Why a 100% Retention is Bad for Your Business
Every year my neighbour prunes the rose trees in her garden. Every cut results in new growth that will eventually bear flowers. She knows that pruning is a must-do chore that keeps her roses healthy.
In a similar way, professionals should regularly prune their client base. It’s a ‘must-do’ for you, to promote growth and enable you to attract and acquire bigger and more profitable clients.
I regularly meet professionals who boast about their high retention rates – often more than 90% and occasionally 100%. On the surface this seems impressive. In reality, however, it means no growth, and that spells stagnation.
Like all top professionals, you should set a retention goal: to keep 100% of your desired clients (Category A and Category B clients). These clients produce 80% of your revenue results. You should regularly prune the bottom 15-20% of clients; these contribute less than 20% of your revenue and sometimes take up a large amount of your time and resources.
I often hear professionals say they don’t have time to spend on marketing, because they are just too busy looking after their existing clients. They are making the common mistake of treating all of their clients equally. The truth is: all clients are not created equal.
It’s possible to have a 100% retention rate, and still face declining revenues. Why? Because market forces outside of your control are driving down pricing.
There are two reasons why professionals don’t prune their client base:
The Fear Mindset. They are afraid they will lose revenue; all business is good business regardless of the size. They are comfortable having lots of very small accounts, just in case they lose a big account. These professionals work long hours (50+ per week) with increasing labour intensity and declining growth results.
Lack of Capabilities. They do not have a clearly defined process for attracting and acquiring new clients that match the traits and characteristics of their A and B clients. These professionals have never been taught – or they have failed to learn – how to develop referrals sources and to implement marketing action plans to create a steady stream of prospective clients. This lack of capability in turn drives the fear mindset, and so they hang on to everything.
Top professionals understand the benefits of regularly pruning their client list. It’s inevitable you will lose some business, for various reasons. Sometimes this will be out of your control— due to factors such as the nature of the economy, business changes, and market cycles.
Follow these steps to prune your client base and keep it in shape:
- Categorise all your clients by revenue (A-B-C)
- Delegate C clients
- Regularly purge the bottom 20% of your client base
- Continue to sharpen your sales capabilities
By regularly pruning your client base, you create opportunity for healthy growth that leads to increased revenue, reduced workload and improved profitability.
That’s how top professionals make a great living – and a great life, with time to smell the roses!