10 May 2006

Defending the contract

If you believe that a contract is no longer being honoured by the other party then it may be worth investing some time and cash in order to test whether they can be brought back to it. This is the equivalent of the churn management programmes that I'm sure that you will have been exposed to in cable TV or mobile telephones.

As the supplier, you know that the contract that was in place had a value to you and what it will probably cost you in time and money to find another customer with similar value - it is therefore worth a proportion of that cost to test whether the original customer can be retained. That testing is done automatically in some organisations. Where the cost of sales isn't huge and the lifetime value of a contract is low then there wouldn't be a major effort to retain any individual contract. On the other hand, if the cost of sales is high and the lifetime value of the contract is large then there will be a substantially larger effort to retain the customer.

Customer retention is a significant part of business development - as well as representing a group of advocates who can sell you to other targets, they represent your short-term cash stream - and where else are you going to fund your ongoing business development efforts?


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