contract

We are seeing a large number of Facilities Management bids currently in the marketplace and most of the FM service providers are frantically submitting proposals a to win new business. It is an interesting time. Nothing beats the excitement of winning a new FM contract, but it is both a labor-intensive and an expensive operation and if the truth be known largely wasteful. Most RFP’s represent an opportunity for some but a Contract loss for someone else.

There are numerous reports stating that Customer acquisition is more expensive that Customer retention, the numbers vary immensely and a lot of them seem to be a case of inserting your favorite multiplier in the desired place. However a study done by Frederick Reichheld the inventor of the Net Promoter Score has shown that increasing customer retention rates by just 5 % increases overall profits by between 25% to 95%. Whilst every business needs to balance acquisition and retention costs, acquisition is important to draw in new consumers and expand the base but retention is normally less costly and builds profits, loyalty and the brand.

What is true however is that many service providers dedicate more resources to the development and winning of new business than to maintaining their existing customers. This is a very shortsighted approach to business relationship management which can be exceptionally harmful not only to the bottom line but to reputation and employee morale. Taking steps to ensure the retention of your key existing contracts should be part of your routine. Making contract retention a priority, will ensure that your business is working as hard as it can grow.

Many of the issues that you will face in order to retain your existing Client base are identifiable in advance if you look closely enough. At Tsebo we use the analogy of a bucket of water with a tap at the bottom. Allowing for contract losses is like opening the tap at the bottom and then expecting the business development and sales teams to fill the bucket at the top. The marketing and sales cycle for Customer acquisition in Facilities Management can be as long as 18 months. Even if you have the best sales team in the world, you will be faced with long and lean times ahead, if you do not close that tap.

Contract retention is a crucial management function and so I want to dedicate the next four posts to helping you retain your existing contracts. Whilst the incumbent supplier will always have an advantage over their competitors, it is my experience that this advantage is often overstated, taken for granted and consequently squandered. Even contracts which have survived three or four renewal cycles are not easily retained. Careful focus together with dedicated and concerted effort is required to ensure the continued longevity of these contracts. One of the upsides to contract retention is that Customers tend to be far less  price sensitive, meaning that profit potential is often greatly improved.

In this the first of four posts, I want to focus on the three common causes for contract losses

1. Service provision standards
2. Value for money
3. Strength of Client provider relationship

1. Getting the job done

The reality of the number one cause for contract losses is unfortunately very dull. The day-to-day service operations are the key to retaining your existing contract. First and foremost your Client expects that you will deliver a good quality service. This is essential and importantly it is not a differentiator, it is merely your license to operate. Service excellence is just the base standard for your continued employment. In truth your Clients expect more than just efficient service delivery they expect that every service experience will be flawless. If you cannot be counted upon to ensure that the air conditioning is working properly or that the toilet is flushing, it will be very short conversation when the time comes around to discussing contract renewal.

It is therefore understandable to expect that dissatisfaction at the most basic level will lead to contract losses. But do not be mistaken, good service cannot predict that a Client will renew. Many suppliers are simply unaware of how their service is viewed by a Client. The Client may perceive that the job is just not being done well and this failure to discover how a Client rates your business competency is almost a guaranteed loss if things not rectified quickly. Indeed Clients can be fickle, Random Elements a Business Process Outsourcing (BPO) reports that ”72% of Lost Clients said that they were satisfied or very satisfied with their service but they still defected”

2. Value for money

Value for money is all about perception, if a Client believes that your competitor offers a better service than you, they are more likely to switch contracts to that competitor. It may seem the easiest thing to do, to focus on the commercial aspects of your contract, but manipulating a price and hoping that your Client will be grateful for the discounts offered, will hurt more than just your profit margins. Please note that this is not about price this is about value and your ability, not only to deliver value, but to prove the value that you say you have delivered.

To complicate the situation, value changes over time as the perception of value decreases and Customer expectations rise. In the honeymoon period of a contract you and your team are probably putting in the most effort into delivering a service. During this period the Client will perceive that your service offers excellent value for money. Your effort is clear for all to see and as the honeymoon period suggests, the communication between your service teams and the Client will be high. However over time as you either become more complacent or more efficient, the Client’s perception of value being delivered diminishes and the risk of contract loss increases.

3. Build great relationships

In a previous post Do You Have Confidence in Your Outsourcing Partner? I outlined how confidence in a partner is the prime ingredient in the success of an outsourced service contract. The two elements that provide confidence to a Client are Trust and Control. The strength of your relationship is probably the most critical predictor of trust and for renewal of a contract. Forget all the SLA’s and KPI’s associated with your performance, even when our service is excellent and value for money is optimal, if there is not a good chemistry between you and the Client or worse still there is animosity between you, there is very little you can do to salvage the contract. If your Client feels undervalued or you’re simply not working hard enough to maintain the relationships then things can turn sour very quickly.

You need to be proactive in your approach to your Client, bringing new ideas to your regular meetings can often help enormously. Even if the ideas are not adopted it shows that you have been working behind the scenes to improve your offering and that you have the Clients well-being at heart.

Remember that relationships are not built overnight and need maintaining with regular contact to ensure that the Client is aware of what are you and your team are doing to keep the business. FM is often referred to a a Cinderella service and so  allowing the Client a peak behind the curtain to see what goes on in order for you to service them with excellence, can be a great way of creating understanding of how hard you are working for your Client best interests.

It is also important to ensure that the relationship with your Client is multifaceted. I have been in situations where a change in key individuals has meant a significant risk to the longevity of the contract. It is often the case that a ‘new broom sweeps clean’ and new faces mean having to rebuild the relationship anew. To ensure continuity and consistency ensure that your entire team is involved with other team members on the Client side to spread the risk of key individuals disappearing. Also ensure that your account managers and senior management are continually reinforcing the value proposition and reviewing the Client’s expectations.

I hoe that this has provided an insight into the most common causes of contract loss, although we have focused on the negative to start with there are some pointers as to how you can mitigate these situations in the upcoming posts we will look at the following;

Please remember that this post is Part 1 of a 4 part series

In next weeks post we will examine 6 Steps to Improving Contract Retention

Thank you for reading and please lets continue the conversation  by leaving your comments below to the question;

Have you ever been caught off guard by a Client wishing to terminate a contract? What were the causes and what were you able to do to retain the contract?