By Mike Jacoutot, Managing Partner
Why? You don’t deserve to sell a new customer until you prove that you can keep the ones you have. It is sad, but nearly two of three companies do not actively measure client retention! And eight of ten who do, do not regularly report on it to their employees.
Can you quote your company’s client retention percentage for last month, last quarter? Odds are, you cannot.
In this day and age, client retention IS the new acquisition. Why? Because smart companies understand that client retention reflects your ability to deliver on the promise you made during the sales process AND your ability to evolve and adapt to the changing needs of your client. Before they become a client of yours, they are going to want to know that you are going to live up to what you say. Your ability to keep your clients are the proof.
My partners and I travel the country every week and work with companies to improve their client acquisition, retention and expansion. What continues to amaze me is the fact that very few companies measure client retention on a regular basis AND share their results with their employees! Management guru Peter Drucker used to say “what gets measured, gets improved.” Considering that it costs 5-7X more to sell a new customer than to retain an existing one, why isn’t client retention front and center in every company’s balanced scorecard? After all, your revenue is made up of customer money, right?
The fact is that most companies don’t really know how to calculate customer retention or make excuses as to why measuring client retention monthly doesn’t work for their business due to seasonality. Whether you are running a branch, a district, a region or a company, then measuring, reporting and rewarding on client retention should be foundational to your organization’s growth plans.
Understanding the Mechanics of Client Retention
Client retention refers to a “snapshot in time” in the customer lifecycle. I recommend this snapshot in time be monthly. I prefer to measure customer retention v. revenue retention. Revenue retention can masquerade client risk issues (more on this in another blog).
Calculate Client Retention Rate
Client retention rate (CRR) is the number of customers you have generated revenue with at the start of a certain snapshot in time. Let’s use January 31st for example. This does not count new customers.
There are three pieces of data you will need to calculate customer retention
Number of customer at the end of a period (example:January 31)--CE
Number of new customers acquired during that period –CN
Number of customers at the start of that period (example January 1)– CS
The goal is to understand the number of customers remaining at the end of the period minus the number of new customers acquired. Therefore, we need to subtract the new customers from the customers remaining which would be CE –CN. To calculate the percentage, divide that number by the total number of customers at the start (CS) and multiply by 100.
This is client retention rate formula: CRR = (CE-CN)/CS)*100
Customers at the end of a period: 100
New Customers acquired during that period: 10
Customers at the start of the period: 103
(100-10)/103 = 87% client retention rate
Measuring client retention monthly and putting that number front and center in everyone’s scorecard is the key to profitable growth.
When combined with a quarterly Net Promoter Score Survey, you gain a clear indication of how loyal your customers are and how well your company is delivering on the customer service you promised during the sales process. By religiously tracking client retention, you will quickly find areas of opportunity to improve your business
At Butler Street, we are experts in client acquisition, retention and expansion. Our client risk analysis can show you how healthy or unhealthy your client relationships are. We provide a system of reinforcing activities to improve loyalty and provide actionable insights to prevent client defection before it happens. Click on CONTACT and let’s start the conversation.