Thoughts on ways to improve the management of professional services firms

Wednesday, January 31, 2007

Staff Turnover and Customer Retention

I received a request for advice from the owner and manager of a salon and spa on ways of managing in situations where staff leave, taking their clientele with them. A little later David Maister received a similar but more detailed request that he has put up on his blog for reader comment. As always, David's readers have responded with some useful thoughts.

The case is quite an interesting one for two reasons.

First, staff retention is a common problem in certain industries. Secondly, while the request to David is very similar it contains additional information that changes the focus to some degree, leading to some differences in responses. Proper definition of the problem is always a key issues in consulting.

I will give the request I received first with some editing to remove personal details and then my short response. A link to to the post on David's blog is included at the end to allow you to compare the cases.

The Request

"I own and manage a salon and spa. I am faced with employees (Stylist and other technicians) that feel they are independent now that they have an established “clientele” or “following”. The implementation of new strategies for the good of the company is met with resistance because the employees threaten to leave and take clients with them. This is a long standing issue in the industry. New stylists or those new to an area will work at a salon or spa to build a clientele and leave to rent a small space once their income base is established. Owners have traditionally given in and offer bonuses or high commissions to the stylist to get them to stay. All to the detriment of the salon and owner. Salon cannot operate with payroll above 45%- 48% yet many pay 55% - 60%.

I began to think of how this is handled in other industries like Law firms, Medicine, Accounting firms, etc. when key people try to leave with clients. There must be more than non-compete agreements. How can I change or establish a culture that binds the client and employee to “The Company”. If the client can realize that their experience and service is the product of more than just the single stylist, then some of the power would be shifted."

My Response

Accepting that there are no easy answers, the following suggestions may help your thinking.

1. Market Positioning

1.1 Be clear as to where you want to stand in the marketplace, how you want to be seen in the mind of your clients. This may not stop customers leaving, but may help to replace them.

2. Keeping Customers

2.1 Ensure that your customer lists are up to date so that you know what you have. Without being too obvious about it, protect the lists so that departing staff can’t simply copy to take with them.

2.2 Keep in regular touch with your customers. Look for some form of added value over and beyond the straight service (s). Funny stories, information and hints, special offers. Consider your own blog.

2.3 If a customer does leave, see if you can keep them in your loop. They may want to come back later, may buy other things.

2.4 Listen to your customers, see what they want.

2.5 Look at their experience with you, what can you do to make it more enjoyable?

3. Reducing Dependence

3.1 Look at your service/product mix. Are there ways of adding, combining, representing so that you help customers while at the same time reducing dependence on particular key individuals?

4. Retaining Staff

4.1 Look at the way you are presently managing your people. Can you improve this?

4.2 Fiddle around with your financial models to see how much flexibility you have with different types of payment structures.

4.3 In conjunction with 2, consider new types of arrangements for selected key individuals. Shareholding, bonus arrangements, profit shares, self employed contractors, businesses within businesses. Things that will motivate, increase the cost of leaving, but not destroy financial viability.

5. Budgeting

5.1If you are going to lose some staff regardless, then budget for this at least in contingency terms (income lost, replacement costs) so that you build in a buffer.

David's Case Study

David's similar case study together with reader responses can be found here.

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