RETENTION: The Hidden Force Behind Growth, Profits, and Lasting Value - I

By Terrel Transtrum, Co-founder, LaunchSmart™

This article is part one of a five-part series where we explore the powerful and proven principles of retention.

You can help your company become good at retention!

Let’s roll up our sleeves and help you get started. Previously, we established that the attrition rate (drop-out rate) of reps and customers in direct selling companies is 80% on average. This means that of 100 new reps and customers joining you in January, only 20 of them will still be active by December. Ouch!

We have introduced readers to the Retention Myth, which is a myth that says, “You can’t measure retention and you can’t impact retention, so just out-enroll attrition.” We don’t buy it. We have worked with and observed more than 100 companies over 15 years, and some of them have proven the myth to be wrong. In this series of articles, we will show you what those companies are doing (we call them the “Retention Leaders”) and tell you how to do it.

Retention Principles and Practices

We have discovered that the Retention Leaders faithfully follow 4 key principles and apply 30 duplicable practices that drive retention. Here, we will show you the following:

  • How even a small increase in retention greatly leverages growth and momentum
  • That Retention is one of the key opportunities for high Return on Investment (ROI)
  • The four principles around which the Retention Leaders are succeeding
  • The 30 Practices that drive retention

Leverage Your Growth Through Retention

Not only can you measure and impact retention, your retention levels drive your recruiting requirements, growth, and profitability. Let’s illustrate the impact of even a small move of the retention dial.

Suppose your goal is 1,000 active in your business. As a simple illustration, say your company’s annual retention rate is 20%, the industry norm[1]. You will need 5,000 recruits to meet the goal of 1,000 active. Now here’s the point, as outlined in illustration 1: by increasing your retention rate only 5% you will need only 4,000 recruits, instead of 5,000, to meet your goal of 1,000 active – that’s 20% fewer recruits needed to meet your goal because you increased retention 5%.

If you increase your retention rate 10%, you will need 3,300 recruits to meet your goal – that’s 33% fewer recruits needed to meet your goal because you increased retention10%.

If you increase your retention rate by 20%, so that you have an overall retention rate for your company of 40%, you will need 2,500 recruits to meet your goal – that’s half as many recruits needed to meet your goal because you increased retention 20%.

These statistics are reflected in the following illustration. Sound like it might be worth the effort?

Goal R-Rate # Needed %?Needed Effect
1,000 20% 5,000 None
1,000 25% 4,000 20% ?5%R, 20%?
1,000 30% 3,333 33% ?10%R, 33%?
1,000 35% 2,857 43% ?15%R, 43%?
1,000 40% 2,500 50% ?20%R, 50%?

Illustration 1 – Retention Impact Matrix. If the goal is 1,000 active, and your retention rate is increased to 25% (5% above the industry norm), you will need 20% fewer enrollments (4,000 instead of 5,000) in order to attain the goal of 1,000 active. Thus, the effect of a 5% increase in retention is a 20% reduction in the number of new recruits needed to meet and sustain your goal.

Return on Investment (ROI)

A study published by the Boston-based firm of Bain & Company concludes that a 5% improvement in retention can result in as much as 25% to 100% increase in profits. Moreover, a mere 2% improvement in retention is the equivalent of a 10% decrease in expenses.

In addition to Return on Investment (ROI), we have also come to learn that the costs associated with Risk of Inaction (also ROI) can be enormous. Not only does a company become entrenched in cultures, processes, and systems that are difficult to change, but those companies that wait until they feel they have enough of a base of customers and reps to begin focusing on retention always lament that they did not begin to focus on retention when they first launched their business.

The Four Principles of Retention

Principle 1 – Value

Creating value for customers is the foundation of a successful business system. Creating value for customers and business builders produces loyalty, and loyalty in turn drives retention and builds growth, profit, and more value. Value must be created and adequately communicated at all levels of the corporation and in the field.

Let me give you a sample practice that falls under this key principle, that you can sink your teeth into what I am saying. The practice (from the table in illustration 2) is CONVEY VALUE. Does your staff clearly understand the value elements that you offer? Do they know the nifty elements of your pay plan? Product features? All the things that make your company special? Are these value elements organized and presented in a way, from the time that each new employee joins you, that you are confident that they are consistently conveyed to the world? Are the features and benefits of those unique value elements clearly identified and trained so that sales and upsells and service efforts are enhanced? You must methodically build this practice into your infrastructure, and over time you’ll experience the rewards of your preparation. Of course, I’ll shamelessly say that you can build this practice by yourself, or we can guide you through its fast, effective implementation.

Principle 2 – Expectations

Know, Manage, and Exceed Expectations. From the very beginning of the life cycle of a customer or business builder, you must know their expectations, do all you can to manage those expectations, and deploy all your resources to exceed expectations.

Here is a sample “best practice” under the principle of expectations. Business builders come with a high degree of energy and drive when they first join you. Do you have in place the absolute, fool-proof, stepped-out methods for assuring that they experience immediate success and short-term success experiences that meet their expectations and help to fund their progress? Are you applying the important disciplines for managing expectations when a person first signs up with you, having been promised the world by their sponsor?

Principle 3 – Service

The Golden Rule still rules. Service begins with a true desire to enhance the customer experience. It can be an overwhelming task, with so many tools available in the world of service, but with help you can break it down into a manageable and worthwhile undertaking.

Here’s a sample best practice in the area of service. Retention leaders provide the training and encouragement and support for their front-line employees to find a way to say “yes” to requests. This can be a complex and daunting practice to implement unless you have a couple of key elements in place, which include an effective system for contact tracking, clear guidelines for employees to follow, skills for making judgment calls, and accountability for decisions rendered and money spent to build goodwill. This is all attainable with careful planning and implementation. And the benefit can be enormous as the company gains consistency while it earns the highest marks in service.

Principle 4 – Leadership

Shape the vision, provide the passion, lead the way. Every corporate staff member must lead by example. Identify leaders, build leaders and make them successful.

One of the practices that we insist upon that falls under the leadership principle is the design of an organizational structure that is uniquely built for delivering the highest levels of service and responsiveness to business builders. For instance, your customer service manager should have unrestrained access to the CEO. The organization structure, when designed a certain way, can make the difference between a half billion dollar company with an astounding service reputation, and a struggling enterprise that is trying to figure it out. It can be as simple as removing the barriers and restrictions that always occur when a customer service manager reports to the operations, finance, or administrative executive rather than to the CEO.

The 30 Practices of Retention Leaders

Below is the overview of the 30 best retention practices that produce results for Retention Leaders. In future issues, we will be exploring these in more detail for readers.

Tier 3 •Ongoing Improvement
•Training & Development
•Meetings & Events
•Technology Tools
•Constant Discipline
•Meaningful Rewards
•Field Education
•Field Surveys
Tier 2 •Internal Team Building
•Relationship Building
•Reliable Guarantees
•Effective Communication
•Team Retention
•Resourceful Recovery
•Recognition
•Policy Administration
•Warm Fuzzies
•Service Commitment
Tier 1 •Make It Fun
•Metrics & Measurements
•Crisis Management
•Fast-Start Success
•Service Operations
•Contact Tracking
•Corporate Environment
•Keep Promises
•Gain Trust & Build Loyalty
•Management Practices
•Exceptional Employees
•Convey Value

Illustration 2 – Best Practices of Retention Leaders

[1] In three separate studies, the DSA, Harvard Business Review, and a group called Wirthlin concluded that the direct selling industry has an 80% annual attrition rate.

(The content of this article is extracted from ServiceQuest® RetentionSmarts™ Modules. For more information on RetentionSmarts™ training and mentoring systems, contact a member of the LaunchSmart Team.)

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