 Put
a CORC in Your Budget
Alok
Kumar is Chief of Operations for a major telecommunications
company. In Kumar’s business, it takes eight to
nine months of revenue to recapture the ‘acquisition
costs’ of each new customer. Think about that: just to recoup the money spent on
advertising, promotion, introductory discounts, new-client
administration and data entry requires a customer to
remain loyal for eight or nine months! Only after the
tenth month does Kumar’s company start to reap
real profits.
What is the equivalent figure for your company? If you
think you make money the very first time your customer
buys, think again.
How much money does your company spend attracting new
customers?
How much do you spend on retaining existing customers
past the crucial tenth month?
In Kumar’s case, the answer was shocking! The
marketing budget for attracting new customers was huge.
But the retention budget for keeping existing customers
was tiny. In fact, it wasn’t even listed in the
budget.
At Kumar’s insistence, and only after much effort
and experimentation, his company introduced a budget
line item called CORC: Cost of Retaining Customers.
Starting at 0.8% of revenue, his company carefully tracked
results and now dedicates a full 2% of revenue to this
new but essential item in the budget.
At first, many people balk at the idea. Why spend money
out of profits on customers who are already giving you
the profits? Isn’t that crazy? Spending exactly
the money you’ve worked so hard to earn?
Not at all! In fact, CORC turns out to be one of the
most reliable ways to secure future revenue –
into the 12th, 15th and 24th month of customer retention
– and profits.
What kind of expenditures go into this CORC line item?
Goodwill gestures when things go wrong are included,
but such service-recovery expenses are reactive –
and are spent only after things have gone wrong
and customers are upset.
Kumar is more enthusiastic about the proactive
elements of CORC: sending unexpected gifts to long-term
customers, such as surprise bouquets of flowers and
dinner vouchers to customers on the tenth month of business.
The company even rented an entire movie theatre and
filled it with customers and their spouses for a special
viewing of a blockbuster movie. Many customers commented
that it was the nicest thing any company had done for
them in a long time. (And a lot more memorable than
just another discount.)
CORC: Cost of Retaining
Customers. One of the strongest, smartest and most profitable
expense items you’ll ever find – or put –
in your budget. How big is yours?
Key Learning
Point
Spending
money on pleasing, surprising and appreciating your existing
customers is good business. It keeps them committed to
your company and lets them know you value them NOW, not
just when they first signed up. Long-term profitability
comes from long-term customer retention, not just new
customer acquisition.
Action Steps
Figure out how long
each customer must be with you before you can recoup your
acquisition costs and earn a profit. Then look carefully
at how much you spend each subsequent month to retain
that customer with special activities and efforts.
If your budget is skewed heavily in favor of attracting
new customers, but not working hard enough to keep
them, put a CORC in your budget right away.
First Article in Customer Service Mindset >>
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