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March 01, 2010

Working Smart

Retention— Staying on TRACC

by Janice Mazibrook and Rainer Paul


DSN: March Issue, Working Smart — Retention— Staying on TRACCThe costs of acquisition and support for a new consultant are much larger than most realize. Focusing on improving retention can make a significant contribution to your bottom line and is well-worth the investment.

Retention—Not What It Used to Be

In the earlier years of direct selling, the recruiting pool was so vast and the cost of bringing in new consultants so low that little more than a passing thought was given to the issue of retention and determining the value of a new consultant. In general, the industry accepted the fact that approximately 30 percent of new consultants who join a company would never get started and that only 50 to 60 percent would be active at the end of their first year.

Focusing on Retention Is More Important Today

The increase in the number of direct selling companies has made us all competitors in the recruiting arena. Today, potential consultants are also more aware of the different earnings opportunities and are looking for companies that are “easy to do business with” and provide the best support. Through the power of the Internet, consultants already involved with direct selling companies are researching other direct selling opportunities and considering making a switch. These two factors of limited supply and competition between direct selling companies have caused retention to decrease significantly, with some companies reporting only 15 to 20 percent of new consultants still active in the business at the end of their first year.

Retention by the Numbers

Retention is one of those direct selling terms we all use, but because of the variations in definitions, retention rate numbers are not very helpful in managing the business.

  1. What is wrong with the numbers?
  2. Sometimes companies have concluded that high turnover rates in the consultant ranks are just a normal part of a direct selling business and, therefore, do not feel compelled to devote the time and resources to track retention.
  3. Some companies use “drop” policies (the way in which consultants are removed from the company books), making retention rates unclear and, hence, misleading. Some do not remove people who are no longer actively engaged in the business; they simply stay on the company books until they resign. Others remove people who are selling every month but not selling to a specified level. In both cases, the retention rates are skewed and lead to inaccurate corrective actions.

Many companies do not account for the total acquisition/support cost of new consultants, nor do they equate it to new consultants’ value. As a result, they do not focus on tracking retention rates and do not aggressively pursue retention improvement programs.

What is meant by retention?

  1. Retention should not be thought of as the number of consultants “on the books,” but as consultants who are actively engaged in the business.
  2. “Actively engaged in the business” means these consultants are actively booking, selling and-or recruiting every month.

Cost of New Consultant Acquisition/Support

Some companies mistakenly believe that acquisition/support costs are low since the field is doing the recruiting and much of the new consultant training. There are many components that contribute to consultant acquisition/support costs.

Lead generation

  1. What is the annualized cost of lead-generation programs and systems, including system hardware, software, public relations, Web marketing, advertising, opportunity meetings and calls?
  2. What are the annual labor costs for personnel in the corporate office to support these lead-generation systems and activities?

Sales and marketing collateral/events that support recruiting

  1. What are the annual costs, including labor, of creating and producing recruiting materials?
  2. What are the annual costs associated with field events, incentives and awards to drive recruiting?

Training

  1. What are the annual costs, including labor, for the corporate office to train the salesforce to recruit?
  2. What are the annual labor costs for personnel to answer the field’s questions about recruiting?
  3. What are the annual costs for the corporate office to train new consultants?
  4. How much time is lost by your field leaders in training new consultants who leave in the first 90 days?

New consultant activation costs

  1. What is the cost of processing a new enrollment application?
  2. Does the price of the starter kit cover the costs of the products and materials, or does the company subsidize the kit?

New consultant support costs

  1. Do you have people devoted to supporting and working with new consultants?
  2. What are the labor costs to support new consultants in their first 6–12 months?

Arriving at a total annual acquisition/support cost and dividing it by your total recruits for the year will give you the cost per acquisition. Although this number may appear reasonable, when taking the previous discussed retention rates into consideration, a significant portion of the total cost is spent on consultants who generate little, if any, sales for your company, because they do not become and remain actively engaged in the business.

Value of a New Consultant

Once you have established your rules for an “active” consultant, you can calculate the average contribution or value of a new consultant. First, identify the total sales generated from all consultants in their first 12 months, and then divide that number by the total number of new consultants recruited.

Now you are ready to build your ROI for improving your retention programs. To make the point, assume you can improve retention by 10 percent. Multiply that 10 percent by your total number of new recruits for the year, and that number by the average contribution you calculated in the previous paragraph. You will find the result staggering. Even a small incremental improvement in retention will yield huge results for your company.

Improving Retention—Keep New Consultants on TRACC

How do you reduce the turnover rate, improve activity and retain more new consultants? The foundation of retention is consultant satisfaction with their experience. For this reason, it should almost go without saying that product quality, distribution, order processing and consultant/customer service must be virtually error-free, with consultants and customers receiving the correct, high-quality products and information in a timely manner. Product-quality issues, shipping errors, backordered products and poor customer service are some of the main reasons consultants leave. Doing business with your company must be an easy and pleasant experience. It is all about consistent, high-quality, repeatable practices, and automation is the key. In addition to quality control, distribution and service, there are five TRACC areas:

  • Training—Training must be tailored to each step of a new consultant’s development—what to do on their first day, first week, first month, etc. It also needs to be simple. The days of people wading through 200-page manuals are over. Training needs to be available 24/7 and modular in structure so small pieces may be accessed and absorbed. Training material needs to be both visual and auditory and delivered via today’s technologies. And, most important, training needs to be fun. The hard copy training piece in the kit should be short and engaging and have a visual appeal so that the new consultant will be enticed to read it rather than feeling overwhelmed. This initial piece should be coupled with a training management system (TMS), which is the foundation for delivering subsequent modular learning pieces.
  • Recognition—Recognize new consultants for joining, for taking the first step to build their business and for doing specified activities, as well as for creating results. Recognition needs to be triggered by the achievements captured in the TMS and the compensation system.
  • Activity—Keep the momentum going. People are excited when they join. Get them started by taking action steps through automated training the minute they sign the agreement. Don’t let them wait until the starter kit arrives. Create immediate feelings of success.
  • Compensation—It is extremely important that new consultants participate in the earnings opportunity quickly. Use a fast-track/quick-start program to encourage action in the first 30, 60 and 90 days, but be aware that these programs can backfire if they are not developed carefully. If goals are set too high, the new consultant will decide the program is unattainable and will never begin. On the other hand, goals set too low can also be demoralizing. Offer realistic compensation for fast-track/quick-start programs. The key here is to make the payout appropriate for the effort required. In addition, avoid the disappointment that can follow when the regular compensation plan seems to pale in comparison to the fast-track/quick-start payout.
  • Communication—This is probably the most important of the five areas. A customer relationship management (CRM) system is key. Think of your CRM as the backbone to your retention efforts. In addition to tracking personal information about your consultants (e.g., the “why” the consultant joined and following up on that driving factor), your CRM is the engine for calendaring and event management, corporate to consultant communications and many other vital “continual touch” activities. Social media also needs to be an important component of your communication strategy, and there are decisions that need to be made regarding your approach to social media. Are you using social media to your advantage, or are you missing out on a huge opportunity? Does your company use a Facebook page, or are you planning to develop your own social media network? Social media can not only deliver results in lead generation and new product introductions, but also build a more loyal consultant base by keeping them informed and actively engaged in the business.

In today’s competitive environment, with its low retention rates, we spend much of our acquisition expenses on new consultants, when, unfortunately, many end up leaving before they ever make a contribution to the business. Therefore, making an investment in retention is more crucial than ever. Even small incremental improvements will yield significant bottom line results. TRACC is the key to achieving this success and maximizing growth.

Janice Mazibrook is a Senior Consultant with IMS, and Rainer Paul is CEO of IMS. For more information, please visit www.imsconsult.net.