In the first of a three-part examination of client retention analysis, CRM expert, author and businessman Joel Scott explains why it’s common for new businesses to become frustrated as they hit a ceiling on growth.  

IT IS not uncommon for young companies to enjoy healthy growth in their client base in the early years, only to become frustrated as growth resolutely refuses to continue past a certain point.

One common cause of this flattening out of growth is low rates of client retention; winning clients is one thing, but retaining clients is another altogether.

One person with a wealth of experience in this area is author and IT expert Joel Scott, who has written widely on the subject of customer relations management (CRM) software and strategies (see images, right). Scott runs Computer Control Corporation (CCC), a company that helps businesses establish and sustain client relationships through the power of customer CRM technology.

One of the reasons Scott is now a CRM authority is that his own company’s growth topped out after a 10 years.

Hitting a wall on client retention rates
“Back in the mid-1990s I was becoming frustrated with our company’s growth,” he says. “For ten straight years our gross revenue had been growing at 20-30% per year. Suddenly, when we got to about 1.5 million per year, we got stuck there for three straight years.”

Scott added sales people as fast as he could, trained them up and set them loose. Although his staff worked hard and were skilled, Scott says his company “still couldn’t break through this mysterious $1.5 million barrier. We never got any bigger, and no one knew why”.

He tried internal meetings, restructuring, price hikes, discounts – but nothing made any difference. Then, one Saturday afternoon, he decided to analyze some client data.

Measuring client retention rates
“Suddenly, I had a revelation,” reveals Scott. “Maybe we were losing accounts as fast as we were adding new ones. I ferreted out those client accounts from the previous year who had come back for more consulting the next year.”

The result was “depressing and shocking” – just 33% of CCC’s clients stayed with the company from one year to the next.

Scott points out that if two out of three corporate clients are leaving every year, you need to do a lot of hunting for new accounts just to stay even – which is exactly what Scoot company had been doing.

“As we began measuring other company’s retention rates, our original 33% rate didn’t seem so bad after all. The best we found among high tech companies, other than ours, was just 22%. The worst retention rate we found was 7%.”

Scott believes that companies who claim retention rates of near 100% either have a very few but large clients, or a product or service that absolutely locks clients into that company.

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