Maximising client retention
“It takes months to find a customer, and only seconds to lose one”
– Vincent Lombardi
Retaining clients is the simplest and most cost-effective way to grow your small business. Unfortunately, this crucial strategy is often overlooked, leading to unnecessary client attrition. At Malloch McClean, we emphasise the importance of understanding the lifetime value of a client to your business to refocus on retaining your existing clients.
Understanding lifetime value of business clients
The lifetime value (LTV) of a client can be calculated using the following formula: Lifetime Value (LTV) = Spend x Margin x Lifetime
Spend: The average annual spend of a client. This represents the total sales you make to that client each year.
Margin: The profit you earn from that client, calculated as sales minus the variable or direct costs (such as materials and labour).
Lifetime: The average number of years clients stay with your business.
Example: a hairdresser's LTV
Consider a hairdresser who charges $50 for a simple haircut. On average, clients get 8 haircuts per year, resulting in an annual spend of $400. The cost of each haircut includes one hour of wages ($23) and a small amount of product ($2), making the profit margin $25 per haircut or $200 annually. If clients typically stay with the same hairdresser for 10 years, the lifetime value is $2,000 ($400 x 50% x 10 years).
Strategies to enhance client retention
Knowing that each client is worth $2,000 over their lifetime, what steps can you take to delight and retain them?
Here are some strategies from Malloch McClean:
Provide a welcome gift.
Implement a loyalty program.
Host special events for clients.
Maintain regular contact via social media or phone.
Run in-store/online promotions.
Improve hospitality while clients wait.
Offer rewards for client referrals.
Follow up with clients who haven’t visited in a while.
Solicit feedback to improve your services.
Contact us for more personalised ideas :)
Have you calculated your client's lifetime value?
At Malloch McClean, we specialise in business accounting and advisory services. Our experts can help you determine the lifetime value of your clients and develop strategies to ensure their satisfaction and retention. Let’s talk!