One of the best indicators of whether a marketing or sales program is working is the ratio of orders to lost orders. Knowing why customers buy or don’t buy is vital to industrial marketing for a number of strategic reasons, but the overall reasoning is simple: It’s difficult to know what to do to prevent future lost orders or lost customers if you don’t know why you are currently losing them.
Keeping track of lost order information is critical to perpetuate long-term growth, and is a fundamental plank in the foundation of continuous improvement, customer satisfaction, and quality programs. My own surveys and interviews over the last several decades indicate more than 75 percent of small manufacturers do not track lost orders, while 95 percent are unaware of all the reasons why customers drop them as a supplier.
So, if lost orders are that important, why don’t more people seek out their underlying causes?
This is a very good question with multiple answers. First and foremost, salespeople don’t like to pursue the reasons why they lose orders out of fear those reasons will be held against them. Second, salespeople are so busy trying to get new orders, they don’t make time to follow lost ones.
Third, it’s sometimes difficult to get customers to tell you why they gave the order to your competitors, as it’s human nature not to dwell on bad news.
But the most important reason lost order analysis doesn’t happen is because management doesn’t demand the information or make it a high priority.
Building a Lost Order Analysis
Creating a lost order system isn’t very difficult. Begin by developing a list of all orders lost in the last year. Get everyone together who was connected to the quotes and sales effort. Now review every lost order to find the best reason.
If no one has been keeping records, try to review as many of the accounts as people can remember and go through the list quickly to determine the basic reasons. You will probably find many of the lost order reasons are unknown, because no one ever called the customer.
Next, develop a list of all lost orders that are unknown; put an X next to each lost order representing an important customer you can’t afford to lose. Then divide up X accounts between members of your sales team and phone each customer. You need to find out the real reasons for their decisions. You likely won’t be able to reach all of them, but I think you’ll be impressed by what you find.
There are six kinds of information you can gather on lost customers that will help you in making strategy decisions:
1. Retaining customers. If you can uncover the real or complete reason why the customer decided to buy a competitor’s product, you will have insight into what strategy must be changed in the future to get the customer back or get the next order. Retaining good customers is just as important to a growth plan as finding new customers and new orders.
2. MVCs. Otherwise known as “most valuable customers,” these are the handful of customers who make up most of a manufacturer’s sales volume. Losing the sales volume from an MVC accounting for 40 percent of your business can obviously kill off growth for a long time. If these MVCs are profitable, you must find ways to retain them.
3. Sales rep information. By evaluating bookings to lost orders, it’s easy to see which rep groups (or sales territories) are having trouble selling your product lines. Changes may have to be made to the sales channels to achieve your growth objectives.
4. Model information. Grouping lost orders by model reveals which models (or product lines) might not have a competitive advantage and should be considered for redesign or a pruning decision. If you discover the customer perceives your competitor’s product to be superior, you may have to redesign the product or develop a completely new one to compete.
5. Competitive information. Most importantly, it is necessary to find out exactly which competitors you are losing to most of the time. For instance, if you have 25 competitors but are predominantly losing orders to three of them, it makes sense to focus a lot of attention on these three competitors.
6. Price. This is the answer most often given for a lost order. But price is a value perception of the customer that includes cost, delivery quality, and support services. You need to dig farther into the lost order reasons to find out the perceived value factors.
Remember, You can’t really develop a plan to increase sales growth without knowing why you lose orders and customers. It’s no exaggeration to say your very survival in the new economy depends on it.
Mike Collins is the author of “Saving American Manufacturing” and its companion book, the “Growth Planning Handbook for Manufacturers.” To learn more about the author or these titles, visit www.mpcmgt.com.
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