What is a CX Risk Framework?
Every small business encounters risks, particularly in managing client relationships. Throughout a client’s lifecycle, there’s a risk of losing them as a partner and revenue source. Understanding these risks—what they are, when they might arise, and how to mitigate them—is crucial to predicting and preventing client churn.
A CX (Client Experience) Risk Framework equips your team to better identify key risks, determine their causes, and implement strategies to minimize potential losses. By leveraging tools like playbooks, your team can navigate challenging situations with proactive service techniques, ensuring better client outcomes.
Controllable vs Uncontrollable Risks
All risks can be categorized as either controllable or uncontrollable. Knowing which applies to the risk you are facing with your client can help you better understand what measures you need to take to mitigate your own risk and how to better serve your client during this period.
- Controllable Risks: These are within your direct influence. Examples include risks stemming from internal operations, service delivery, or team errors. Properly designed CX frameworks, clear communication, and strong company culture can help mitigate these risks. Playbooks provide actionable steps for addressing controllable risks and potentially salvaging at-risk client relationships.
- Uncontrollable Risks: These originate from factors beyond your control, such as your client’s business performance, economic conditions, or industry shifts. While you can’t prevent these risks, you can manage their impact on your business and offer support to your clients during their own periods of high risk due to these factors.
Predictability vs Causality
Understanding the distinction between predictability and causality is vital for effective risk management:
- Predictability: Involves forecasting outcomes based on data or patterns without delving into the underlying causes. It helps in anticipating risks, such as seasonal trends in client activity.
- Causality: Focuses on the reasons behind specific outcomes. Understanding causality enables you to make informed changes to processes and address root causes of client dissatisfaction or churn.
When it comes to the risks that you face in your business, it is important to know when predictability alone is important or when you need to look at causality as a factor. Understanding this can help you to how you can affect or prevent churn and loss from happening both now and in the future. In the event you cannot do either, you can at least know how to predict it so that you can mitigate the effects on your own business and know what actions you need to take to ensure that any risk of potential loss of revenue does not have a greater negative impact on your business than necessary.
Types of CX Risks and How to Forecast and Mitigate
Traditional business risks such as operational, strategic, political and economic risks are beyond the scope of this document but can affect both you and your client. This post is committed to risks that are prevalent in the client experience domain. It is a good idea to ensure you understand these other risks and can identify those within your own company and that of your client. If your client faces operational, financial, strategic or other traditional business risks and you see this, it is a good idea to have that discussion with them as an outsourced business partner and also to note that it may impact your own business with churn and loss of revenue.
1. Readiness/Commitment Risk
This occurs when a client isn’t fully prepared to commit to your services, which might involve significant changes like transitioning tasks or adjusting their tech stack. Sometimes a client may think they are ready, but not actually be fully ready. Mitigate this by ensuring clear communication about the requirements and expectations from the outset.
2. Onboarding Risk
If a client doesn’t understand their role during onboarding, frustration can arise, leading to potential churn. Providing a detailed timeline and their participation requirements upfront helps mitigate this risk.
3. Fit Risk
Not all clients are a perfect fit for your services. Mitigate this by refining your ideal client profile and ensuring alignment before signing new clients. See my blog on the Ideal Client Profile for more information.
4. Competitive/Loyalty Risk
Some clients may frequently seek better deals elsewhere. Identifying these clients early can help you focus on building loyalty through value rather than competing solely on price or determine if they align with your ideal client profile.
5. Product Experience Risk
Clients unfamiliar with your product or services may struggle initially. Mitigate this by providing comprehensive training and resources to ease the transition. The time to develop these assets will prove beneficial for you and your team in the long run.
6. Adoption/Adapting Risk
Depending on the types of service that you offer, you may need to convince several members of their team to let go and turnover certain tasks to you and then teach them how to work with you. As some people relate the performance of tasks to the value of their jobs, this may be a difficult process for your team. You and the person signing your service agreement will need to be able to convince them that turning over these tasks and using your services can create more freedom for them to grow within their roles and your client’s company.
Acute vs. Persistent Risk
- Acute Risk: These are one-time or isolated risks that can be addressed and resolved quickly.
- Persistent Risk: These ongoing risks require continuous management. If persistent risks remain unresolved despite multiple efforts, it might indicate a deeper issue, such as a client-company misfit.
Understanding and spotting the differences between these is crucial, as persistent risk can have more of a lasting impact on team morale and gross margin.
The Role of Playbooks
A playbook is a documented guide that outlines specific actions and procedures an organization should follow when encountering particular action or risk. Playbooks are not necessarily reserved for risk management and can be used for a variety of activities, including how to service a particular type of client or industry. They are particularly useful in risk management, however, to ensure that your team is prepared to respond quickly, effectively, and consistently in various risk scenarios. Typically, risk playbooks are detailed, scenario-based documents that include the following:
- Identification of the risk and key stakeholders
- Roles and responsibilities of the stakeholders involved
- Communication plans
- Step-by-step actions to take
- Recovery and future impact
Equipping your team with risk playbooks can benefit them through training and by giving them the confidence to know that they are taking the right actions in response to a clearly identified risk. Navigating these times can be tricky and stressful for both your client and your team. Having a sound strategy at their fingertips can prove useful in reducing stress levels and providing confidence.
Tracking and Navigating Risks
Regular risk assessments of your client portfolio help identify potential churn risks and their impact on your business. This insight aids in accurate financial and sales forecasting, as well as evaluating team performance. Persistent risks might highlight issues in client fit or service delivery that need addressing.
Navigating risk is tricky as you will always have some amount that is prevalent in your business. As your team grows and you have the resources, it is a good idea to develop the playbooks mentioned above to help guide the team on how to handle certain types of risk. These playbooks can list out several acceptable ways to find out what is at the root of that risk, how to communicate with the client and the specific actions they can take to help reduce the risk at hand.
In addition, your culture should be such that your team is armed with the knowledge of how to effectively communicate with your clients about the risks that they pose. There are certain communication skills and tactics that come with the development of your company culture and your team should be representative of that.
Financial Focus and Key Metrics
Risk is always a threat to our reputation, revenue and resources (the 3 R’s). A hit to our reputation can cause an increased need for marketing or PR spend to do damage control and replace any clients that churn. Loss of revenue can cause a significant negative impact to our business if there is a lot at once. Dealing with high risk clients will always take more resources and can be quite stressful for your team. Greater resource requirements increases your operating costs.
Understanding the risks you face with each client and overall in your business can help you create more accurate financial projections and better forecast sales needed to hit your next revenue goals. In addition, it can help you understand the areas of the business or team that may need your attention both now and in the future.
Beyond the Numbers
Risk management goes beyond financial metrics. High-risk scenarios can stress your team, potentially lowering morale and performance. Equipping your team with tools, resources, and knowledge to handle risks fosters a supportive work environment and reduces stress, leading to better outcomes for both your clients and your business.