Customer acquisition tends to be the most talked-about metric when it comes to sales. However, it is not the most important metric when we start to dive deeper into what is driving profitability. Rather, retention rates are equally, if not more, important for understanding sales growth, overall profitability and measuring success. Retention rates can vary greatly between industries and markets, so it is important to define what good retention looks like and tailor strategies for reducing churn accordingly.
The Significance of Retention Rate in Business
Retention rate is not just another success metric to boast about internally, but rather a substantial indicator of overall company health. While it can tell you a lot about your company, it is hard to understand because of how many factors can influence the overall metric. A “strong” retention rate assumes you are profitable, keeping existing customers happy and building a stable base to acquire new ones. However, keeping a stable retention rate is not always easy. If there is a misalignment between customer expectations and service offerings, oversetting of expectations, or budgetary constraints, clients can quickly move from being satisfied to being at risk. Therefore, understanding how retention is defined and affected in your industry is key to driving success.
Defining a Good Retention Rate
Each industry has unique challenges and opportunities, so adapting strategies is crucial. Business-to-business sales pipelines are traditionally more complex than the B2C sales pipeline. Important to note is that a sales pipeline differs from the customer journey, which is the steps your prospect takes in making a purchase decision. Additionally, just because the funnel of B2B sales are considered more complex, this does not mean that retention rates are predisposed to being lower. For example, in the SaaS industry, B2B sales tend to coast on retention rates of 90%+ with little monthly churn. In comparison, the B2C SaaS retention rates trend lower than 85% for 95% of companies, according to a report by ChartMogul in 2023. For wholesalers, retention rates tend to hover below the 50% mark, as reported by CustomerGuage and AnswerIQ, which is in stark contrast to SaaS retention rates. This is often attributed to the very high competition in wholesale markets and the struggle of navigating supply chain distributions, which leads to quick customer dissatisfaction and, consequently, churn. Therefore, a deep understanding of both industry trends and the pain points of your customers will be essential for proactively addressing dissatisfaction. No matter your industry, it is important to have a clear understanding of the retention rate and the factors affecting it to know how to nurture relationships and where to direct resources. Ultimately, retaining clients and customers in the long term will result in more profitable business and better resource allocation compared to a constant cycle of high sales and high churn. You will have to dive into your historical data in your CRM and study industry trends to determine what a good goal for retention rate looks like for your company. However, there are ways to improve retention rates that are valid across all industries. Below we will discuss a few of these strategies.
What You Need To Drive High Customer Retention
- Skills for effective relationship management. Striking a balance between new leads and nurturing existing relationships can be tough for all businesses. For companies with dedicated Account Managers and Customer Success Reps, it is crucial for them to be trained in the skills needed to retain customers. For companies where the same people are responsible for new business and maintaining existing clients, they also need to be well versed in skills related to customer retention. The principles of effective relationship management include things like active listening, ability to empathize with clients, and tailoring solutions based on client pain points. A critical part of this skill set is knowing how to conduct regular check-ins and follow-ups, even when no immediate sale is in sight. This ongoing engagement demonstrates commitment and fosters trust, making clients feel valued and understood so they are less likely to terminate the relationship at the first sign of hardship. A good way of actually teaching your sales team these techniques is through training focused on communication strategies. Managing different personalities and difficult conversations does not come naturally to everyone, but it can be taught. When salespeople are speaking with high-level decision-makers especially, it is always beneficial to be as transparent as possible, and present as someone who is easy to work with. In competitive industries, such as wholesaling, clients will prioritize maintaining partnerships with companies that make it easy to do so.
- Leveraging cross-selling and upselling. Cross-selling and up-selling happen when you already have an established relationship with a client and can be a great way to deepen the relationship while increasing profitability and retention. Many account managers make the mistake of waiting until renewals to get in touch with customers, which is a very limiting approach. Instead, sellers should always keep regular meetings on the books with their clients and ensure that the clients walk away with some value from those meetings. For example, this can include sharing new helpful features of your products or helping them utilize functionality that they are not taking advantage of. These meetings are a great time to learn about changes to your client’s business and if any needs have emerged as a result of that change. This is the first step towards understanding if the customer is ready to begin a decision process for any additional services. Honing this skill will build trust and keep you informed about potential cross-selling and up-selling opportunities.
- Proactive communication in addressing issues. Proactive communication is the bedrock for any successful strategy for attaining high customer retention. Focus on strategies to identify and anticipate potential issues before they escalate. Be sure to monitor client performance on a regular basis, as this will give you insight into early signs of dissatisfaction. Go the extra mile to send out regular industry updates that may affect clients. A two-way feedback loop will also be crucial for navigating potential issues as they arise. Some clients are more passive in their communication and will not give feedback unless prompted. Check-in often through the medium they are most responsive, whether it be phone calls, emails, or pre-set meeting times.
- Continuous learning and perfecting communication skills. Training your sales team to be equipped with the tools that will drive retention is not a one-stitch effort. Rather, the sales landscape is constantly evolving, making continuous learning essential for maintaining a competitive edge. Encourage your team to pursue ongoing education and professional development opportunities while giving them the resources to do so. This could include attending industry conferences, participating in webinars, or enrolling in advanced sales training programs, either in person or online. Training should never only focus on driving the sale, but rather also build skills to maintain the relationship, as that is what will help your company maintain high retention.
Once you understand what good retention looks like in your industry, focusing on these key areas will help you transform your sales team into a powerful force for driving high client retention. Sales professionals skilled at nurturing relationships, navigating cross-selling and upselling, and proactively addressing issues will significantly contribute to your business’s long-term success. Continuous learning and perfecting skills will ensure your team remains adaptable and capable of meeting the needs of your clients.
Tom Snyder is the founder and managing partner of Funnel Clarity, a sales consulting and training company that focuses on strategy, skills and processes for sales leaders.
