No B.S. Guide to Maximum Referrals and Customer Retention. Dan S. Kennedy

correct. My goal for this business was to get to $25,000 per month in gross sales. The math was simple: If I had a customer average of $50 and wanted to get to $25,000 in gross sales, all I had to do was sign up 500 customers, assuming once I signed up a new customer, I didn’t lose any of them. In the end, I had to sign up 750 customers to get to 500 using customers. Some 250 people either tried us a few times and never used us again, or left for a variety of other reasons.

      Our primary method for signing up new customers was to go door to door in high-end neighborhoods. Hard work. It took me 12 months of door-to-door sales to hit my goal of 500 using customers. Had I retained 125 more customers, I could have shaved more than two months off of my door-knocking efforts or increased sales by an additional 25 percent or $6,250 per month had I decided to knock on doors for two additional months. Today, I am much more sophisticated in how I build businesses for myself and for clients, and much more focused on creating retention, rather than presuming it is earned just by good service.

      I tell myself and my clients: You can’t keep 100%. But we should find any significant losses unacceptable. We should be hyperattentive to attrition versus retention. Here’s why.

      Back in 2002, I looked at customer retention and used the above simple math to calculate what losing customers was costing me in both dollars and extra time spent growing. Although my math was correct, I was only looking at a small piece of the puzzle. Because I was only using basic calculations, I wasn’t seeing all the money I was leaving on the table when losing previously loyal customers. These numbers became clear, however, once I started using more advanced calculations, which we will walk through in my next chapter. I will also share a case study where we go in-depth on the real cost of a lost customer. You will see, clearly, how financially fatal that retention failure can be!

      Dan Kennedy talks a lot about knowing, doing, and using “Money Math.” There are many different aspects, many of which he explores in his book, No B.S. Ruthless Management of People and Profits, Second Edition. He would tell you that of all the Money Math that you need to understand and manage, none of it is as closely linked to how much or how little wealth is created for you by and in your businesses than preservation of customers over long periods of time—except in very high transaction, once or twice in a lifetime purchase businesses, in which case, retention of customers’ goodwill and interest in order to get referrals again and again over time is important.

      Because of Money Math, I made yet another move away from the pack in business. I do not just think of myself as an entrepreneur. I also think of myself as an investor. By the time we’re through here, you will too!

       CHAPTER 2

       Math Class

      by Dan Kennedy

      The best motivation for redirecting your energy and investment from pursuit of new customers to retaining, better monetizing, and multiplying the customers you have is going to a “money math” class. In this book, Shaun Buck does a masterful job of presenting the true math of the lost customer. Frankly, it’s a bit of a slog. You have to stop, think, and calculate. It’s worth it. Please do. Other chapter contributors also point to the math. Here, I’d like to start you with a simple but profound calculation. It requires you to know a number you probably don’t know, and it’d be better if you gathered up some information rather than guesstimating.

      The number to know is: What does it cost you to get a new customer?

      This is the cost of all your public advertising, marketing, promotion, promotional discounts on first transactions, plus some allocated percentage of your entire overhead—the same percentage as new customers contribute to revenue—added together, then divided by the number of new customers occurring, by month and by year. If, for example, you have three stores of some kind, and you spend $15,000.00 a month on advertising on radio, TV, print, online, plus 20 hours of yours or an employee’s “doing” social media (20 × $50.00 hour = $1,000.00), and your rent, light, phone, payroll, taxes and other overhead is $60,000.00 a month and you find that 30% of your revenue comes from new customers who never return equals $20,000.00 . . . . your total tab for getting new customers works out to $36,000.00 for the month. If you got 300 new customers, the cost is $120.00 each.

      In “big thumb math,” then, the lost customer costs you $240.00, because you invested $120.00 to get him and it’ll cost $120.00 to replace him.

      Getting a grip on these numbers is very important. This is how you make informed decisions about your marketing investments.

      Most business owners are underinvesting in marketing, by the way, thus stunting and restricting their growth and leaving themselves vulnerable to competition—which can be cured by my advice in Chapter 16. If this hypothetical business is par, the $120.00 being spent should be $240.00, thus the lost customer cost is really $480.00. But it’s even worse. Lost customers can’t refer, and beyond an early customer life surge, every customer should at least bring in one a year. So, in the year you lose one, you lose another $240.00 to $480.00, bumping the total to $480.00 or $960.00. This is called: attrition cost.

      The reason a lot of businesses’ profits fail to increase is that these costs of attrition are outweighing the profits gained from restocking with new customers.

      If this business invested $60.00 a year per customer just “making nice with” their existent customers for purposes of retention, it could avoid spending $240.00 to replace a lot of wandered-off ones. But, actually, they’d also recoup the money by increased patronage from the retained and happier, more engaged customer.

      Investing in reducing attrition is every bit as useful, potentially profitable, and valid as is investing in acquiring new customers, but few business owners treat the two as equals.

      I’ll stop. There’s more math to come.

      You were already interested in retention and referrals when you got this book. But I want you exiting it persuaded, convinced, and determined about it. So, this book is, in part, a big, long, fat sales presentation for investing in your own very, very robust retention and referral systems. As if we had them out in the back seat of the car in boxes and were in your shop or office selling them.

      It’s not that simple.

      But, also, pretty much everything you need to construct those systems is here, in these pages, and at online resources you’re directed to, that expand the book.

      It all starts, though, with commitment and determination. My speaking colleague of many years, the famous Zig Ziglar, frequently used the old chestnut that to breakfast a chicken contributes, but the pig is committed. The sports term is: all in. Constructing, implementing, and maintaining a retention system and a referral system requires investments: attention, interest, desire, time, energy, and money. If you had $100,000.00 to spend, which would you be more likely to do: Hire a salesman to go out and get new accounts or hire a retention and referrals director tasked with reducing attrition and boosting referrals? If your schedule got re-arranged to cough up ten hours a week, would you be more likely to invest in marketing, prospecting, and selling to get new customers or in marketing to retain and raise the value of existent customers? Truthful answers are revealing.

       CHAPTER 3

       The 5% Solution

      by Shaun Buck

      This chapter is about how big an impact a small number can have.

      Business owners tend to focus on growth in gross revenue terms. That’s how the pack thinks. For that reason, small numbers don’t interest