If I ask you right now,” What’s your client retention rate?” What would you say? Would you tell me a percentage? Or would you say it's great or just average? But what I’m more interested in hearing is what’s it worth to you. And before you answer, take a second to understand the long-term effects of losing clients, because making up the lost revenue through new clients is not easy, nor as cost-effective as improving client retention. In fact, every organization should understand what a 10%, 15%, and 16% increase in retention means to its growth.
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 to GREAT business to EXPANDING or CLOSING shop. Your retention rate is even more critical than you think, maybe it is time to improve your client retention strategy.
Defining Your Client Retention Rate
Keeping clients around longer amplifies the lollapalooza effect your organization’s growth can have. But before we discuss its benefits we will define how we calculate our client 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 all the time, you constantly have to spend money on acquiring new customers. 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. Is this starting to make sense yet?
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 commissions budgets. Sort of an extreme example but it helps to highlight the math.
Build A Client Retention Strategy Your Customers Will Value
When you have a 96% retention rate, what are the odds that some of your clients have been up-sold additional products? What are the odds that some of those clients were earned through referrals? What are the chances that the organization’s salespeople find themselves more satisfied and successful with their jobs? Imagine if they knew who to call year after year because they have the time to focus on their customers business and build a trusted advisor relationship.
What’s Your Client Retention Rate Worth To You?
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