profit for most distributors but, as the old saying goes, you can’t manage what you don’t measure. Somebody needs to own the performance of your customer lifecycle. If you don’t know these numbers, then certainly no one is in charge of driving improvements.
About the Author
Ian Heller is President/COO of Modern Distribution Management (MDM), the most trusted resource for market intelligence and industry insight to wholesale distribution executives and industrial product marketers since 1967. He began his distribution career as a truck unloader in a Grainger branch in college. He left that company 15 years later as Marketing Vice President and has held senior executive positions in marketing and eCommerce at GE Capital Rail, Newark Electronics, Corporate Express and most recently as VP Marketing for HD Supply White Cap. Ian also founded and ran Real Results Marketing, a distribution-focused consultancy, for seven years. Contact Ian via email: email@example.com.
About Modern Distribution Management
Modern Distribution Management (MDM) is the only specialized information business that provides high-level in-depth resources to executives who are in or serve the wholesale distribution industry. With MDM's information services, you'll find fresh analysis, accurate reporting and good ideas to practice across many lines of trade. MDM provides original, in-depth thinking.