By Walter J. McDonald
Over the next several issues of this Newsletter, we will take a deep dive into the Best Practices of Customer Service and Retention.
First, we will look inward. What are the essential steps to build the Company Retention Team?
Then, we look outward. What are the most powerful ways to build External Customer Retention Strength?
For those of you who have our Master’s Program in Dealer Management book set, we will recommend additional reading for more in-depth details of “how to” actions.
How do you measure Customer Retention?
This is important.
- We look at what customers purchased the last twelve months (ending May 30, 2025)
- Then we identify the customers who also purchased the prior 12-month period (ending April 30, 2025).
- What percentage of those who purchased for the year ending May 30 also purchased during the year ending April 30? That percentage is the Retention Rate.
Retention Rate is a little tricky to visualize. Think of it this way: Of the set of customers who purchased for the year ending April 30, what percent also stayed with you through May 30?
What can be confusing, as an example, is that 95% retention sounds amazing, but that means you’re losing 5% of your customers every month. So. over a year you’ve lost 60% of your customers. This is fairly typical for machinery dealers across the board. But it is a dangerous, costly condition. Implementation of customer retention best practices would yield huge financial benefits for the dealer.
Benefits of Customer Retention
A low retention means you will have to spend more on customer acquisition to make up for that loss. It can cost six times as much to win a new account than to keep the customer you now have. Satisfied customers spend as much as 140% more than others. Second time buyers are twice as likely to buy again as first-time buyers. And, dealers with high quality service (as perceived by customers) are able to charge significantly higher prices, particularly for aftermarket maintenance support.
Losing a customer costs five times the annual sales value based on a life expectancy of 5 years. Many customers stay with you much longer. Finally, keep in mind, the average dealer spends six times more to attract customers than to keep existing ones through employee development programs to improve service quality. This means there is high value in building your employee customer service skills.
According to Debbie Frakes, Managing Director, Winsby, Inc. (winsbyinc.com), their Customer Satisfaction, Verification Calling and email programs with the focus on retention will reduce the machinery dealer customer loss rate to 30% from 50% with Returns on Investment of over $1,000 of revenue for every $1 dollar spent.
Build the Dealer Customer Retention Team
The perception your customers have about your dealership is critical. Customer Retention is the set of actions your dealership employs to increase repeat business. Of course, it is in your best interest to do everything possible to keep the accounts your now have. You want to make sure they have an outstanding customer experience.
You also want them to continue to see value in doing business with your dealership.
Customer leave because they receive insufficient value. How do customers calculate value?
| Benefits – | Cost = | Value |
| Knowledge | Poor Training | |
| Responsiveness | Don’t Care | |
| Availability | Back Orders | |
| Service | Poor Repair Estimates | |
| Really Care | Stupidity | |
| Accuracy | Inconvenience | |
| Competence | Inaccuracy | |
| Expertise | Hassle | |
| Friendliness | Dishonesty | |
| Go Extra Mile | Nastiness | |
| Focus/Dedication | Rework | |
| Excellent Service | Price |
It all begins with the competence and skill of your Customer Retention Team. This definition of VALUE delivery is an excellent employee roundtable discussion topic.
Employee Survey on Perceived Level of Customer Focus
It is important to identify and understand the team’s perception of your dealership’s current level of customer focus. What do each of your employees think? Do they believe your dealership is serious about Customer Retention?
A good employee survey is always conducted anonymously and in writing. Here is what to ask:
For each statement each individual employee rates the extent to which the statement is true for the dealership, using the scale:
| 0 — Not at all 5 — To a moderate extent 10 — To a very great extent | |
| 1. | Our dealership is totally committed to creating satisfied customers and to the concept of quality performance. |
| 2. | We make it easy for our customers to do business with us. |
| 3. | We work to continuously improve our products and services. |
| 4. | Customers’ complaints and feedback are analyzed to identify problems, and this information is shared with employees. |
| 5. | Given how customers define quality, we aim to do things right the first time. |
| 6. | We encourage, monitor and attempt to resolve customer complaints promptly. |
| 7. | Employees are provided the resources and administrative tools to delight customers and we are allowed to use good judgment to service customers. |
| 8. | Information from customers is used to define and improve our services. |
| 9. | Serving customers’ needs take precedence over internal needs. |
| 10. | The goal is to exceed customer expectations in important things. |
Remember, employee surveys must be conducted anonymously. Collect the surveys and calculate the average score for each of the ten questions. The three or four lowest score areas are topics for your next employee discussion/problem-solving meeting.
Organize all of your employees into small groups of three to five on each team. For best results, mix teams with employees from sales, rentals, parts, administrative and service.
Each group elects a discussion leader. And, each team reviews the average scores from their survey results. The discussion questions are:
What are our three most serious low scores?
How can we best remedy these situations?
How will we know when we have corrected each problem area?
Give teams 12-15 minutes to discuss, then each team reports.
I have found these discussion sessions to be an extremely effective way for employees to gain a fundamental understanding of problems and how to initiate corrective action. It is then up to supervisory level managers to encourage and foster implementation of needed changes.