8 Best Client Retention Strategies for Service Businesses

When you ask any business owner what some of the biggest challenges they face are,  maintaining a loyal client base will likely be at the top of that list. Once the initial hype has worn off and people are ready to move on to the next thing, different client retention strategies become pivotal for keeping your business running.

But what is a client retention rate, and how can you be sure you are on the right path with your efforts? Simply put, a client retention rate is the percentage of clients a business retains over time. Understanding this metric can provide invaluable insights into your business’s health and customer satisfaction.

High numbers are a good sign, but that’s easier said than done. So, to help you navigate this field, we will cover everything, from the basics of client retention to different strategies to improve it.

What is Client Retention?

Client retention refers to a business’s ability to retain its existing clients over a period of time. The concept emphasizes maintaining good relationships with clients, ensuring their satisfaction, and fostering their loyalty. This qualitative measure shows how effective business customer service is, how personalized the interactions with clients are, and how well the business delivers on its promised values.

On the other hand, client retention rate is a key metric that measures the percentage of clients a business has retained over a defined period. This percentage is greatly influenced by customer satisfaction. Essentially, customer retention rate quantifies the effectiveness of business strategies to retain its customer base.

Think of it this way: while client retention focuses on the qualitative aspects of maintaining strong client relationships, the client retention rate gives a numerical index to all efforts to convert existing clients to return clients.

Why is client retention important?

You may wonder why client retention is so important. After all, isn’t it better to focus your efforts on potential new clients, which will surely impact your revenue much more? Well, this isn’t really true. Increasing client retention by as little as 5% can increase your profits from 25% to 95%.

Furthermore, research indicates that acquiring a new customer can cost five times more than retaining an existing one. Now, it probably makes perfect sense why many businesses put so much effort into turning first-time clients into return clients.

How to calculate client retention rate

As we already mentioned, customer retention rate, or CRR for short, shows a percentage of already existing customers your business has retained over a period of time.

So, knowing how to calculate the client retention rate is crucial for later learning how to increase it.

To calculate your CRR, you will need to subtract the number of new customers from the number of remaining customers at the end of the period. Then, you divide this number by the total number of customers at the start of the period and multiply by 100.

If done correctly, you should now have a percentage of clients your business has successfully retained over the specified period. A higher number indicates stronger customer loyalty and satisfaction, but even if you didn’t get the score you wanted, there are many ways to increase the percentage.

What is a good client retention rate?

A good client retention rate greatly depends on the industry you are in. As for service businesses, the good retention rate is about 60%-70%. However, staying above this number will surely reflect on your revenue.

This range indicates that a significant majority of your clients are satisfied with your services hence why they are coming back. Achieving these numbers shows how effective your client management skills are, and maintaining them will put you on the right track for continued business growth.

Client Retention Strategies that Work

Now that you know what client retention is and how to calculate it yourself, we can finally move on to how to increase client retention. Effective client retention strategies are the cornerstone of maintaining customer loyalty, enhancing satisfaction, and, ultimately, ensuring long-term success.

But in such an ever-changing landscape, how can you ensure people do not just want to move on as soon as new business opens up? Well, there are many tactics to ensure a return visit from a client, and in this section, we will cover the most effective ones.

1. Get to know your clients

People are social creatures, and getting to know them will do wonders for your business. Asking just a few simple questions, such as when their birthday is, if they have kids or pets, what their hobbies are, etc., can help you tailor your products or services to better suit your clients.

Different forms can help you gather information online or you can have a survey on site if that’s something that fits your business better.

2. Ask for feedback

Customer feedback is one of the most valuable sources of information. Who can better tell you what you can improve in your business than those coming in regularly? But people can be hesitant to share their opinion if not explicitly asked to do so.

So, to ensure you are getting the most out of this process, be sure to ask regularly for any kind of feedback. This can be easily done by creating a survey and sending it to your clients by email.

Asking for an opinion will also show your clients you care about their input and appreciate them, making it a win-win situation.

3. Introduce a newsletter

Newsletters are a great way to keep your clients engaged and in the loop about your new services and products. You may think people don’t actually read them, but that couldn’t be further from the truth. Many businesses create some sort of “exclusive clubs” with the clients that are subscribed to the newsletter. This exclusivity means the members get special coupons or early access when there are sales or new services offered.

Additionally, this communication channel helps your clients feel connected to your business and, therefore, much harder to replace.

4. Offer outstanding customer service

No matter how well the business is going, there will always be some issues that need to be addressed. This may include a client who isn’t satisfied with the service provided or a product purchased. But even when a customer is dissatisfied, having someone on the other side of the line addressing the issue professionally and with empathy can make all the difference.

Many companies are infamous for their bad customer service, and people are quick to leave a bad review or turn to another business where they would be treated better. Your staff represents your business, so be sure they know which values need to be followed.

Good customer service is directly correlated with client retention, so investing in it is essentially investing in both.

5. Build a community

Building a community involves creating a space where your clients feel seen, where they can engage with one another, and where they feel connected. Nurturing relationships can be done both online and offline, all with the aim of fostering a sense of loyalty and connection.

This can be through social media groups, forums, or exclusive events. By facilitating these interactions, you strengthen not only the bond between clients but also their attachment to your business.

Image by pch.vector on Freepik

6. Have a loyalty program

Implementing a loyalty program is one of the best client retention strategies, especially if there are any additional rewards included. Think about what you can offer. Are there any discounts or special perks your clients can get by signing up for a loyalty program? If yes, be sure to highlight them and present the great value signing up can bring.

Loyalty programs can show how much you appreciate clients’ support but also create a sense of exclusivity, ensuring customers return every time.

7. Request testimonials and reviews

Some people are just not sure what they think of your brand until they are asked to put their thoughts on paper. Ask them to share what they love about your business or maybe even some fun stories. Reviews and testimonials show how reputable your business is in attracting new customers and ensuring existing ones stick for longer. If you are unsure how to ask for them, here is our guide on how to ask a client for a review.

Remember to share these stories on your website and social media so they can reach a greater number of people. This can also help you reach some of the clients that have stopped showing up and ultimately increase client retention even further.

8. Offer something unique

The best way to ensure a client is coming back is to offer something they can’t get anywhere else. This will not only set your business apart from the competitors but also make it hard to replace. Whether you can offer a special service or an exclusive product, uniqueness will not only attract clients initially but encourage long-term loyalty.

How to Measure Client Retention

Now that you can put all of the retention strategies to use, you need to know how to measure client retention for your specific business. We already gave you the formula, but here are some other parameters you need to define beforehand.

• ​​Define a period: Choose a specific timeframe for measuring client retention, such as monthly, quarterly, or annually. The one you choose should depend on the objectives you have set.
• Identify a client base: Determine the number of clients at the beginning of the period, as this will be your starting point for tracking.
• Count all existing clients: Count the total number of clients at the end of the period you have set.
• Subtract new clients: Exclude any new clients acquired during this period from the total you got. This will ensure you are getting the right percentage of only repeated customers.
• Use the formula for calculating Client Retention Rate: Use the formula we provided to calculate your client retention rate:

Client Retention Rate (%) = (Number of clients at the start of the period – Number of clients at end of period ÷ Number of new clients​) ×100

This calculation should give you a percentage reflecting the proportion of clients retained over the specified period.

Measuring client retention rate more often can help you identify trends and evaluate the effectiveness of any strategies you have implemented. Based on the number you get, you can refine your efforts even further.

Conclusion

As you become a business owner, client retention becomes a crucial factor for achieving long-term success and financial stability. Unlike acquiring new customers, retaining existing clients requires nurturing relationships and constantly delivering exceptional value. Customer retention is the best way to grow your revenue without spending a fortune on marketing.

There are many effective retention strategies but the main point is to offer empathic and helpful assistance so your clients feel valued and appreciated. Introduce a loyalty program, actively ask for client feedback and try to build a community as people are more likely to come back if they feel welcomed.

Each strategy you implement should attract clients initially and cultivate long-term loyalty. Clients’ needs and expectations will surely evolve over time, and you need someone to anticipate these changes.

Ultimately, investing in client retention is not just about growing revenue but about building connections that keep your business successful in the long run.  And if you need any additional help here is our guide on how to properly run a service business.

FAQ Section

1. What is an example of customer retention?

A good example of customer retention is a beauty salon that has kept the same clientele for years due to taking the time to get to know the clients. Or a gym that offers discounts for yearly memberships, keeping the members engaged for longer.

2. How do you retain clients?

There are many tactics to help you retain customers but the basic principle is having good customer service to assist clients with any questions or issues they may have. Additional strategies to try out are sending them a newsletter, introducing a loyalty program and building a community where they feel welcomed and appreciated.

3. What is a bad customer retention rate?

Bad customer retention rates greatly depend on the specific business, but as a general rule, below 15% is considered really poor retention. However, even if you fall lower on this scale, there are many ways you can improve this number. Try connecting with your clients more, offering a unique service, and asking for feedback so you know what needs improvement.

4. What is a realistic client retention rate?

The realistic client retention rate for service businesses is around 60%. This high number is surely due to great attention to clients and their needs. But keep in mind that anything above 50% is considered good.