Recurring Income
4 min read

How Can You Retain Your Service Contracts?

Why is contract retention so important?

It is far more expensive to acquire new customers than it is to keep and develop existing customers. Businesses should do everything they can to recognise the signs of an “at risk” customer to win back their loyalty and increase the lifetime value of their future business.

The value of the contract base is significant as it:

  • Increases company value
  • Provides a recurring income stream.
  • Delivers higher margins
  • Provides follow-up sales in call-outs, extra works, and upgrades.
  • Gives the opportunity for repeat customer contact
  • Reduces the threat of competition.
  • Generates a positive cash flow.

With the softening of growth in the economy, customers are looking harder at their costs and how to reduce them. This can lead them to seek alternative quotes for service contracts at renewal time.

1. Measure and analyse contract attrition rate levels.

Measure contract attrition levels so that you know the annualised attrition rate on a monthly basis. Structural attrition runs at around 5% i.e. lost contracts due to customers moving, business liquidations, etc. If attrition is greater than 5%, this indicates that contracts are being lost because the customer has chosen to engage a competitor due to perceived poor service or because they do not perceive that the service you offer gives them value for money.

Track the reason why the cancellation has occurred e.g. poor service, price (value for money), liquidation, move of home or business, etc. When it is not about relocation or liquidations, take action to address the customer’s concern.

2. Deliver a positive experience throughout the customer journey

Much business advice is focused on sales and marketing and on attracting new customers. Yet retention of customers and service contracts is of paramount importance – and this can fall between the cracks of a dual focus on technical matters and on winning sales to new customers.

I like the “ ICARE “model described in Ken Blanchard’s book “Legendary Service”:

“I” stands for ideal service. Begin by asking yourself how you can ideally meet your customers’ needs.

“C” stands for customer service culture. Work to develop an environment focused on delivering what your customer needs.

“A” stands for attentiveness. Be attentive to what your customers are saying and what they want.

“R” stands for responsiveness. Show your customers how much you care by the speed and effectiveness of your response.

“E” stand for empowerment. Empower your employees to deliver great customer service. 

3. Develop and deploy multiple retention strategies:

a. Have regular service level agreement reviews with key customers and make customer care calls

Segment your customers to identify those that represent 80% of your total contract value. Have regular face-to-face SLA meetings with your highest-value customers. Make a planned call to customers whose annual contract is in excess of £1000 three months before the contract expires. Confirm during this call that the customer is satisfied with the service you provide and that there are no service delivery issues. If there are issues, resolve them speedily. Confirm their intention to renew the contract in advance of the renewal notice being sent. If they are satisfied, use the call to cross-sell other services on disciplines you are not currently servicing.

b. Review your written renewal communications

This can often just be an invoice with the price for the coming year. Why not also include a reminder of the benefits of the service contract you offer and a reference to the full range of product disciplines you can service?

c. Respond effectively to a cancellation request

When customers request to cancel their contracts, ask them for their reasons and offer them an alternative that counteracts their perceptions. Make sure your staff is well-trained in offering alternatives and have access to all relevant customer data.

d. Market to new occupiers

Develop a clear sales process for communicating with the new occupiers of a private residence or commercial building. This may involve a telephone call, direct mail, email or a combination of all three.

e. Develop win-back strategies

Contact your lost customers and make them an offer to win them back. This can be done by email, or letter, ideally followed by a telephone call. The customer may have initially left you to take up a lower-priced offer from a competitor - but their service experience with the new supplier might be negative and they may be having buyer’s remorse.

Retention of customers and service contracts is vitally important. It makes sense to measure and analyse the attrition rate, deliver a positive experience throughout the customer journey and develop and deploy multiple retention strategies.

Rathbone Results are a team of professional business advisors, who specialise in helping business owners and managers improve the performance of their business. 

Jim Rathbone

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