Retention

MLM Perception Killers

Posted by Terrel Transtrum in Articles, Customer Service, Retention | 0 comments

Use these ideas to give your thought process a little “kick” and boost your ability to think “outside the box” to identify customer service and MLM distributor support that will put you first in the minds of your customers and distributors when it comes to growth, recruiting and retention.

Fast Start Success

Posted by Terrel Transtrum in Articles, Retention | 0 comments

“Our strategic opportunity lies in providing more effective support for every Avon representative immediately upon their decision to start their business.”

John Fleming, AVON
Vice President Sales, North America
November 2003 DSA Management Conference

What is It and Why is It Important?

Fast-start success of each new recruit, whether they are a customer or a business builder, virtually guarantees your long-term success. “Fast start” refers to the crucial period that begins immediately upon a recruit’s sign-up and continues through the first 90-days following sign-up.

The powerful emotion behind a person’s decision to join your company will rapidly subside unless the decision takes root. A customer must quickly experience the benefits of the products and services. A business builder must experience a measure of success that will reaffirm their belief in your company and in his or her ability to attain their goals.

In fact, the emotional “juice” that moves a person to action will diminish or completely dissipate when:

• The new recruit’s decision is questioned or challenged by well-meaning (but uninformed) friends or family
• The new recruit encounters a negative response when they share their newly found product and/or business opportunity
• The new recruit fumbles or procrastinates the important first steps in getting started; or worse, they don’t know where to start
• Time passes without sufficient reinforcement of the belief
• Expectations are not realistic or are not managed through the establishment of goals followed by adequate planning and action

Thus, effectively deploying your fast start system is the critical leadership activity that will give new recruits the best chance at succeeding with your company. Fast-start followed by effective business-building activities creates lasting business growth and retention.

Participating in your company’s fast start system should also produce the following results:

• More commitment and excitement
• Strengthened belief in the company, products, opportunity
• Increased growth in enrollments
• Increased leadership compensation
• Higher average sales per order
• Increased number of leaders
• Faster advancements
• Better team focus
• Great relationships
• More fun & celebration in building the business
• Increased retention
• Increased income

What is Fast Start?

To understand fast start and what you should do, first consider the activity timeline for a new recruit. The steps leading up to the decision to send in an application and the activities that immediately follow the enrollment are extremely crucial and time-sensitive. The clock begins to run. The energy and effort required to commence building, while reinforcing the seeds of belief and hope, typically comprise the single most important sequence of events in the life of a new recruit.

The activity time line, presented in Illustration 1, consists of the following phases: Pre-enrollment, Sign-up, First Order, First 72 Hours, First Month, First 90 Days, Ongoing Activity, and Inactivity.

FIGURE

Pre-Enrollment

This is the period leading up to the decision to enroll in the company. During this period, field leaders must present an exciting but accurate portrayal of the company, its products and business opportunities. This is where expectations are shaped and emotions contribute to the decision to sign up.

Sign Up

Submitting an application signals a commitment. It also indicates that a very small window of opportunity has opened for creating common bonds, answering questions, and addressing expectations, dreams, and commitments.

(Note: More information on effective pre-enrollment and sign-up is presented in the following weekly practice: Recruit to Retain – Understanding the power of market segmentation.)

First Order

The opening order, placed in the period that is most advantageous to the new recruit, will expose the new recruit to the order process, to company systems and personnel, and to the products. It presents a key contact point for contributing to the fast start success of any new recruit.

First 72 hours

A host of activities should occur within the first 72 hours of a new recruit’s signing up. The company and field should work together to assure that the correct foundational activities occur during this vital period.

(Note: More information on effective first orders and the first 72 hours is presented in the following weekly practice: The First 72 Hours – Key actions for you and your recruit.)

First Month

The first month following sign-up should be filled with training and one-on-one mentoring. Short-range goals must be set and achieved in order to build confidence and shape successful habits. Essential skills must be introduced and practiced.

First 90 Days

The Retention Leaders know that most new recruits exhaust their contact lists by the end of 90 days following sign-up. In fact, this is the primary reason that many organizations experience half or more of their total fall-out within the first 90 days. During this period, new recruits stumble upon discouragements, recognize their inexperience, feel forgotten, meet the realities of work required to attain their goals, and ultimately face decisions to drop out, cut back, or keep going.

MLM Distributor Retention

Posted by Terrel Transtrum in Articles, Retention | Comments Off

Managing the Million-Dollar Asset

Historically, businesses have viewed customer service operations as a cost-adding activity that subtracts from rather than adds to the bottom line. Companies frequently refer to customer service (encompassing field service or distributor service) as a “mop-up” crew, creating a perception that customer service is mainly a reactive function concerned with enrollments and sales that have already been made, and with little relationship to future sales.

These companies superficially respond that distributors are paid to take care of the customers, and that any budget for distributor service is difficult to justify since distributors are paid well to recruit and develop their customers and other distributors. Thus, managements scrutinize customer service operations for cost-reduction opportunities rather than for ways in which customer service can contribute to increased revenues and market share.

Throughout the 1980s, this casual view of customer service resulted in relatively high distributor and customer turnover rates in direct selling companies, reflecting the many distributors who failed to see the fulfillment of their expectations, or customers who believed that the prices charged for products were unjustified. The product – price – service model lacked sufficient foundation in the service component that they would leave after they had received indifferent service from their company of choice once they had signed up and begun ordering products. But it was also a time of economic expansion, with great new products and services in all business sectors, and with great emphasis on capturing new markets via the introduction of new products and services. Yet, with the cost of acquiring a new customer through distributor recruitment estimated at five times the cost of keeping an existing one, profit margins became increasingly thin—and still efforts to cut customer service costs continued!

It was a mixed blessing when U.S. businesses, which were in the habit of measuring results by the quarter and sometimes by the month, realized that they were being squeezed out of the world markets by Japanese and German companies, which had been investing for the long haul in their customer relationships, and were profiting at the expense of U.S. companies by doing so. While U.S. managements were not blind to the value of repeat business—customer retention—very few were ready to quantify their customers as assets, or to recognize their customer service efforts as asset management. These attitudes spilled over into the direct selling sector. However, overseas competition forced businesses to rethink their customer service attitudes, and by the end of the decade there were signs that the concept of “customer value” would probably supersede the focus on excellence, quality, and customer satisfaction that dominated so much of management thinking during the 1980s.¹

Figure 1. Customer-Base as Assets

Figure 1 represents the first known publication of data representing the customer base as assets, and reflecting the revenue enhancement that can result from improving the management of those assets. In this context, improved asset management is most often equated with improvements in customer service in any one of literally hundreds of ways, with the net result of retaining customers by ensuring that they have little incentive to deal with others.

An earlier version of this figure was published in the July, 1986, issue of Customer Service Newsletter, under the heading, “How customer loyalty goes to the bottom line.” The version shown here, which was introduced several years later, is the first to portray customer service as asset management. It has had considerable impact in that respect.

On the basis of American Management Association data for conventional business, a company with a 70 percent customer retention rate is typical of most U.S. companies, and an annual account growth of 10 percent among existing or retained customers is a reasonable expectation. This is the starting point for our analysis of the statistics that back up the power of distributor retention in the direct selling industry. We have taken liberty to begin the analysis by treating the 10 percent growth as representative of the growth in customer and distributor networks by active distributors, although the retention rate in direct selling has been shown to be the inverse of conventional business.

The data in the figure have been calculated on this basis and reflect the increases in ten-year revenues that can be anticipated from improvements in customer service that will increase distributor and customer retention as shown. Starting with a group of customers representing $1 million in sales during the first year, Figure 1 shows these totals after ten years:

• 70% customer retention rate $4,038,000
• 80% customer retention rate $6,012,000
• 90% customer retention rate $9,562,000
• 100% customer retention rate $15,937,425

This can be phrased as follows. Using the ten-year revenues from a 70-percent customer retention rate:

• 10 percent increase in retention will increase revenues by 49 percent
• 20 percent increase in retention will increase revenues by 137 percent
• 30 percent increase in retention will increase revenues by 295 percent

This original approach to customer service as asset management does not mean that managers should attempt to reach the 100 percent retention level, because it’s highly likely that the cost of providing that level of service would outweigh the returns.

What it does suggest, however, is that as customer service manager you will want to test and probe this theory of retention to modern distributor service applications and different levels of service—and the cost of the service features required to attain those levels—and then set service levels at the optimum point, when the asset return over a comparable period will be most favorable in terms of the cost of attaining it.

In the 1990s, senior managers began to think along these lines. As we applied the conventional principles in the direct selling environment, we paid special attention to the compounding effect when applied to distributors who brought in multiples of customers at a time. Part II of this series presents conservative extensions and a practical application of the power of retention as we now better understand it and the elements that make retention a worthwhile pursuit.

1 For serious students of customer value issues, a 1991 book, Competing Globally Through Customer Value, edited by Michael J. Stahl and Gregory J. Bounds (Quorum Books), addresses the subject of customer value strategy. The contributions in the book are mainly from faculty members at the Colleges of Business Administration and Engineering, University of Tennessee. There are also case histories and descriptions of applications at companies such as Bechtel, Xerox, Procter & Gamble, Georgia-Pacific, and Warner-Lambert. Subtitled The Management of Strategic Suprasystems, the book offers practical examples of customer value determinations, human resources management for competitive capability, marketing in a value-oriented company, and designing services to meet customer expectations. The editors credit the University of Tennessee’s Institutes for Productivity Through Quality for having provided “a living laboratory for many of the coauthors of the book to develop, test, and validate their ideas.” For customer service managers who expect to engage in serious dialogue with their own managements on future directions in customer service management, this book is an excellent reference and resource.