Ignoring Client Retention Can Impact Profits

Are you responsible for handling client complaints? As an Owner of a firm, I know that figuring out a way to proactively identify issues before they become bigger is a key concern for most executives. The Society for Marketing Professional Services (SMPS) conducted research on this topic and found that the average business never hears from 96% of unhappy clients. Businesses dedicate money to attracting new clients each year, yet a key area that is overlooked is developing a client retention plan. 

How Do You Calculate Client Retention Rates?

It seems like almost every firm I speak with in the AEC industry states their client retention rate is 80%. However, is that a good or bad rate? Let’s breakdown some definitions: 

• Attrition rate is the percentage of clients you have lost over a given period
• Retention rate is the percentage of clients you have retained over a given period 

So if your client retention rate is 80% then that means your attrition rate is 20%, no matter how many new clients you obtain. Here is how to calculate client retention rates: 

Client Retention Rate = ((CE-CN)/CS)) x 100 

Clients End (CE) = Number of clients at END of period

Clients New (CN) = Number of NEW clients acquired during period

Clients Start (CS) = Number of clients at START of period

Client Retention Impacts Profits

When you take into account that SMPS reports it takes six to seven times more effort to obtain a new client than retain an existing client. It would seem that focusing on client retention would be a no brainer. Yet does your firm even have a plan for client retention and do you track it? 

A study by Bain & Company shows that even a five percent increase in client retention can lead to an increase in profits of between 25 and 95 percent. Let’s do the math. Envision the following is true for your firm: 

• Your firm makes $2M a year
• Has a profit of 10% or $200,000 at the end of the year
• Has 50 clients at the beginning of the year
• Has a 80% client retention rate (kept 40 clients) at the end of the year

So, let’s say that our goal is to increase client retention to 85%. By increasing your client retention by 5% you could increase your profits to $250,000 (13%) or $390,000 (20%). Have you connected the dots? Profits increase because you are spending less time trying to win new clients and more time making sure you are managing the expectations of your existing clients. 

Why Clients Leave and How to Prevent It

So now that we know why it’s important, let’s understand more about why clients leave. SMPS found that 68% of clients leave firms because of an attitude of indifference toward the client by some employee and only 9% leave for competitive reasons, which most firms think is the cause. Yet as previously pointed out most firms don’t even know there is an issue. 

The obvious answer to resolve this challenge is talk to the client and obtain feedback periodically, yet few firms do it and fewer do it consistently well. Understanding what motivates clients and how to make your services relevant to them is fundamental to building strong client relationships. Obtaining feedback is important for executives and marketing to monitor, but the key way to ensure the relationship is strong is to provide a systematic way, like the Client Feedback Tool, for Project Managers to know when to reach out throughout the lifecycle of the project. Not just at the end. 

Benefits of Feedback

Successful companies know the critical importance of reaching out to their clients for feedback and service firms that ARE monitoring client feedback are: 

• Differentiating themselves
• Gaining great insight to better serve their clients
• Discovering what clients find of value
• Identifying clients that will pay a premium for their services
• Increasing profits
• Improving staff retention
• and much more

Reach out to us today to find out more about monitoring feedback and developing a client retention plan for your firm.