Are you spending too long chasing NEW clients instead of RETAINING your existing ones?
A Harvard Business Review report claims that acquiring a new customer is 5 to 25 times more expensive than retaining an existing one.
I get extremely annoyed when my telecom or cable provider offers a better deal to new clients than what they would offer me. My cell plan is about 12 years old, and it often gets more expensive without bringing additional perks on the table.
What stops me from switching over? (Nothing really, I’m just lazy and it’s a low-cost expense.)
Keeping your existing clients happy is the best way to bring recurring revenue on the table and stop obsessing about sales and committing the following mistakes that lead you to lose your customers.
Reasons Why Businesses Fail in Retaining Clients
Retention often isn’t top of mind for businesses.
Once a lead is closed, the sales team moves on to the next one, management reviews the quarterly report, and everyone sticks to the traditional growth curve. Churn rate is measured primarily in SaaS-driven companies — and too often neglected across the board.
Here are the most common reasons businesses fail in retaining clients. Make sure you’re not making the same mistakes in your business.
1. Lack of Long-Term Vision
Onboarding a client should envision the long-term potential of the business relationship. According to different sources, finding a new client is 5x more expensive than retaining your existing customer.
The best deal you can cut is the one that maximizes the lifetime value of a customer.
This could be handled in different ways — take retainers or support packages as an example. I’ve shared some examples in this video.
Setting up the stage for a long-term game is important. Of course, you need to have a strategy in place, be it through your own products and services or via a network of referrals and other partners who can pick it up (with a kickback for you).
Otherwise, you get the main job done. And that’s it. The client is gone. The next conversation will require half of the warm-up it took you to get there.
2. Poor Targeting
This is truly important and often neglected:
Some customers aren’t suitable for long-term clients.
If retaining clients is crucial to you, make sure you vet them properly as early as possible.
My core business is a tech agency. 95% of our work is retainer-based (and I’ll share some of my secret sauce further in this article).
We rarely take on one-off projects. Some leads are great, but it doesn’t fit the rest of our workflow, investing in R&D and business development for our committed partners.
The best clients out there need your services in the long run. They may not realize it yet, but if you firmly believe you can start small and scale them over time, pursue the opportunity.
Consider how important long-term leads are for you — it’s just one way to do it.
3. Failing Business Model
I remember a lead calling me with a proposal for some subscription website.
The idea wasn’t lucrative. We would have charged $20K for a somewhat standard build and he would have paid.
However, his business model revolved around a $1/mo subscription. After 15min on the call, we went over the possibilities to make this venture profitable at all, i.e. collecting enough subscriptions at a little incentive for something that required hosting, content marketing, and some promotion.
The business idea was weak by itself. It wouldn’t have been profitable.
Realizing this as early as possible will allow you to work with businesses generating a positive ROI from your work.
4. Poor Job Quality
This one is a no-brainer. If the client isn’t satisfied with the quality of work, customer acquisition and retention would be a hard sell.
Customers are only interested to pay an ongoing fee if the service satisfies their needs and solves critical problems for the organization (stability, additional leads, automating processes, simplifying bookkeeping, saving time, providing insights in the form of reports and analysis, etc.)
Proper targeting is really important to ensure that your services fit the right audience. Your work may be suitable for SMBs but not enterprises, or the other way around if you are too expensive, but this is a different game.
Make sure your team delivers high-quality work and you focus on the right verticals or audiences that truly benefit from your work.
5. Lack of a Unique Selling Proposition
What makes you unique?
Convincing anyone to invest in your business long-term is contingent on a niche skill.
Competition can steal all of your customers if they have a better deal than yours. Positioning yourself as an expert in a certain community is important.
It could be a unique skill set, or a business acumen in a given industry, combined with a portfolio of success stories in this field.
Leveraging your key skills is the added value to a fruitful business relationship.
6. Operational Challenges
Communication issues. Lack of an established process.
Tedious or unstable management over time.
Other mistakes caused by inefficient process management will contribute to killing a successful relationship in the long run.
This is another critical benefit of prioritizing retainers over new clients.
- Retainers build trust over time.
- Your team continuously gets insights regarding the business model.
- Internal and external communication gets streamlined over the first 3-4 months.
- You don’t have to scale like crazy or suffer the feast-and-famine cycle.
How to Maintain Your Clientele
Instead of doubling down on marketing and sales, never neglect your existing customer base.
A happy customer is your best investment to date. After successfully closing a deal, the best you can do is discovering ongoing opportunities to grow their business.
That’s what helped us grow to 50 folks at DevriX and generate 95% of our revenue through different recurring revenue plans.
There are different ways to generate recurring revenue for your business.
Here are several approaches you can use as inspiration:
- Maintenance and support plans
- Identifying business industries that operate throughout the year (i.e. covering both slow summer months and winter holidays)
- Repetitive batches of work (applicable to everyone) – initiatives that you can rollover across your portfolio of clients over several months and jump on the next one
- Productizing services (defining recurring packages for service work in a similar fashion).
Innovation isn’t necessarily a key to building a recurring revenue stream. I do expect reliability and solid processes, great customer service, and things like that. But, bad work quality is definitely a no-go.
We have certain vendor partnerships in place whenever a niche service is important for our customers but we don’t specialize in it. Clients can expect a certain level of quality or delivery times or VIP support or whatever instead of jumping back and forth. This is why we’re so obsessed with WordPress retainers.
Case Study: Our WordPress Retainer Plans
It only makes sense that we’ve coined the term “WordPress retainers” which led to hundreds of agencies adopting this same practice (and free drinks by happy executives who studied us and switched over, realizing they should have done that sooner).
Our retainers vary from 40 to 500 hours a month, with the majority being dev work. That said, maintenance may take 60+ hours for some of our ongoing clients if:
- There are tons of users, content types, 3rd party integrations, payments, and ads.
- High traffic peaks lead to delays in certain cases.
- Data processing goes through various vendors (including payment providers, marketing automation suites, and ERPs).
- The existing code base comes with technical debt from previous vendors.
As a vendor, we define our business workflow for maximum efficiency and the best results. Still, customers are in control of selecting the right vendor depending on their business needs. Some agility is needed at times to close the right clients and slowly transition them to the best processes you can offer.
The power of recurring revenue is paramount to our financial planning and growth strategy. Without recurring revenue, we would be hesitant to make bold moves forward, including hiring strategic roles like AdOps for our blue-chip publishers, or veteran technical consultants with 20 or 30 years of expertise coaching our staff.
Retainers in a Nutshell
In a nutshell, retainers provide the safety net in the form of recurring revenue that enables the company’s growth.
We usually maintain a portfolio of 20-30 long-term clients at a time. This isn’t an arbitrary number for the following reasons:
- 20+ is high enough to prevent major damage should a high profile client terminate their contract (and reasons vary from hiring in-house through a lawsuit to an acquisition).
- It’s low enough to enable us to focus on our entire portfolio on a weekly basis (a lot easier than support or a hosting business with tens of thousands of clients).
- Our project managers can effectively manage this number with enough attention to detail and care about every client we partner up with.
- Our technical department can accommodate all customer requests and emergencies in a timely manner (i.e. not being overbooked at all times).
Growing the portfolio drastically would require a major shift in our recruitment process and internal workflows. For every 300 hours of extra work, we would need a new QA engineer, a project manager, additional manpower in different departments, a technical lead for new projects, and hiring more technical talent.
This may pose additional limitations including insufficient time to hire and train top-level talent, limited office space, and overhead for accounting and legal (to name a few). Add to the list upfront costs for headhunter fees, office equipment, training materials, and onboarding time.
But different approaches to building or transitioning to a recurring revenue business exist.
After all, maintenance services are a simplified version of retainers. Popular maintenance companies often work with thousands of customers at a time.
The bottom line, different projects come with different needs. Some projects though are never one-off projects. Treating them as such isn’t progressive, considering business growth in the long term.
Refining Your Retainer Business Model
I find it oddly disturbing when companies focus more on looking for the next client, without finding a way to retain the existing ones, especially in service-based businesses.
We can’t blame the marketing department alone because the product managers and senior management should also prioritize retainers instead of looking for new sales opportunities all day long. Retainer plans are a great business symbiosis that ensures growth and stability in the long run.
Tips on Reviewing Your Retainer Business Model
The retainer business model is a solution that works well with organizing an agile environment. You can plan ahead the needed resources for the client at each stage of the development process, including the people involved, their roles, and contributions. It also requires automating the frameworks ahead to ensure constant monitoring of the ongoing project.
Most clients are looking for companies that can be transparent with them in terms of goals and progress. Clients often choose companies that give them more insights about what a project entails so it’s also important to note how you approach your retainer plans.
Review your technology and current processes in consideration of the following:
- Lack of attention would make the platform obsolete, cause troubles, regressions, or just become useless over time.
- From a BPO standpoint, we can always automate and refine processes by integrating solutions together, building automated reporting, analyzing data, and exposing features to different standpoints.
- From a market share and innovation standpoint, progress and ongoing improvements keep supporting the business needs, increasing brand awareness, attracting some PR attention, and more.
All in all, it’s an ongoing effort that can be allocated over time.
Internal arrangements vary, some people could be dedicated half-time to a contract, others have weekly sprints assigned at about 60% (allowing for flexibility), and we try to plan ahead on a monthly basis whenever possible (at least a chunk of the tasks in advance).
Compelling clients to make a long-term commitment with you comes in handy by using real-world examples.
- Can you buy a car and let it degrade for years to come?
- Have you bootstrapped your company once and left it on autopilot since?
- Have you lived in a home for 20 years with no renovation or improvements whatsoever?
Even basic electronics need a lot of love and attention to make do. Software is wildly rapid and evolves in massive paces.
Retaining Clients Matters
Building a recurring revenue business model should be your number one goal for building a stable business.
You must have a reliable pipeline of leads or product customers, but the secret to success is simple:
Focus on recurring revenue.
Companies like Netflix and Spotify survive thanks to a subscription-driven business model.
Google and Facebook generate most of their profits thanks to advertising. This is still a form of recurring revenue since it’s really predictable within a narrow range.
Samsung and Apple stick to a regular schedule when launching new hardware. They can gauge the success of their product portfolio historically and based on market surveys within the corresponding industry.
Lacking the strategic vision and business direction to retain clients longer and increase the lifetime value of a contract is a major blocker that prevents you from focusing on your product or the quality of the service.
This video covers some additional insights:
How does your company generate revenue on a recurring basis at the moment?