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Keep your existing clients happy because research shows it’s easier than finding new ones.
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Why retention has become the ultimate growth strategy
25 August 2023
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The ultimate growth strategy has been in front of you all this time: your existing clients. All you have to do is make them happy and then figure out how to provide even more value to them.
Research suggests client retention is the most important revenue driver for businesses and can improve earnings by up to 95 per cent. Conventional wisdom says attracting a new client can cost up to five times more than keeping an existing one.
Did you ever wonder where this idea came from? Although it is difficult to determine its exact origins, I’ve traced it back to research conducted by the Technical Assistance Research Project in Washington, DC, in the late 1980s. Other loyalty pundits claimed the same findings as their own and the idea found its way into the pages of prestigious journals and books. It has become so pervasive that it has stood unchallenged for three decades.
But I’m not totally convinced it’s true. Yes, it costs more to get a new client than it does to look after an existing one. But five times?
However, I am convinced that increasing customer retention rates by 5 per cent increases profits by 25–95 per cent. Here are some more stats I found:
- The probability of selling to an existing client is 60–70 per cent, while the probability of selling to a new prospect is only 5–20 per cent.
- 44 per cent of businesses have a greater focus on acquisition against 16 per cent that focus on retention.
- 65 per cent of a company’s new business comes from existing customers.
- Loyal clients spend 67 per cent more than new ones.
- 89 per cent of companies see client relationships/client experience as a key factor in driving client loyalty and retention.
- Existing clients are 50 per cent more likely to try new products.
- 82 per cent of businesses agree that customer retention is cheaper than acquisition.
The key elements
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I believe client retention comes down to a few specific elements that should be present in every interaction. The key is to provide a client experience that exceeds expectations – a wow! – as well as having a retention mindset and building a relationship that establishes you as likeable, familiar and authoritative.
A positive relationship with clients is one of the most cost-effective strategies a business can have. Clients prefer to do business with people they like and trust, and this likeability is even more influential than the cost of a product or service.
A recent report found that 85 per cent of Australians would be willing to spend more with companies they believe provide excellent customer service. This is because the average customer’s focus has shifted from price to value. In this case, value includes the price of the product or service as well as the perceived benefit of the entire buying experience.
Retention involves changing the marketing mindset from short-sighted acquisition to client retention. Your clients are a free source of brand ambassadors. When retention is done well, your clients literally start doing your marketing for you; they become brand champions. As word-of-mouth spreads, this will help to minimise your initial client acquisition costs over time, cutting your overall marketing costs even further – and I suspect this is where the five times multiplier kicks in.
A blend of art and science
The art is to create and foster significant client relationships by investing in extra efforts to go above and beyond your client’s expectations.
The science behind client retention is understanding their journey, ensuring consistent assistance from all touchpoints, and equipping your team with tools to deliver an extraordinary client experience.
It’s important to have a revenue growth strategy that doesn’t cost an arm and a leg and comes as a direct consequence of doing what everyone should be doing anyway: providing exceptional service and building strong, lasting, client relationships. I recommend a retention strategy that involves developing a team of people who share your vision and believe in what you are building.
People who:
- Look to you for inspiration and direction.
- Produce what needs to be produced, and then some.
- Believe high morale is simply a part of the culture.
- Are focused and clear on what must be achieved.
- Question unnecessary expenditure.
- Want meetings to generate actions that complete tasks.
- Put workflow first.
- Put client relationships at the centre of every decision and action.
- Who act on business opportunities.
Client acquisition is critical in the early stages of any business, but once you’ve built a client base, should be on your mind. The more clients you have, the more important retention is.
The key statistic to keep in mind is that 80 per cent of your company’s future revenue will come from just 20 per cent of your existing clients.
Trevor Marchant is the managing director of Marchant Dallas Consulting and the co-founder of the Boss Factor library.
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