Every business should take a second to understand the long-term effects of losing clients, because making up lost revenue through client acquisition is not easy, nor as cost-effective as investing in customer experience management practices and increasing customer retention. In fact, every organization should understand what a 5%, 10%, and 15% increase in retention means to its growth and bottom line.
Why should you care about a 10% increase in retention if you’re already at 80%? Well, it’s the difference between going from a good business to a great business, or from expanding to closing shop. Your retention rate is even more critical than you think, maybe it is time to invest in your customer experience strategy.
Defining Your Client Retention Rate
Keeping clients loyal and extending their tenure amplifies the lollapalooza effect your organization’s growth can have. But before we discuss its benefits we will define how we calculate our retention rate and the average tenure for your customer base.
When you have an 80% client retention rate, by definition that means you lose 20% of your customers annually. If your organization is losing 20% per year, then you can calculate how many years it would take to drop to 0%. To calculate average tenure take 1 and divide it by the % of client retention loss. In this case, it would be 1/20%, which comes out to 5 years.
What A Great Retention Rate Looks Like
When you lose clients, it becomes necessary to constantly spend money on acquiring new logos. Unfortunately, when this happens, fate is not on your side as your customer acquisition costs go up. A lot of effort and money has to go into just breaking even on a revenue basis. Instead, look at what happens when you raise your retention rate from 80% to 90%. Your average tenure goes up dramatically.
If you increase your retention by 10%, then your average tenure increases to 10 years. When your retention increases by 15%, then your average tenure jumps up to 20 years. Move that retention rate up by 1% and add-on another 5 years to your average tenure. Making sense?
To help paint you a clearer picture, imagine your company finished its year with 100 clients and a client retention rate of 80%. By the 5th year, you’ll only have 41 of your original clients. That means your salespeople have to go out and acquire 59 new clients. That's time invested to learn about each new client, which adds to your headcount and sales commission budgets. Granted, an extreme example but it helps to highlight the math.
Build A Client Retention Strategy Your Customers Will Value
Merely removing the aspect of your business that make your customers dissatisfied does not make them satisfied. When you invest in a retention strategy your customers willingly deepen their relationship with you, they’re retained longer, buy more, spend more, have a higher lifetime value and become your best advocates.
What’s Your Client Retention Rate Worth To You?
CHECK OUT OUR IMPACT CALCULATOR
See for yourself the value in dollars and time in tenure the impact of investing in a customer experience management application can have to your business.