End of Year Planning Questions
Does customer attrition play a part in annual planning?
How many of our customers will go away?
In setting growth plans for the coming year, one should ask, “what percentage of my customers might go away?” Some will go out of business and they stop buying. Others might be folded into a larger organization. If that organization has a relationship with a competitor, your business could be switched to another supplier. Further, some aggressive competitor could make inroads into your account through hard work and/or better relationships, by way of a valuable new service or through jaw dropping price levels. This is hard to face, but it happens. The question is, how much would any of these affect your business?
To the best of my knowledge, the only industry to truly study this phenomenon is the HVAC/R industry. Three years ago, HARDI (Heating, Air Conditioning, and Refrigeration Distributors International) hired Mike Marks and Steve Deist of Indian River Consulting Group to do a study which resulted in meaningful numbers. These results, which shocked the industry, were published in a book titled Myths & Misperceptions: How markets are really made in HVACR. I recommend the book to everyone in the HVACR business and believe the points made apply to distributors in many other lines of trade. Here are a few highlights from their work:
The average small HVACR Contractor switches suppliers at a rate of four (4) percent per year with well over half of the attrition (2.5%) tied to distributor dissatisfaction. Larger, and more professional contractors switch at a rate of 11 percent per year with 7.8% of that tied to distributor dissatisfaction.
Another group, which lumps Commercial, Institutional and Industrial Accounts together, switches business at a rate of 29 percent per year. I believe this higher attrition rate may well be tied to the point that HVACR distributors tend to be geared to better serve contractors than other types of customers. Further, if the institutional portion of the mix is higher, we might assume some of those institutions are government-run organizations who base purchasing practices on price (low bid orders).
For our discussion, there are two points to consider:
1. Even the best of customers leave the fold at a rate of four (4) percent a year with the average nearing double that number.
2. If you are planning to grow your business by 10 percent next year, plan on 15 percent growth. Losing some of your existing customers is probably in the cards.
Retention is the opposite of attrition
Nobody starts off with a plan to lose customers, but things happen. The inside sales team gets stretched a little thin and service wains. The warehouse gets careless and the customer finds themselves facing a box with the wrong parts. Even salespeople, charged with keeping customers, forget to cover all the bases with their customers. Your top suppliers experience delivery issues and you take the brunt of the blame. The list goes on and on.
Done properly, end of year planning allows for contemplation, reflection and plans for correction. Planning allows for an objective view of the current situation and how retention might be improved going into the next year.
Have you reviewed the (hopefully short) list of customers who have stopped buying from you?
Two important thoughts for your end of year plan
First, customers are more likely to switch distributors because the incumbent distributor did something wrong than because they were “sold” on the new distributor. This runs contrary to the common “sales think.”
Second, distributor sales teams aren’t great about staying in contact with the other guy’s customer. After a short flurry of activity, which produces little or no results, they engage with existing customers and let the potential customers fall out of their mind. Most of us understand this is a mistake, but it is the reality of the situation.
Progressive distributors have established a plan for a continuing outreach to their competitors’ customers. Is this in your end-of-year plan?
Do you have an end-of-year plan?
We are offering a special deal for distributors who are looking to build a better plan.
We are offering our end of year planning book for half price. Just send along a crisp new twenty dollar bill with your business card stapled to it and we will send you your own copy. Since you are breaking some obscure law by stapling legal currency, we will send you our quick plan for helping you make more Gross Margin in 2019.
Send business card and money to:
River Heights Consulting
226 Hillcrest Avenue
Davenport, IA 52803
What if you already own the book?
We don’t want to keep you out of the loop on great deals. Send us a picture of you holding the book and we will send you a copy of our quick plan for more Gross Margin in 2019, just because Frank’s a nice guy.
Want some help with end of year planning?
Frank is offering end of year plan coaching at a special discount rate. Schedule an hour with Frank on any Saturday morning between now and Christmas for only $100.
**No one named Danny was hurt in the writing of this article.**
______________________________
How many of our customers will go away?
In setting growth plans for the coming year, one should ask, “what percentage of my customers might go away?” Some will go out of business and they stop buying. Others might be folded into a larger organization. If that organization has a relationship with a competitor, your business could be switched to another supplier. Further, some aggressive competitor could make inroads into your account through hard work and/or better relationships, by way of a valuable new service or through jaw dropping price levels. This is hard to face, but it happens. The question is, how much would any of these affect your business?
To the best of my knowledge, the only industry to truly study this phenomenon is the HVAC/R industry. Three years ago, HARDI (Heating, Air Conditioning, and Refrigeration Distributors International) hired Mike Marks and Steve Deist of Indian River Consulting Group to do a study which resulted in meaningful numbers. These results, which shocked the industry, were published in a book titled Myths & Misperceptions: How markets are really made in HVACR. I recommend the book to everyone in the HVACR business and believe the points made apply to distributors in many other lines of trade. Here are a few highlights from their work:
The average small HVACR Contractor switches suppliers at a rate of four (4) percent per year with well over half of the attrition (2.5%) tied to distributor dissatisfaction. Larger, and more professional contractors switch at a rate of 11 percent per year with 7.8% of that tied to distributor dissatisfaction.
Another group, which lumps Commercial, Institutional and Industrial Accounts together, switches business at a rate of 29 percent per year. I believe this higher attrition rate may well be tied to the point that HVACR distributors tend to be geared to better serve contractors than other types of customers. Further, if the institutional portion of the mix is higher, we might assume some of those institutions are government-run organizations who base purchasing practices on price (low bid orders).
For our discussion, there are two points to consider:
1. Even the best of customers leave the fold at a rate of four (4) percent a year with the average nearing double that number.
2. If you are planning to grow your business by 10 percent next year, plan on 15 percent growth. Losing some of your existing customers is probably in the cards.
Retention is the opposite of attrition
Nobody starts off with a plan to lose customers, but things happen. The inside sales team gets stretched a little thin and service wains. The warehouse gets careless and the customer finds themselves facing a box with the wrong parts. Even salespeople, charged with keeping customers, forget to cover all the bases with their customers. Your top suppliers experience delivery issues and you take the brunt of the blame. The list goes on and on. Done properly, end of year planning allows for contemplation, reflection and plans for correction. Planning allows for an objective view of the current situation and how retention might be improved going into the next year.
Have you reviewed the (hopefully short) list of customers who have stopped buying from you?
·
What happened?
- Has anybody from management done an exit interview?
- How might the situation have been different?
- What preventive measure could avoid the problem in the
future?
- Are there trends?
Could it be that dealing with "Danny" is toxic to customer health?
- Are there policies or procedures impacting business?
·
How long did it take
for you to realize something was wrong?
-Who in your organization monitors customers for
significant drops in business?
·
Not every
ex-customer can have facial warts and a bad attitude?
- Did you listen to the customer’s comments without tossing
out excuses?
·
Are there existing
customers on the cusp of leaving?
- Are there early warning systems which might point to
issues?
- How might management assist the team in determining
ongoing customer satisfaction?
Two important thoughts for your end of year plan
First, customers are more likely to switch distributors because the incumbent distributor did something wrong than because they were “sold” on the new distributor. This runs contrary to the common “sales think.”
Second, distributor sales teams aren’t great about staying in contact with the other guy’s customer. After a short flurry of activity, which produces little or no results, they engage with existing customers and let the potential customers fall out of their mind. Most of us understand this is a mistake, but it is the reality of the situation.
Progressive distributors have established a plan for a continuing outreach to their competitors’ customers. Is this in your end-of-year plan?
Do you have an end-of-year plan?
We are offering a special deal for distributors who are looking to build a better plan. We are offering our end of year planning book for half price. Just send along a crisp new twenty dollar bill with your business card stapled to it and we will send you your own copy. Since you are breaking some obscure law by stapling legal currency, we will send you our quick plan for helping you make more Gross Margin in 2019.
Send business card and money to:
River Heights Consulting
226 Hillcrest Avenue
Davenport, IA 52803
What if you already own the book?
We don’t want to keep you out of the loop on great deals. Send us a picture of you holding the book and we will send you a copy of our quick plan for more Gross Margin in 2019, just because Frank’s a nice guy.
Want some help with end of year planning?
Frank is offering end of year plan coaching at a special discount rate. Schedule an hour with Frank on any Saturday morning between now and Christmas for only $100.
**No one named Danny was hurt in the writing of this article.**
______________________________
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