Retention as a Profitable Alternative to Sales in a 501(c) (3)

or How to gain $500K without increasing your staff A Guest Post by Ms. Hope Marie Sneed

 

THE FOR-PROFIT MODEL OF CUSTOMER RETENTION

In the business world, we believe that Sales is the proper Department for maintaining customer relations. The typical salesman finds the customer, has a relationship with them (account managing), and sells them more product.

This system works when the product is likely to become out-dated or is disposable – such as computers or saw blades.  In these cases, the salesman is perfect for managing the account since he can be there to take new orders as often as needed.

The salesman is rewarded by the same 7% commission whether it’s the customer’s first purchase or tenth.  The savvy salesman knows that one good account can be lucrative, and he has incentive to ensure the customer is cared for.

CHARITIES/ASSOCIATIONS

Membership-based organizations (MBO) try to use the for-profit model – but it doesn’t work because the customer (member) is only buying one item, one time (a one year membership for $1000.)  Of this, the salesman receives $600 commission.   The problem is that one year later, if the member renews, the salesman only earns $50.

Needless to say, it takes the commission from 12 renewals to equal one new member.  Maintaining 12 accounts, however, takes a significant amount of time – and salespeople will likely decide it’s easier to acquire one new account than it is to maintain 12 existing customers.

What this means for the MBO is that the salesperson is ideal for gaining a member, but is an imperfect solution for servicing the account.  There is little incentive for him to ensure the customer is happy after the sale.

EXAMPLE (Using numbers from a real Denver Non-Profit

Let’s assume an average membership of 7000, with a fee of $1000, and a retention rate of 75%.

This means that every year the MBO loses 1750 members, and sells 1750 new memberships.

Each new member costs $550 (the $600 commission, less $50 that would have been paid if it was a renewing member instead of a new one.)

$550 x 1750 members = $962,500.  If no members defected, the organization would save close to one million dollars in commission every year.

Of course not all defections are avoidable.  Some members will go bankrupt, or will die, or will realize absolutely no benefit and decline to re-join under any circumstance.

Let’s arbitrarily put this number of unavoidable non-renewals at 70% of the total non-renewals; so 1225 members are permanently lost.

This leaves 525 members which are lost for no good reason.   It is these members that we should talk more about because they’re worth half a million dollars.

An organization finds a way to keep these 525 – while continuing to recruit 1750 new members – will see a growth rate of 7%, and a first year revenue increase of $499K (525 kept members @ $1000 <less $50 commission>).The second year, the benefit is around $535K with a growth rate steady at 7%.

We need to find a way to keep these members.

SOLUTION

Currently the organization has two “member retention” experts, but what they’re really doing is calling at renewal time, assisting the sales staff.  This is not effective member-retention; it is more like member-salvaging.  The customer complaint: “I didn’t hear from them until they wanted more money” is valid, but avoidable.

There must be a way to show the members that the organization cares.  It‘s primarily the newer members who are most at risk of being among the 525 preventable defections, and of these, 3% are future sponsors – the most important members we have.

The solution for our MBO is simple.  Take account management away from the sales staff.  Use the $499K which member retention will save, and hire two very good customer care coordinators.  Part of their salary will come from releasing one of the current retention people as that form of ‘emergency’ care will no longer be needed.

The customer care coordinators have an important job, and need to be selected and paid accordingly.

The typical day for these workers will be to call and talk to 50 members, on a schedule that will allow them to speak to every member in the 2nd month of their membership, and again during their 7th.

Their conversation will go something like:

Mr. Smith, I am Allison from the organization.  I’m calling to make sure that you’re getting what you paid for.”

From this point on, Allison can follow the route suggested by the call, by:

  • Encouraging the member to attend an orientation
  • Talking them through the website
  • Explaining the uses for the online marketing tools
  • Taking down their concerns and getting back to them.

What Allison CANNOT do, however, is attempt to sell them anything.  She must be strictly a concerned MBO employee who is showing the member that they joined a club which values them as members.  Allison must be knowledgeable about the benefits of membership, as well as be empowered to make decisions such as “comping” an education seminar, or offering to send out more decals, etc. Most importantly, she must actually care.

The salesmen will now be relieved of these duties and can focus on finding new sales.

Up until now, we’ve thought of the sales staff as the Maitre d’ Hotel of a restaurant – responsible for the welfare of the diners throughout their supper. Instead, we should think of them as the human sign-board on the sidewalk.    The salesman’s job is to get customers through the door, and the staff will take it from there.