The pest control industry is benefitting from a number of advantages. Climate change, middle class income increases and the growing awareness of the importance of hygiene, especially in light of the COVID-19 outbreak and other pandemics, mean the demand for pest control services is set for a globally-positive trend. Unfortunately, these advantages are undermined by the low entry barrier and intense competition within the industry.
With more than 20,000 pest control companies in North America alone, potential customers have both ample opportunity and ability for choosing and/or switching to the lowest cost providers. Given this scenario, how can pest control companies boost profitability while still remaining competitive?
Focusing on CUSTOMER RETENTION INITIATIVES could make the difference
First, let’s determine how customer cancellations affect the financial aspects of the business:
The average annual churn rate for pest control companies is around 40%. Let’s assume we have a fictitious pest control company with 500,000 customers at the start of the year. A 40% churn rate would result in this company losing 200,000 customers by the end of the year. Let’s also assume the average annual revenue per customer is $600.
Under this scenario, this company would lose $12,000,000 every year! The average CLV falls into the $600 – $1,200 range. That is a significant dent in profitability and sustainable growth.
Should this company succeed in saving even 10% of these at-risk customers, it would increase its balance sheet by $12,000,000 in just one year. This bank of saved customers will continue paying for subsequent years, thus compounding the benefit and saving the costly acquisition dollar.
The Customer Retention Opportunity
Below are several key insights developed after working with recurring revenue companies over several years:
- Dividing the entire customer base into high, medium and low predicted cancellation risks, we’ve noticed the top one-third cancel at a 10x higher rate than the bottom one-third;
- Further dividing the customer base into 10 segments based on predicted risk, rather than just three , results in an accentuated pattern where the top 10% cancel at a 20x higher rate than the bottom 10%;
- Similarly, ranking locations by risk showcases that higher-risk locations identify cancellations 3x more than the lower-risk branches. When analyzing customer interactions in a call center or during a home visit, we’ve identified more ways to segment cancellation risk and uncover additional cost-effective opportunities for retaining at-risk customers.
8 Action Points for Minimizing Attrition and Boosting Profitability
How can we micro-segment risk and integrate intelligence from unstructured interactions? The following 8-step plan is designed to anticipate customer needs, pain and churn risk, long before a customer decides to cancel, thus reducing the churn rate by 8-10%.
- Leverage Artificial Intelligence (AI): AI helps companies like Amazon, Netflix and Google better-understand customers in an attempt to accurately predict their behavior. Pest control companies can leverage the same technology to predict complex risk patterns; thereby, proactively engaging with every customer before they choose to cancel.
- Enhance churn models with insights from customer interactions: Interaction insights assist with identifying addressable, lower-cost retention opportunities based on what customers are saying (e.g. service issues, multiple call backs, competitor offers, etc.), as opposed to more expensive and difficult opportunities uncovered by traditional and less-reliable models (e.g. low FICO, high price, etc.).
- Use multiple prediction models: One size does not fit all, so rather than relying on just one churn prediction model, using multiple machine learning models allows you to identify risks from multiple angles, reveal retention opportunities and enable micro-segmentation based on multiple customer health attributes.
- “Next best offer” design: Predicted churn risk and other health attributes allow marketing teams to achieve higher conversion rates and reduce marketing spend by matching every customer with the best personalized offer in a targeted manner.
- Risk-aware care and field service: A combination of this 360°-view of customer health along with predicted risk can be used to arm service pros and care agents to engage customers proactively and more effectively. Automating the assignment of high-risk routes to the best performing service pros/technicians is also an effective strategy.
- Proactive NPS management: Predictive models assist with assigning a predictive NPS score to 100% of the customer base. This helps in proactively engaging with detractors and converting them into promoters.
- Predictive win back model: There is a 20-40% chance of successfully selling to a former customer. Predictive models can be used to leverage the service, interactions and transaction history of recently-cancelled customers to identify those which can be reacquired with last-chance offers.
- Retention agent performance: Retention agents who receive cancellation calls are critical for customer retention. Granular cancellation reasons, visual analytics and business-driven performance coaching are all tactics which can be used to close the gap between bottom and top-performing agents to further improve retention rates.
This 8-step plan works by focusing on understanding customers’ real needs, wants and sentiments; as well as by predicting their future behavior and, most importantly, by turning this intelligence into large-scale, proactive actions before time runs out.
Since the retention boost is achieved by addressing basic customer experience gaps, the resulting improvements in customer satisfaction and lifetime value are consistent each year and provide a competitive edge that will be difficult to emulate