Everyone can agree that customers are the lifeblood that keeps businesses running. As a business owner, you should pay attention to customer retention. If you can have regular customers, that’s a big win because they would prefer your brand over anything else since they know your products statistically. But when you lose customers, that is something you should look at. Perhaps it could be from a bad customer experience, lousy product experience, or inadequate communication from the seller to the customer itself. To cut it short, losing customers is terrible. However, Dan Pfister thinks that there is gold buried in the loss of customers and how to win them back with his winback mindset. Tune in on this episode to find out how with your host, Ben Baker.
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Winback Mindset With Dan Pfister
[00:00:54] I want to thank you for being part of this show. We are in their six-season now. I love the fact that you come back week after week. You share and comment. You get in touch with me on LinkedIn and email me at Ben@YourBrandMarketing. In this episode, I have a special guest because he was introduced to me by a special guest. People who have read the show remember Peter Thurin from Melbourne, Australia. Peter, my buddy, my mentor, and my pal introduced me to Dan Pfister. Dan and I are going to talk about the win-back mindset. He says, “There’s gold buried in your lost customers.” Dan, let’s talk about it. Welcome to the show.
[00:01:34] Thanks for having me on the show, Ben. I greatly appreciate it.
[00:01:37] My pleasure. If Peter says, “This is somebody you need to know,” that’s enough. I’ve got a dozen good friends of mine that say, “You need to have this person on the show.” I love the fact that they do that, either it’s people that they’ve heard on other people’s podcasts, they know personally or have read a book about, and it allows me to meet incredibly interesting people.
[00:02:03] Peter is one of the finest human beings I’ve ever met. He’s a wonderful man and crazy smart too.
[00:02:09] Crazy smart and one of the most optimistic people I’ve ever met in my life.
[00:02:14] A phenomenal mindset.
[00:02:17] Let’s get into this. Before we get into the win-back mindset, because this is something that everybody needs to think about, let’s hear a little bit about you. Let’s find out a little bit about where you came from and what brought you to this point in time because we are all a combination of our history, where we were, where we are, and where we are going. Give me a little bit of a mindset shift and understand where you came from, and then we will get into how we mine those great lost customers.
[00:02:45] In 1998, I started a company with a couple of other people. There’s this big new world of the internet. All these costs of distribution were going to zero. We had this idea for a new business. What happened was we went out, we found that we could get customers inexpensively. If we got them in bulk because of the competition, they were getting them one at a time with direct mail costing $60 or $70 a pop to get a customer.
What we would do is we would go to a large company like IBM and say, “Can we sell you 1,000 licenses?” We had zero cost of acquisition except for our salespeople’s time for going out and approaching IBM or whatever. We had zero cost at distribution because we were doing it over the web. We had our competitors accuse us of doing something illegal because our costs were cheap because we could undercut them so much.
Anyway, that business was great. It tanked in 2001 with the dot-com crash. We were going gangbusters and had to pivot. In 2008, we had to pivot again. What we did in 2008 is we decided to go after small customers because we were getting Fidelity, IBM, and all these big customers. You lose 3 or 4 of those in a downturn, and it can hurt. We wanted to have a nice big broad customer base. We ended up by about 2016 generating 50,000 to 55,000 small customers, and things started to head south. It’s like, “Is this like 2001 or 2008 again?” We are losing all these customers.If you have an adverse situation and fix it, you will come to the other end stronger. Click To Tweet
One of my partners said, “Dan, you are in charge of getting these people back.” I’m doing a lot of work on keeping our attrition and have reached out to everybody. If somebody goes, we reach out to them three times, and if they are gone after three times, I figured they are gone for good. Lisa said, “No, you got to do better.” I thought that was all there was to it. I did a program, and it got a 57X ROI right out of the gate. It was the fastest, easiest money I had ever made. I banged and win back. I love it but became converted. We optimized the process. It was exciting, and I thought there was a business here because I love small business people. I’m one of them.
[00:04:55] Welcome to the world of small business.
[00:04:59] Here’s something that feeds my heart and could also do a lot of good. I wanted to see, “Am I like a unicorn when it comes to win back or is this typical?” I did a study. It took nine months. I talked to a lot of founders, CEOs, and some larger companies’ people too like CMOs and CROs. It turned out that my experience was typical, with a very high ROI and low cost of reacquiring a customer, and lots of people would come back if you approach them well. You just had to find the right approach. I got excited about it that I said, “I’m going to do business with this,” and that’s the background.
[00:05:36] That’s interesting because we sit there and look. I love the three-and-out mentality that you are starting with because that’s to be typical. A customer, for whatever reasons, whether it’s your fault or their fault, the economy or whatever it is, walks away. We sit there and go, “We will give them three shots. We will create a three-email funnel. Hopefully, we can get them back. If we do, we do. If not, go off and get the next one.”
Losing one customer happens. Two, it hurts a little bit more but suddenly you got 10, 15, 20, 100 or 1,000 customers that leave you, which can get expensive very quickly. Trying to gain back and acquire new customers at a rate at which you are bleeding on the other side is not as easy. What were the things that you were seeing that you said, “Here’s a formula that is working that is enabling me to go back to these old customers and have that conversation that is getting their attention again and making them want to give us another shot?”
[00:06:45] It depends on why they left. If they left on bad terms or good terms, all these things are contributing to how you go back but let’s take it as a bad scenario. Let’s say that they left on bad terms. The very first thing you would do is you would reach out and say, “We messed up somehow. We will take full responsibility. Let us know what happened, where we went wrong, and what we can do to win your business back.” Simply going out, taking responsibility, and letting them be heard, make a massive amount of difference right out of the gate. Relationships are strengthened through adversity. If you’ve got an adverse situation and fix it, you are going to come out of the other end stronger.
A study that Marriott Hotels did found that among people who had a good stay, no problems at all, 89% of them would come back but people who had a problem with their stay and the problem was fixed, 94% of those said they would come back. Five percent more people would come back because you had been through something together. There was some a bond there, and that is a weird quirk of human nature but these people will come back by doing that like if there was a customer service issue or something.
The thing about win back is that a lot of people will tell you what it will take to win their customers back. Do you have to ask them? You’ve got to ask them genuinely. It’s not like, “What do you want?” It’s like, “Let’s dig into this. What would you like? Where did we fall short? Where can we do better? You chose a competitor to go to over us. What are they offering that we are not?” Have that real conversation.
Jill Griffin wrote a book on win back several years ago, and her research showed that about 1 person in 1 company of 3 will tell you exactly what it takes to win their business back. They will do that because they don’t want to go to somebody else. They already know you. They already know you try to do a good job. If you want them back and are willing to do the work, they are going to choose you over any other vendor. That’s what we find over and over again.
When somebody leaves you to go to somebody else, when you want to win them back, it’s not like you are up against all 200 of your competitors. It’s, “Can you beat the person who’s in the slot now.” It’s phenomenal how easy it is to win sometimes because the new person who’s taken over for you or the new vendor is not lightyears ahead of you. There’s always an end.
[00:09:06] That’s interesting because I remember one of the most profitable clients I had for several years was one where I pooched it right out of the gate. It was a bid situation for a large city client and what we had to do was we had to produce a garment for them that was on spec, and it had to be in by a certain date, and they paid me $600 to do the spec.
What happened was my vendor in Asia messed up. It turns out he had some family relationship issues. My job fell through the cracks, and I showed up twelve hours before I had to get it out to the customer. I looked at this thing, and one sleeve was longer than the other. The pockets weren’t even. There was a whole bunch of stuff that was wrong with it.
The first thing I did was I called up the customer. I said, “Here’s the situation. I can’t submit this thing for a bid because it’s going to make me and you look stupid. The first thing I’m going to do is I’m going to refund you your $600. It’s already in your bank account. The second thing I’m going to do is if you need to blame me and have me lie on the sword, go for it. This is 100% my fault.”
Sure enough, we didn’t get that bid. We didn’t get that contract but it ended up being my most profitable client for several years running because this guy knew that I would tell him the truth at any point in time. I love the comment that you said when we lose a client and somebody else has taken over the business, you are now not going after a hundred different people. You have to be better than the person who they are still in the honeymoon stage with. It’s like when I’m being chased by a bear. I don’t have to be the fastest person in the world. I have to be faster than the person who’s two steps behind me.
How do we get there? How do we get back to that original conversation to sit there and say, “I need to swallow my pride. I need to pick up a phone. I need to get on a plane. I need to book an appointment and say, ‘how do we fix this?’” How do we get them? It’s ego, pride, egg on our face, and hard work. A lot of companies are not willing to do this. They say, “It’s easier for us to go looking for new customers than have to swallow our pride and go back to the people that we messed up too.” How do you help people get over that initial shame or whatever it is within themselves and teach them the value of going back?
[00:11:33] Starting off with the value of going back. It’s much easier to win back an old customer than to get a new one. The win rate is five times better. We can talk about the reasons why but the whole thing is it’s so much easier. If it’s easier, what’s getting in the way? It’s going to be your emotions. “They rejected me. I don’t want to get rejected again. Why would I put myself in that position?” The thing is that people are very forgiving. A little bit of time heals a lot of wounds but if you are the type of person who’s going to go back and try to win back a customer, you’ve never screwed them over, to begin with. You’ve done your best to make things work as you did.
You fell on the sword. You’ve got a relationship there. These relationships count. Relationships are sticky. You do something good for somebody. It lasts for years. Everybody messes up, and people are accepting of that. The way that I try to get people to see that past customers will come back, I can tell them the stats, 26% of past customers come back on average, whether you see some huge study from Harvard Business Review or my small study. People come back in large numbers but that’s not enough to get over that emotional hurdle.
What I do is I interview people who have done this and have gone out to customers. I talked to one woman, and she was trying to win back a customer for commercial cleaning. She said, “Tell me, where did we go wrong? What happened? I’m here to learn. I want to do a better job. How can I do it? I’m not pitching you. I’m not trying to sell you. I’m trying to do better for the next person.” When you approach it where you are not going to get rejected because you are there to learn, that can take some of the bites out of it. That’s one way of doing it.
[00:13:15] The big thing with that is listening actively, to sit there and say without, “Yes, but. But wait for a second, but you did,” forget all that conversation that goes out in your head. You must sit there and say, “What did I do wrong?” Sit back and let them tell you everything. Let them vent and have their moment. Let them get beyond it and be able to learn that, “He or she is willing to listen to me and they care about me. I could trust them again because they care about me, and they are listening to me.”
That’s an important piece because most people don’t listen actively. They listen to interject. They listen to form their own argument. They don’t listen to sit there and say, “What is this person saying? What’s the undertone? What are the hidden issues that I need to dig down?” Ask them why, how, what, and when. Teaching people how to do that is very difficult because most people don’t know how to do that well.They see you, they've seen the competition, and they chose you. So you're going to stay longer. Click To Tweet
[00:14:18] You need an empathetic person. There’s a certain type of person that needs to do this or do that work. I wanted to mention one thing. Think of it this way in terms of word of mouth, and you are angry at me because I did something. What are you going to do? You might go onto Slack, LinkedIn or some other public forum and say, “Dan sucks. I can’t believe what he did.”
Negative word of mouth is so damaging to a brand. You’ve spent all this time, money, and effort creating a great product and customer experience. You’ve done everything right. You’ve got 500 great reviews on Trustpilot or whatever. A couple of bad ones are going to do you a lot of damage if your competition doesn’t have bad ones. “Why would we take a chance on this? When can we go with this?” It’s a big deciding factor.
People are afraid of making mistakes. They are afraid of losing face at work and relationship capital by making a wrong decision. When you go and say to your customer, “Tell me all your troubles. Tell me where we went wrong,” they are venting or expressing it with you. There’s that secondary benefit of mitigating negative word of mouth, which is huge. There are so many wins involved in this.
[00:15:57] On the other hand, I sit there and look at companies that have 500, 5,000, or 50,000, 5-star reviews and not one bad review. I’m circumspect. I sit there and go, “Really? Nobody is perfect. God knows I’m not.” I’m the first person to tell a new customer I’m going to mess up. “I will guarantee you some time in our relationship. I’m going to mess up. Please tell me when I mess up and give me the opportunity to fix it.”
I look for those 4-star, 3-star, and 2-star reviews. I want to know what’s the undertone behind it. Was there a comment that says, “They came back, listened to us, and fixed it?” Do people look at those two-star reviews and try to either delete them off their system or bury them up and hope that nobody sees them? We all need to realize that everybody messes up. Everybody makes mistakes. Nobody is perfect. Nobody is going to give a 1,000% customer experience every single time.
We need to give both ourselves a break and also understand what we did do wrong and how do we make it better. You gave me a number of 26% but when you are reviving these dead accounts and looking through a list of dead accounts and everybody who has been a sales manager has given a list of these accounts to their brand-new sales guy and say, “These are dead accounts. Go and see if you can find some gold in here.”
How do you determine? A lot of it is garbage in, garbage out. A lot of CRMs are incomplete. A lot of salespeople don’t put in good notes. There are lots of different reasons for it. It is what it is. How do you go about determining or looking at customers in a face value or objective matter? Which are the ones that we should focus on first, and what’s our plan of attack?
[00:17:57] If you want to start objectively, which is a fantastic place to start, you would first take a look at indicators of future value. One of the primary indicators of future value is past value. You take a look at, “How much did they spend? What was their previous lifetime value? How often did they buy?” All those things.
Previous revenue generation is number one, and then it’s recency. How recent have they left? You then take a look at their buying window. For example, if you are in an industry where the buying window is yearly. If you are on a yearly contract, you take a look at the people who left more than a year ago because it’s going to take time to get into the account and all that stuff.
You take a look at those factors like timing and how much they generated. What’s interesting is that when you win a customer back, you generate on average about 120% of what they generated the first time around. Basically, lifetime value doubles. That’s probably a startling thing to say. Let me give you a little bit of proof around that.
[00:18:59] I was going to ask for some proof but you beat me to it.
[00:19:03] It’s because it’s a big deal. You would expect, “They left me. They might come back for a couple of months. Try me out again, and chances are, they will only be around a fraction of the time they were before,” but no, this is a considerate purchase. When they come back the second time, seen you and your competition, and come back and chose you, that’s one point.
I’ve won back thousands and thousands of lost customers. We get at least 120% when they come back. That was with thousands of people. Harvard Business Review did a summary of a study that was done in 2016 of 40,000 lost customers. They had over 120% also. The first-lifetime value was about $1,200. The second-lifetime value was 1,480 or something like that. You can see that’s March 2016 Harvard Business Review.
In the customer win-back benchmark study. We interviewed well over 150 people who did win-back programs. Numbers about 47% said lifetime value more than doubled, and about 49% said it doubled. Ninety six percent of the people said lifetime value doubled or more, and 4% of the people said it was less. There’s a lot of statistical proof around that. What underpins it in my mind anyway when I’m trying to let people know that this is significant is that this is a considered purchase. They’ve seen you, the competition, and have chosen you. They are going to stay longer.
[00:20:29] Typically, do people come back faster? Is it faster to bring back a client or is it faster to go out there and get a new client? A new client going to test you out, do small orders, keep their original vendor, play around and this, that, and the other thing, and it takes a long time before you win a considerable amount of their business. With bringing back clients, do you find that the turnaround is quicker in terms of being able to get them back and see the ROI on the investment?
[00:21:00] The sales cycle is so much shorter. The customer win back benchmark study that I did shows it’s 70% shorter. In other words, you can win back three past customers in the time it takes you to win one new customer. There are a number of reasons. First of all, there is so much of the time-intensive sales work is already done. They are familiar with you. They know you. You know them.
These are prequalified leads because they had a need for your service in the past. They probably still have it now or will have it in the future. You’ve spent all this time creating the relationship, creating the trust, and educating them on the product. There’s all that time is saved. You are already an approved vendor. You have been through their security protocol. There is this massive amount of time is saved.
There’s the other part, and that’s how fast they ramp up in revenue. That’s what you are talking about. A new customer has to learn about you and your product line. They got to be exposed to all these different things that you offer. That only happens over time. The great thing about a lost customer that comes back is they don’t act like a new customer. They act a mature customer. A mature customer buys more upsells, cross sales, and refers to higher rates. All of these things happen. You got that double whammy. Thanks for asking the question in that way because I’ve never answered it like that before.
[00:22:17] Let’s get into the five times. You were talking about the five times rate. Let’s talk about that. Give us the scenario behind that.
[00:22:25] That number comes from Ipsos Loyalty. There are a lot of reasons for it but I will speak about three because that’s probably all we need. First of all, sales. Sales is a trust game. You already have a level of trust with your past customers. They knew you, talked to you, and you are a known quantity, you’ve done work for them, and they know how you act and don’t act. There’s a level of trust.The customer needs to feel free to speak openly. Click To Tweet
A new prospect has literally zero level of trust with you. They don’t know you. They haven’t seen you in action. I wouldn’t say zero. Whatever they give you as a default, that’s all you’ve got but you’ve got a lot more with a lost customer. Jeb Blount calls this a Law of Familiarity. The more somebody knows you, the more they trust you. That’s one thing.
The next thing is you know so much about them. You’ve done business with them. Your AEs, customer service people, and your customer success people know them. You’ve talked to the people who’ve made the decisions, the people who are working on the front lines with the product. You’ve got all this insider knowledge, and when you go back to these past customers, you can create tremendous messaging so much more personalized than with somebody you don’t know because you got all this inside knowledge. Not only does it help you with your messaging but it helps you with the offer. It gives you a good idea of what offer you should put in front of them.
With new customers, you’ve got no idea. You haven’t seen inside their company. You get an idea of what they are looking for based on stuff that’s online or third-party data, or if they are a public company from what they have to report. That’s the second thing. The third thing is these relationships will tell you a lot of the time exactly what it takes to win their business back as I mentioned with Jill Griffin.
When you combine all these things, the inside knowledge, being able to create messaging that they will respond to, creating an offer that they will probably like, and then checking in with them and saying, “Is this something you would want?” They will say, “No, change this and this. We will buy or we will look at you much more closely.” Those three things alone, you don’t have any of those yet to that same degree with your new prospects. You’ve got this big inside track, and it makes a massive difference.
[00:24:32] Let’s talk about the trust factor because, in a lot of respects or a lot of times, clients are lost because something within the trust factor was lost; it happened. If you are going to go back after a client that you changed the rep and be able to sit there and say, “Let’s form a new relationship with a new sales rep with this client to be able to sit there and say, “We don’t know what went wrong. Here’s a new person. They are in the company and got all this experience. This is what they are. ” To allow that new fresh face to go in and be able to get the mud out of the cellar and start fresh or do you suggest bringing in the person who made a mistake and get them to go back and do the mea culpa? Where do you think that the better option is?
[00:25:17] It all depends on the situation. What you need is a person other than the rep doing the win back or at least the initial outreach. It could be a third party, you could hire to go out, and do this, the asking, the initial learning or find out what went wrong.
[00:25:33] It’s dispassionate. There isn’t an emotional attachment.
[00:25:37] The customer’s got to feel free to speak openly. However, you do that, whether it’s the customer success manager who reaches out or a third party, they’ve got to be able to say, “This rap isn’t working for me,” and if that’s the case, you’ve got a clean house there. It is the rap that’s part of the product that doesn’t work for me. In other words, you’ve got to isolate the problem. It’s so often that it’s not the rap.
We find that it’s the product or it was somebody in customer service. You’ve got to isolate the problem, and you’ve got to make it very easy. You got to create a safe environment for the lost customer to speak freely. Somebody like you, got tremendous empathy. You’ve got fantastic listening skills, and these are the qualities that you need in that person who’s going to go and do that outreach.
[00:26:22] That’s important. I do this for customers all the time as I will interview their customers on a show and find out what they like, don’t like, what works, doesn’t work, where they are, where they are going, what the challenges are, and the opportunities. There are things that answered me that they will never talk to their actual customer. It’s because, first of all, of my mannerisms. My ability within these conversations. I’ve done them a thousand times before. It’s a different level. There isn’t that emotional attachment. There’s a lot of benefit to that.
[00:26:57] If I had the opportunity to have somebody like you going do those interviews, that beats any customer service or customer success person internally because you’ve got the skills. You understand how to do that listening. You know how to dig and how to ask questions in a way where they feel comfortable answering them honestly. It’s a massive skill. If you’ve got somebody in customer success, you can do that, fantastic but if you don’t, it’s critical. What if you’ve got 50 major customers who’ve left? It’s critical. You’ve got to understand what’s going on. Putting out that money to go and make that happen is so important.
[00:27:28] You are also going to see patterns. When you interview 55 people within a short time, you are going to see patterns to sit there and say, “There’s a logistical issue that’s causing this. Here’s where the breakdown is. This is where I’m seeing red flags.” As you said, it may not be the salesperson and probably isn’t the salesperson but it’s somewhere within the system that there’s a bottleneck that was causing confusion and stress. When customers see stress and things aren’t easy for them, they go out looking for other options.
[00:28:12] You know what you are talking about when you’ve got patterns. If there are patterns, isn’t that something amazing to find? If you find a pattern, it’s like you’ve found a hole in that leaky sales bucket. You sound where customer success and customer service didn’t know we were leaking like that. If they did know you were leaking because of that reason, they would’ve plugged that hole but that hole isn’t plugged.
[00:28:36] They may not be empowered to plug that hole, which is another issue altogether.
[00:28:41] Let’s say for the sake of argument that you’ve found something new in this trend. You are not only going to save a bunch of those customers who’ve gone, you are going to take that learning and apply that to your current retention protocols. You are going to save all kinds of at-risk customers. You are going to apply that to your entire database and get increased retention overall. Some of the things that people find in these win-back programs, it’s nuts, like how much they increase retention. One gentleman increased retention from 80% to 97% because they found this huge blind spot in their company. It only came up by talking to their last customers.
[00:29:27] Two last questions. The first question is, what have we missed? If you had one piece of advice or one thing that you think that the audience needs to know about the whole win-back mindset, what would it be?
[00:29:40] Your lost customers will come back. Gone today isn’t gone forever. Lots of people will come back, talk to them, and find out why they left and what it will take to win them back. In my experience, it will be the fastest, easiest money I’ve ever made, and I have been doing marketing for a lot of years.
[00:30:00] How do people get in touch with you, Dan?
[00:30:13] Here’s the last question and the question I ask everybody. When you leave a meeting, get in your car and drive away, what’s the one thing you want people to think about you when you are not in the room?If you're going to win back customers, you need to care. The same thing can be said about employees. Click To Tweet
[00:30:23] “He cares. He wants me to do better.”
[00:30:27] Caring is the key. If you are going to win back customers and keep customers and employees, you need to care. Everything that we’ve talked about for customers can be said the same thing about employees. Caring is something that we can’t dial in or phone in. It’s either you care or you don’t. Dan, thank you for caring, your value, and your stories. I appreciate that it all.
[00:30:54] Thank you so much for having me, Ben. I enjoyed this.
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- Harvard Business Review – Article
- Ipsos Loyalty
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About Dan Pfister
Dan Pfister has been a marketer for over two decades and has spent thousands of hours testing and implementing a wide variety of sales and marketing strategies.
In total, they’ve generated over 50,000 customers and have allowed him to work with brands like Fidelity Investments and Tony Robbins.
In 2016 Dan launched his first Winback campaign and was more than surprised when it produced an amazing 57X ROI.
Nothing in his 20 years of marketing had created that much revenue, that fast at such a low cost.
Based on the success and predictability of Winback, Dan founded WinBack Labs and became an evangelist for this undervalued and under-appreciated revenue strategy.