Since it costs less to retain an existing client than it does to acquire a new one, client retention metrics seem like an obvious business intelligence tool.
A metric that tracks the number of clients or customers who stick with you against the total number of clients during a specific time period is Customer Loyalty 101, right?
Not necessarily. Although it's important to track client retention, a haphazard client retention metric can have devastating consequences for your company. A good metric should produce actionable intelligence about your company. But unless you understand the mechanics of client retention metrics, your data could easily cause you to take the wrong actions at the wrong time.
Advantages of Client Retention Metrics
Client retention metrics are designed to measure customer attrition rates during a given time period. When retention metrics are used as a basis of comparison, company leaders can gauge the effectiveness of customer loyalty campaigns, customer service programs and other initiatives. In some cases, a declining retention metric can indicate that the company is suffering from price competition or similar threats in the marketplace.
Client Retention Metrics Concerns
A simple client retention metric isn't useful because it doesn't account for factors that can skew the measurement. For example, a basic remaining clients/total clients metric doesn't offer any information about the clients who left the business. The truth is that some clients are more valuable than others. If the business lost several small clients while simultaneously landing a handful of large accounts, the metric would indicate a net loss even though the company's client base experienced an overall improvement.
A more sophisticated approach is to leverage several retention metrics to achieve a more granular perspective of customer loyalty and attrition. By combining a simple client retention metric with other, targeted customer metrics, company leaders can discern behavioral trends in their customer base.
At a minimum, small businesses should add dollar retention rate analysis into the metrics mix. Instead of limiting retention analysis to the number of customers, dollar retention rate metrics monitor the dollar volume of the remaining customers and paint a better picture of the impact attrition is having on the company.