Learning & Development

The Importance of Spotting Red Flags in B2B Relationships

When many people think about revenue generation, they often think first about the process of acquiring new sales. And new sales are certainly important. But a huge amount of a company’s revenue–and the most reliable portion–comes from existing customers.

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This could be customers that make repeated sales or customers paying regular–i.e., monthly or annual–fees for a service. And while it’s exciting to gain new customers, it’s much less expensive to retain existing customers.

How B2B Customers Are Different

Obviously, the specific ratio in a given situation or industry will depend on a number of factors, but a commonly quoted ballpark estimate is that it costs five times as much to acquire a new customer as to retain an existing one. And the differing business models between business-to-business (B2B) and business-to-consumer (B2C) businesses is important to keep in mind as well.
In general, B2B organizations have a smaller number of customers, but those customers are spending a proportionally larger amount of money with their vendor or service provider than would be the case with B2C companies.
For example, a food wholesaler (B2B) might have a handful to a few dozen grocery stores as customers, while those grocery stores (B2C retailers) may have thousands of customers. Losing a customer for a grocery store is never good, but it’s a much smaller impact on their bottom line than a food wholesaler losing one of its grocery store clients.

High Switching Costs

For a B2B customer, switching vendors or service providers can be a huge decision, coming with significant switching costs and major business disruptions. It’s not a decision typically made lightly or spontaneously. Instead, there are often certain red flags that are present to signal a souring relationship, if only someone has the awareness and foresight to spot them before it’s too late.

The Impact on L&D

For learning and development (L&D) professionals, ensuring strategic alignment between their activities and the needs of the organizations they work for is a critical piece of gaining that coveted “seat at the table.” Focusing on areas of major potential impact to these organizations—like the potential cost of just one B2B customer—can help them deliver real value.
In this case, L&D has a role to play in helping customer-facing employees understand the value of all customers, not just the potentially much higher value of B2B customers. L&D needs to train them on what to look for and actions to take to ensure customer loyalty.
In two follow-up posts, we’ll talk about some specific examples of red flags that often signal the potential loss of a valuable B2B customer and what steps a company can put in place to ensure those red flags are identified and acted on proactively and appropriately.

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