In previous articles, we have examined the value of earning sales equity and creating greater “Loyal Behavior” from a buyer. We categorize the sources of value that lead to real, tangible buyer behaviors that directly drive profitable growth into three sources:
3. Lower Costs
But what does this all mean?
Well, retention value is the premise of maintaining and growing core offerings.
The most obvious starting point for creating value is by retention of your buyers— keep them buying and purchasing more of your core offering. If you sell computer hardware, make sure your buyer purchases his computer hardware from you year after year. If you sell accounting services, make sure your buyer purchases her accounting services from you year after year. Regardless of what buyers purchase from you today, if they can buy it again, then they should; this must be your number one priority.
Recall that your average annual retention rate equals the number of customers you have at the end of the year minus the number of new customers added during the year, divided by the number of customers you started the year with.
Your average client tenure can be calculated as one divided by your annual retention rate. For example, if you have an 80% retention rate, that means you lose 20% of your customers annually. If the company loses 20% a year, then the average client stays five years.
Look at the chart below; notice how flat the curve is from 75% to 90% retention rate. But remember the dramatic increase in average tenure as your retention rate gets to 90%, 91%, 92%, and so on.
Instead of calculating an average tenure in your portfolio strategy, calculate a weighted average tenure by weighting your portfolio of buyers. We are going to assume that you own a medium-sized B2B company, so the average buyer portfolio will be:
Trusted Advisor: 22%
Now, let us consider some industry average retention rates by sales equity level.
Doing so gives a weighted average retention rate of 88.5%. In other words, today our “weighted average buyer” is retained for 7.5 years.
But, if we make a small shift in our buyer portfolio by moving one buyer in five from each sales equity level up one level, our new buyer portfolio will consist of:
Trusted Advisor: 34%
This will increase our weighted average client retention rate from 88.5% to 90.5%, and it increases our weighted average client tenure from 8.5 to 10.5 years— that’s 1.8 more years of revenue! That is exactly why you need to focus on more retention and less on acquisition; always remember RXA!
What is your main tip for retaining buyers? Let us know down below! After that, follow us on Linkedin at “Encompass-CX” for more blogs and other updates.
Co-written by Alexis Audeh