Should You Incentivize Employees to Improve Customer Retention?

Filed in Blog by on July 30, 2014
Should You Incentivize Employees to Improve Customer Retention?

There is the saying, “money talks, nobody walks.” There are many different ways to interpret this quote, but in the business world, I have always construed it to mean if you want associates to obtain a certain goal, provide a financial incentive.

In the early 1980’s, I worked for Automatic Data Processing (ADP).  ADP hired a C-level suite executive to focus on customer retention. Retention at ADP was a consistent key metric that was measured and incorporated into every General Manager’s bonus plan, which was quite substantial. The Executive VP developed a “bank book” incentive plan, company-wide, and it was my responsibility to implement the program with my account management team.

The program was a success. The account manager position was an excellent entry-level position for a person with a college degree who wanted to work for one of the fastest growing and profitable service organizations in the world. The average starting salary was approximately $25,000 a year and the incentive program had a maximum payout of $12,000. That definitely received the participants’ attention.

At the beginning of the year, each account manager received a savings booklet with a $10,000 opening balance. Every time a new account was sold in their territory, one percent of the annual revenues were added, averaging about $20 based on a yearly revenue of $2,000. However, if an account was lost, the associate had ten percent of the revenues or approximately $200 deducted from their bankbook.

The program made the account managers focus on retention.  By design, they paid a great deal of attention to their largest accounts, knowing if they were lost it would cost them $500 to $1000 a pop.  Clients were consistently called, planned periodic visits made or surprise spur of the moment check-ins.  They frequently brought their clients fresh donuts or candy which everyone appreciated. If there were an issue, the account manager would speak to every internal department and not only resolve the specific problem, but act as a detective to discover the underlying cause. When there was a particularly major complication they would sometimes send a bouquet of flowers at their own cost after the matter was totally resolved as a way of saying “sorry.”

The program was a winner! There were certainly some accounts lost that were totally out of the control of the associate, such as bankruptcies or acquisitions. However, those were few in number.

In most organizations, sales people are compensated for new revenues, but very few companies pay incentives for retention. It costs at least five to six times as much to bring in a new client as it does to keep existing ones, so this doesn’t make good business sense.  Willie Sutton, the notorious bank robber from the early 1900’s had a famous saying when he was asked why he robbed banks. He said, “that’s where the money is.”  Customer retention is where the money is too.

Set up a program to pay for customer retention. You have nothing to lose and everything to gain. You may have to continually tweak it to fit your needs, but that’s with any new program that you try.

Let me know what strategies have successfully worked in your experience and any advice you have for our readers.

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