Lowering Customer Defections Increases Profits

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In the early nineties, a classic article was published in the Harvard Business Review, called “Zero Defections: Quality Comes to Services,” that quantified the value of increased customer retention (or, as they referred to it in the article, “decreased customer defection”). It was a pretty impressive article, with all sorts of cool charts and graphs and fancy statistical analyses (like you’d expect in an HBR article!). I’m not going to say that I understood every word of it, but the upshot of the article was pretty straightforward: By decreasing customer defection by a mere five percent, companies can boost their profit by up to 90%! I don’t need a Harvard degree to understand that!

The article looked at a variety of industries, from automotive dealerships to credit cards and – you guessed it – commercial property management. The authors arrived at their profit numbers by calculating the present value of future profits that resulted from a 5% reduction in customer defection. Now 5% doesn’t seem that much … it’s like going from losing 20 out of 100 tenants a year to losing 15. But, according to the article, for commercial property managers, that simple 5% reduction can increase profits by a whopping 40%.

There are lots of studies out there that show that it costs a lot more to attract new customers than it does to hang on to the ones you’ve got. And other studies show that happy tenants are more likely to renew their leases than unhappy ones. But the HBR article is the best study I’ve seen in terms of quantifying the actual bottom-line dollar value of improving customer retention.

The article reinforces the idea that money spent on keeping your tenants happy is money well spent. Happy tenants renew their leases, resulting in lower defection rates. Lower your defection rates by 5% and you can count on increasing profits by 40%. I guess you can say that money spent on tenant services is money in the bank.

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