Want to know the best way to grow your agency?
As an agency owner, you're always looking for ways to increase profits. One way to do this is by increasing customer lifetime value (CLV). CLV is the total amount of money a customer spends with your company throughout their relationship with you. The more money they spend, the higher their CLV.
Another way to increase profits is by retaining clients–the topic of this article. This means keeping them happy and satisfied so they continue doing business with you. Client retention can be tricky, but it's important to keep in mind that it costs less to retain a client than it does to acquire a new one.
What Is Client Retention?
Client (or customer) retention refers to keeping clients over some time. For some businesses, this means reselling products or services every so often. But for digital agencies, it most often takes the form of retainers or monthly/yearly contracts.
Customer Acquisition vs. Customer Retention
There's a lot of debate in the agency world about whether it's better to focus on acquiring new customers or retaining the ones you have. The answer, of course, is that it depends on your specific situation.
If you're selling a product or service that has high customer churn (meaning people are constantly canceling or switching to another option), then acquisition should be your top priority. On the other hand, if you have low churn and customers stick around for a long time, then retention should be your main focus.
Competition is fierce in the digital marketing industry. Whether you provide SEO services, social media marketing, or PPC management, each agency must have its value proposition and work on acquiring more clients. Otherwise, your newly acquired client will go somewhere else.
The truth is that both client acquisition and retention are essential for any business.
The reason acquisition is often given priority is that it can be difficult to keep track of your customer base and ensure that everyone is happy. It's much easier to bring in new customers than to keep track of the ones you have. However, customer retention is just as important, if not more so.
Why Is Customer Retention Important for an Agency?
Client retention is a solid growth strategy for several reasons:
First, it saves agencies money.
As Jack Choros of Iron Monk points out, “It is 70% cheaper to keep an existing customer than it is to find a new one. While the ratio might be slightly different depending on the business model or vertical you’re involved in, the idea rings true in the agency world.”
A study by Martech. zone shows that it is 16 times as costly to build a long-term business relationship with a new customer than simply to cultivate the loyalty of an existing customer.
And not only does retention save on acquisition costs, but it saves on time as well.
Craig Griffiths of SearchUp says, “Apart from the obvious benefit of guaranteed monthly recurring revenue, client retention is incredibly important to a small agency like ours because then you avoid having to grind for clients, which then has an impact on other areas of the business as you then have to allocate time to that.”
Last, client retention leads to a bigger pool of referral partners.
“If you have clients who work with you for the long term it generally means other referrals will likely come your way from the good things the client has said about you to their personal/professional network,” Samantha Savory of Savory PR adds, “Referral clients are a big deal!”
Not only are there great benefits to successful retention, but they can also serve as a litmus test for your agency as a whole.
“Retention is the ultimate sign of client happiness. This, therefore, is a lag indicator of your culture, your systems, your overall operations, and ability to generate results,” says Tom Parker of Dilate Digital.
How To Calculate Your Customer Retention Rate
Let’s look at how to calculate client retention:
Client Retention Rate
= ( (# of Clients at the End of Period - # of Clients Acquired During that Period) / # of Clients at Start of Period) ) X 100
So, let’s say you begin the year with 10 clients, gain four new clients in the first quarter, and have two clients leave. The equation would look like this:
( (10 - 4) / 10 ) ) x 100 = 60% retention over the first quarter.
What Is a Good Client Retention Rate?
Unfortunately, there’s no set benchmark for what qualifies as a “good” retention rate. Ask 50 digital agencies and you’ll get 50 different answers.
Client retention benchmarks vary based on industry, size of retainer, nature of the work, and many other factors. Not to mention some agencies are project-based, which naturally leads to a lower retention rate.
Karl Sakas gives estimates that:
At the end of the day, you should set your retention rate KPIs for your company, based on your history and goals.
There are several metrics you can use to measure customer retention, but customer lifetime value (CLV) and customer churn rate of the most important. By tracking these two metrics, you'll be able to get a clear picture of how well your company is retaining customers and what areas need improvement.
8 Keys to Improving Client Retention
Client retention isn’t easy. Agency owners lose sleep over it. So how can you ensure you’re hanging onto your clients as long as possible to grow a profitable agency?
We polled 28 agency owners to help us uncover the secrets to client retention.
1. Ensure Your Client Is a Great Fit
Many agencies focus on what they can do to keep a client happy post-signing. But in reality, the work of client retention begins in the sales process.
Signing a client who wasn’t a good fit for your agency in the first place is a quick way to destroy your retention rate.
Tom Parker of Dilate Digital believes, “Success is who you say no to. We ensure that any client that comes on board with our company is a “good fit” in the first instance. Saying yes to anyone with a heartbeat is the fastest way to build unhappy customers. This also results in a happier team which further drives performance.”
Vet your customers upfront and save your team the stress of working with clients they shouldn’t be.
2. Take Their Goals Seriously
Pull up 100 agency homepages and you’ll find 100 headlines about understanding their client's goals. This is an easy thing to work into your website copy, but a much harder task to carry out.
Agencies that succeed at retaining clients are the ones who genuinely prioritize their client’s business goals.
“Take their priorities seriously, even if it isn't something that is #1 on your priorities list for them. If they care about it, you should too. And if it’s a total wild goose chase, you need to educate them on why you think you should go a different direction,” says Tim Brown of Hook Agency
Chaya Gutnick agrees, “To better retain clients, the most important thing is knowing their goals and good communication. When you know their goals you can make sure your work is what they want. You can provide a great service, but if it’s not helping the client meet their goals, it is not of value to them.”
You need to be communicating that you understand the goals at every client touchpoint.
3. Set Crystal Clear Expectations
“The process of client retention starts at the first client meeting, where setting clear and concise expectations for both parties is paramount,” remarks Christopher James Foust of Motus Creative Group.
Tim Kilroy agrees, “Client retention actually starts during the sales process - the setting of expectations and timelines starts with the pitch, is cemented during onboarding and realized during client engagement.”
Unclear expectations are one of the biggest reasons agency relationships fail.
“Both you and the client should know exactly what work is being done, how long it's going to take, and who's responsible for what. You can avoid awkward (sometimes client losing) conversations by having everything clearly stated in black and white,” says Chris Stasiuk of Signature Video Group.
Setting clear expectations sets your agency up for success. You get to work with your client to lay out what’s expected of you – a luxury, not all industries have.
Andy Cabasso of Offsprout reminds us not to promise the moon, “The worst thing I've seen that derails an engagement is salespeople who oversell to clients just to sign them on. Creating too-high expectations sets the bar high and makes it more difficult to meet that client's expectations, more likely resulting in a failure and a churned client.”
4. Over-Deliver and Add Value
Providing results and doing what you say you’ll do is important. But a key to retaining clients is to go above and beyond to delight them.
Marissa Ryan of VisualFizz explains, “Our most successful retention strategy has always been to remain on the hunt for ways to provide additional value. If we've signed a client for a year long SEO strategy, we aim to go above and beyond at that year mark, perhaps with a free longform piece of content, a personal introduction to those in related industries, a media buy on the house, or a recommendation to try a few new channels that weren't used in the past. Our goal is to become absolutely invaluable to the client.”
This might look like producing stellar results, offering additional services, or – as a few agencies point out – providing fresh ideas and helping them solve problems.
“No matter what type of agency you operate, solve your clients’ problems and they will do business with you forever,” says Chris Stasiuk.
Amanda Ensinger of Inspire PR Group agrees, “If you are bringing them creative new ideas to achieve their objectives, you will not only retain your client, but grow your account.”
5. Prioritize the Relationship
“In our experience, clients stay not because of technical competency, but rather, their perception of the business relationship,” says Daniel Cheung of Prosperity Media.
This may be a crazy statement to some, but it rings true in the agency world. Results are never guaranteed, and businesses who have been around the block know this.
“Often, results just aren’t enough if your client feels that the business relationship is too impersonal. In order to make our clients feel individually valued we check in with them frequently, send them gift packages from our company, and generally try to engage with them as much as possible,” says Alexander M. Kehoe of Caveni Digital Solutions.
One way to prioritize the agency-client relationship is to add a personal touch. Even the most uptight businessmen and women can ease up when given permission.
Newaz Chowdhury of Powerphrase speaks to the personal touch, “We get personal with our clients and talk and joke around. We try to develop a close personal relationship so it makes people like us. When people like you, it becomes challenging for them to leave.”
“Meeting for coffee or lunch can accomplish so much more than e-mail exchanges… I have found that building relationships is what drives my business,” adds Paige Arnof-Fenn of Mavens & Moguls.
Your best bet for establishing a solid relationship is to start focusing on it early.
“The puzzle starts at the very beginning of the sales process. If you’re aggressive with sales and often turn to traditional “closing” sales tactics, you run the risk of sabotaging any real recurring relationship.” Kevin Geary of Hamon Creative.
Build strong, lasting relationships with your clients and reap the benefit of retaining them.
6. Be Responsive and Communicate Effectively
Responsiveness and communication are other obvious but overlooked keys to client retention. Don’t just communicate effectively, but often.
“Make them feel like they are your only client. I have heard time and time again during initial prospect calls that past firms did not give them a lot of time, they did not know what they were doing, they were set aside due to their budget and more. Every client deserves to feel as they are the big fish in your agency and never feel marginalized,” says Jennifer Thomas of FSR Ventures.
Hilary Reiter of Redhead Marketing agrees, “That’s how it should be: every client feeling like they are the only one.”
Jason Thibault, Massive Kontent recommends, “Communicate with them on a regular basis. That could take the form of a bi-weekly phone call, an open Slack channel, or a weekly personalized email.”
Some agencies struggle to judge success here. How can you measure communication?
Tom Parker of Dilate Digital describes a KPI his team focuses on:
“We have a large dashboard for everyone to see. The largest KPI on that screen is ‘Average Inactive Days’. Meaning how many days since we last communicated with our client. We have a service standard of 10 days max that a client will not hear from us. Whether it’s a phone call, an email update, a ‘how are you’ SMS, our team will make sure they stay in touch.”
7. Show Transparency and Own Mistakes
The power of transparency is making big splashes in the world of business, and more and more agencies are catching on.
Transparency may even be more important than account performance.
Harry Maugans of Clickagy explains, “Performance is (surprisingly) secondary to transparency and control. Illustrating the efforts, showing the progress and trends, and presenting it in a visual form goes a LONG way toward client satisfaction, and in turn, retention.”
And we’re not just referring to showing reports, but owning results and being willing to admit errors.
“There’s something weird about owning up to a mistake you’ve made with someone else’s business. If you admit what happened and can make it right, your relationship with that client almost always comes out stronger than it did before,” Jeremy Clark of Chatter Buzz Media points out.
8. Master the Art of Reporting
Almost all agencies report results to their clients, but very few have mastered the art (well, some have by using AgencyAnalytics 😉). Reporting plays a critical role in client retention, and it can’t be treated as a checkbox.
"When you can clearly demonstrate your client’s ROI from your efforts month over month, it increases your retention rate and keeps clients paying you month after month,” - Jacob Hicks, Owner, Magnyfi
Clients want relevant data that ties back to their overall goals.
Daniel Cheung adds, “What we do differently is that we extract and highlight the insights from the data instead of doing a data dump. From our experience, clients don't want huge tables and graphs. They want to know how they're doing and how they can improve. This is how we tackle reporting.”
Sean Clancy of Edge Marketing offers some recommendations, “Your reports should be sent with a follow-up call for you to talk to the client through the aspects of the report. Here you can demonstrate your value and what has gone well, and what hasn’t (better to discuss with them than let them degrade you to their team).”
At the end of the day, successful client retention is a combination of vision and process.
Agency owners and executives are responsible for laying the groundwork. A culture of client success trickles down from the top and empowers an entire team for success.
Here’s to less churn and more growth! 🍻