When it comes to growing a business, many entrepreneurs focus on getting new clients and forget about client retention strategies. Not attending your existing clients' needs can cause your business to downgrade revenue significantly. It is possible to keep it going constant for a while, but not for long.
How to measure client retention
New clients coming and going will taint your reputation and cannot take your business to a satisfying, peak level. We discussed some strategies concerning this issue in a former article about clients' loyalty.
But how do you know if your strategy is fruitful?
The basic formula for measuring client retention is pretty easy: ((E-N)/S)) x 100 where:
- E(nd) = number of customers at end of period
- N(ew) = number of new customers acquired during period
- S(tart) = number of customers at start of period
The notations can make the formula seem quite complicated, but it is not. Let's take an example:
You can start measuring from the existing, let's say, 400 clients and choose a time frame as you please (week/month/year/other period you choose). During that time frame you lose 40 clients, but you gain 80 new ones. At the end of the period you have 440 customers.
Putting that into the mathematical formula, you get:
440 - 80 = 360; 360/400 = 0.9; 0.9 x 100 = 90. Your retention rate for the chosen period was 90%.
Is 90% a good rate or not? It depends on your type of business, your goals on a certain market or industry.
There are some managers that get their business growth from new clients, like businesses based on subscriptions or memberships, but on the long run the market will be extinguished and the same businesses will have to attract the same old clients and make them pay again for the membership.
Most business owners understand the importance of retaining clients for a long-term partnership. They also love to talk about winning new ones, but dislike talking about loosing any of them. The reality of business world must measure both sides of clients' management. Tracking the client retention rate lets the business owner put both those metrics in perspective and provides an easy way to measure your results over time.
So, to what extent do your clients stick with your services?