In the brilliant Mad Men, Don Draper famously presents one of the dark realities of the ad business to his protege, Pete: the day a new client is signed, it is literally the beginning of the end. Don trafficked in the darkness of a specific world view, but the grim universal truth is that no customer is as loyal as you would like to think. Here’s my corollary for the dental lab industry:
If you think you have loyal customers and your business is not growing year over year, you don’t have loyal customers.
Most dental labs have no idea how loyal their customers are. Each year customers disappear -- good customers. And then owners are forced to fill these holes by doubling down on sales, cutting prices, maybe opening a no-frills product line. The process continues to repeat the next year with more churn. Churn kills slowly over time and it forces dental labs to make bad decisions. Here are 3 of the most common and preventable (read to the end!) ways dental labs drive churn:
#1 Not identifying at-risk customers early enough
By the time you notice that their case volume has dipped, it’s too late. Case volume is a trailing indicator of loyalty and it means this customer is already sending cases to other labs. The key is to identify and engage the customer before they make the choice to trial another lab.
#2 Dismissing churn as price driven
It’s not. Not every dentist that tells you it’s about price is telling you the truth. Another way to think about the price objection is like telling the person you are breaking up with “it’s not you, it’s me”. It’s a convenient lie that typically ends the conversation with ambivalence on both sides. Or the salesperson agrees to cut a deal and now you definitely have a customer based solely on price. And the problem with a customer based solely on price is that the customer will churn when a better price appears elsewhere. If this sounds familiar, don’t worry, everyone faces this one. But know that you have choices.
Flip the conversation from price to value and ask questions -- there is likely another reason the customer is leaving -- especially if it’s a $10 differential on a crown. I know this sounds like a simple approach, but what if you really applied it? What if you also measured it across your team and discussed it weekly? You will also want to make sure you have a robust CRM to track these conversations over time and provide visibility to all team members working on that account. Hubspot actually provides a free CRM that is pretty amazing (full disclosure: Hubspot is part of our tech stack at LabWorthy). Pipedrive and Salesforce are also popular -- just make sure your solution is cloud-based so you can access it easily.
#3 Confusing history with loyalty
Just because you have customers that have worked with you for 20 or 30 years does not mean they are loyal to you today. Just ask the former execs at Blockbuster...they had loyalty cards too. Or all the people who used to buy books or really anything in physical stores that now use Amazon. I am sure all of those small businesses assumed their customers were loyal. And they were… right up until they weren’t. Our friend, Don Draper, would remind you that your customers are merely on an angsty slide from awesome to out-the-door.
Net Promoter Score is a leading indicator for customer loyalty
But, how do you identify the tipping point for that customer who is about to bolt? How do you know when they are in trouble? You ask them a simple question…
“How likely are you to refer my lab to a friend or colleague (on a scale of 1-10)?”
The responses you get will neatly segment your customers by loyalty:
Promoters (9, 10):
Brand advocates will tell their friends about your dental lab. They have real passion for your brand.
These are your “satisfied” customers, but they are tricky because their loyalty can be easily swayed by better prices or offers. They are not passionate about your brand or service.
Unhappy customers that hurt your business by sharing their thoughts with colleagues. They are most vulnerable to churn. The good news is that if identified early and engaged, there is a good chance you can save them and move them up the loyalty chain.
Imagine being able to segment your entire customer base into these three loyalty buckets -- you would be able to immediately address the concerns of your Detractors and leverage the positive sentiment of your Promoters to acquire new customers, thereby reducing your cost per acquisition in the process. You would have a growth machine.
Net Promoter Scores Correlate Positively with Business Growth
According to Bain & Company:
In most industries, Net Promoter Scores explained roughly 20% to 60% of the variation in organic growth rates among competitors. On average, an industry’s Net Promoter leader outgrew its competitors by a factor greater than two times.
Because NPS helps you drive new customers AND save existing customers (vs. your traditional churn model), it leads to significant growth opportunities for dental labs that apply it. Loyal customers tell their colleagues about your business. It’s estimated that every 5 Promoters you have will deliver 1 new customer (20%). Along with your ability to spot at-risk customers, this turns revenue growth from linear to exponential.
We will explain this in depth in a future blog post, but here is a graph tracking a hypothetical lab with an average annual customer spend of $24K that is churning 10% of its customers annually and adding 12% back through sales (blue line). The red line represents what can happen when that lab adds an NPS program to identify and nurture detractors and promoters over time--before they churn:
Does your lab face any of these struggles with churn? How are you addressing it currently? Feel free to share in the comments section or email me directly at: firstname.lastname@example.org. I enjoy a good discussion! If you would like a complimentary NPS survey delivered to all of your customers, we would be happy to help!
Net Promoter, NPS, and Net Promoter Score are trademarks of Satmetrix Systems, Inc., Bain & Company, and Fred Reichheld