April 12, 2016
Revenue wrecker: Is client attrition eroding your bottom line?
Imagine you’re a technician who’s having an off day. In the course of doing a routine oil change, you forget the drain plug. As you’re adding the new oil, it’s draining out just as fast as you’re pouring it in.
If your shop’s car count is consistently flat or down, chances are, this scenario is what’s happening to your client base. For every new customer you bring in, you’re losing one or more existing clients. This is a vicious cycle that, at best, keeps your revenue flat. Quite often, it’s leading to declining revenues.
How can you tell if this is the case in your business or ensure it doesn’t become the case?
- Track the number of active clients within your database monthly or quarterly. How many clients have been in within the past 12 months? This is your active client base. Count again at the end of next month (or quarter) for the most recent 12 months. Is your client base growing or shrinking?
- Measure your client retention monthly or quarterly. How many new clients come in once or twice and then never return? How many of your “loyal” clients haven’t been in for 6 months, 9 months or even 12 months?
Unfortunately, many shop management systems (SMS) don’t have built-in reports for measuring either of these. Sometimes, you can pull individual reports from your SMS and then manually extract the information you need. But this is time consuming and often requires you to be proficient in Microsoft Excel.
To save yourself time and headaches, work with your SMS provider (if they’re willing), a marketing company or a computer programmer to create custom reports. They’d essentially create a way of reading the information in your database and then calculate the client base and retention numbers for you. The cost is minimal compared to the value you’ll gain by being able to monitor these key metrics.
Not sure how to measure retention? Here are three ways of doing it. The first one is a bit rudimentary but will give you a basic overview. The second and third ones are better, especially if you can do both.
- How Many Clients Are You Serving? For each of the last 3 years, how many new clients did you add? And how many clients total did you serve each year? If the total is growing, that’s great news. You’re adding more clients than you’re losing. If the total is holding steady, you have as many new clients as you have existing clients leaving. And if the total is shrinking, you have a problem (unless, of course, you’re actively trying to reduce the size of the client base and focus on higher-value clients).
- How Many New Clients Don’t Come Back? ** This is often an eye-opening number. How many new clients from the past 12 months will return in the next 12 months? The averages are alarming. It’s not unusual for only 25 percent to 35 percent of these new clients to return in that second year. Let’s put it another way: Many shop owners spend a lot of time and money marketing to new clients. If only 2 or 3 of every 10 return in the second year, you’re facing a never-ending battle to market and grow the business.
- How Many Clients – New and Returning – Don’t Come Back? This is a more common method of measuring client retention. You pull a list of customers who came in during a given 12-month time period and then determine how many of them didn’t return in the following 12 months. (You can do this for any period of time, but 12 months is a common one.)
If figuring all this out sounds like as much fun as taking your tween to a Taylor Swift concert, then look for an expert who can do the legwork for you. Taking steps to improve your retention rate will have a very meaningful impact on your bottom line because:
- It’s much, much cheaper to keep an existing client than it is to acquire a new one – 4 to 10 times less.
- The longer a client is with you, the more they’ll typically spend each year. In the second year alone, they’ll spend on average 50 percent more than they do in the first year.
Once you start to measure your client retention and can see the trends, the next step is to figure out how to boost retention. That is the topic for next week’s blog post.
(** If you can pull the data, it’s also smart to track the number of “one-and-runs” and their spending. It can help you see if you’re losing clients after one visit or more than one visit. And if you have crowds of customers coming in once and only spending $19.95, you may want to reconsider your oil change special or other introductory offer.)
Angi Semler Welch is the founder and Chief Vision Officer of Jumpdog Marketing Inc.
, and she’s been helping auto repair shop owners grow their businesses for more than 15 years.