Why client retention should be a top priority – Dwarka Lakhan
Why client retention should be a top priority
Acquiring new clients is expensive, time-consuming and uncertain
By Dwarka Lakhan |
In today’s increasingly competitive environment, you should make client retention a top priority.
To understand why, says Nadia David, marketing and communications consultant with Premier Consulting Partners in Mississauga, Ont., consider how much time, energy and money it takes to acquire a new client. Then compare that to how much you spend on retaining a client you already have.
“You will find that it is much cheaper to retain your existing clients,” David says.
And although client-retention costs vary among advisors, various studies have concluded that it can cost at least five times more to acquire a new client than to retain an existing one.
Losing a client to a competitor can hurt, especially if you invested a lot of time acquiring the client and maintaining the relationship. “Your existing clients are an investment that you don’t want to lose,” David says. “Client retention should be seen as holding on to your ‘blue chip’ stocks instead of chasing after speculative stocks that appear attractive but whose returns are uncertain.”
A retained client, she continues, “is like a stock that doesn’t lose value and pays consistent dividends.”
Says Larry Distillio, assistant vice-president, practice management, with Mackenzie Investments in Toronto: “Clients are at the core of your business. And they are always in a position to choose one of five options: continue to work with you; switch to another advisor; increase the amount they invest with you; decrease the amount they invest with you; and recommend you to their friends and colleagues.”
You therefore need to be aware that the power is always in your clients’ hands and you cannot rest on your laurels or take your clients for granted. Recognize that your competitors could be talking to your clients, just as you could be wooing your competitors’ clients.
Here are three reasons why you should make client retention a top priority:
1. A bird in the hand …
Not only is client retention cheaper than client acquisition, David says, but existing clients are a “sure thing” compared to the uncertainty of finding new clients.
Retention also provides greater certainty in revenue flows, she adds.
2. Existing clients are more receptive
The clients you already have are more likely to be interested in new products and services you might offer them because they already know and trust you. At the same time, you already know them and may have determined that they meet your preferred-client profile.
3. Higher intrinsic value
The experience you gain from working with clients over the long term can be rewarding, David says.
“You can measure the value of existing clients in both tangible and intangible ways,” she says. “So why not try to keep them?”
Existing clients possess “greater intrinsic value,” David says. Clients who have been with you for several years might have invested additional assets with you. Or they might have recommended you to friends or colleagues who also are now your clients.
This is the first part in a two-part series on client retention.
Next: Strategies for retaining clients