Growing an agency starts with the right mindset, a topic that I cover in the article, How to Scale a Marketing Agency Fast.
But that might leave you wondering, what else do I need to grow a digital marketing agency? What kind of tactics, tips, tools, and actual things do I need to do?
In two words, client retention.
In my experience of scaling an agency from startup to billions of dollars in ad spend, client retention is one of the most effective methods for growing your agency income and keeping it.
These are the seven most effective methods for client retention.
This tactic sounds simple (and it is), but its simplicity belies its power. If you do nothing else in this article, follow this tactic — get more clients faster.
Here’s the fact: Clients don’t stay clients forever.
If you’re into marketing lingo, this is about customer lifetime value (CLV or CLTV). It is also referred to as lifetime customer value (LCV) or even lifetime value (LTV). You get the idea. Mix up an L, C, V, and maybe a T in there, and you’re using the right lingo.)
So, does your average customer lifetime value suck or are you doing okay?
How can you tell? Here’s a handy chart. Identify your customer lifetime and see if you’re ranking poor, fair, good, or excellent.
|Less than 6 months||Poor|
|More than 18 months||Excellent|
The sweet spot for client retention is 18 months or longer. At that point, you’re basically printing money.
What makes the difference between a customer who bails prior to six months and a customer who hangs in for a year and a half or more?
We performed research on tens of thousands of agency customers to answer this question.
There are two parallel things that a marketing agency is trying to address as they grow:
- Reduce churn – Client, please don’t quit!
- Increase customer lifetime – Client, please stay longer!
Here’s something you may not realize about growing your agency. Often, your revenue will increase quickly, but then it flatlines.
Why does this happen?
Because while you’re onboarding new customers, you’re losing revenue from churned clients. Let’s put some numbers on this:
- Your salesperson brings on a $10k/month client every six months
- The customer lifetime of the client is 1 year
- Your churn is 8.33%
- Revenue flatlines at $20,000/month
The rate of cancellation equals the rate of new signups. And this is where most agencies find themselves stuck!
Donkeys get stuck. Unicorns fly.
So, how do you grow a pair (of unicorn wings) and fly out of this hole? Hire more salespeople. This allows you to sign on more customers faster.
If a new sales member costs less per month than the average customer pays per month, then hiring a new salesperson makes sense. (Assuming, of course, that the salesperson is able to hit quotas. If your salesperson works on a commission, then it automatically makes financial sense.)
This technique doesn’t directly affect client retention; it just solves the revenue problem.
So, what does it take to improve client retention more directly?
The second point is to eliminate month-to-month sales contracts.
Most agencies lurch uncontrollably towards any client who might say yes.
Donkeys lurch. Unicorns prance.
Flaky clients can cost you because they churn so quickly.
In every industry, there are ways to identify which clients are likely to bail early. In my research, one of those biggest predictors were clients that purchased month-to-month contracts as opposed to 6 or 12-month contracts.
In our marketing agency, we required a 10% fee on the ad spend of month-to-month clients, 8% for 6-month clients, and a 6% fee for yearlong client contracts.
Here is how we calculated the fee structure for our ad spend levels. (Pardon the primate terminology in the chart below. I have a thing for monkeys.)
|Client Size||Chimp (Small spenders)||Gorilla (Medium spenders)||King Kong (Big spenders)|
|Fee (Percent of Ad Spend)||10%||8%||6%|
When we did our churn research, something fascinating emerged from the numbers.
Our high-churn customers were month-to-month customers. These customers typically churned 2x higher than all the other clients!
What did we do to improve client retention?
Easy. We eliminated the month-to-month option.
I can hear the gasps of horror now. Eliminate month-to-month?!
Sure, you’ll get fewer clients, but the ones you do get will stay longer, providing long-term value and delivering consistent revenue. Your agency grows.
Client retention made simple.
The less a client spends on advertising, the more likely they are to churn. In my research, I discovered that the churn rate of the top quartile was half that of the bottom quartile!
There’s an easy solution to this issue. Go upmarket. Focus on finding bigger customers, better customers, customers who don’t churn.
Ad spend isn’t the only marker that you can use to identify big fish clients. If you’re in the content marketing or SEO space, the predictor might be the size of the website, traffic levels, or MRR.
The larger the client in terms of revenue, spend, etc., the less likely they are to quit after a few months.
Finding these clients requires that you be more selective and possibly take longer to find the right clients. But again, this pays off in spades due to superior customer retention.
Another way to improve client retention is to prequalify leads. Based on the information from above, you know that low spend leads are likely to churn. If their ad spend is below a certain threshold, you can decline to work with them.
This sounds harsh, but the truth is, you’re doing both them and your agency a service.
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In the interest of growing your agency, you’re saying no to a high-risk lead. And in the interest of the lead, you can nurture them until the time is right for them to become a client.
How does this magic work? It happens with Facebook Messenger marketing using a lead-qualifying Facebook Messenger bot.
A Messenger bot like this can bring in loads of clients. But it will strategically filter out those clients who don’t meet certain qualifications — such as a low ad spend.
For a marketing agency that runs Facebook advertising services, the chatbot flow looks like this:
We’ve detailed the whole process in this article. Along with explaining exactly how to do this, we provide you with the free lead qualifying template.
One massive reason for churn that I discovered was unrealistic customer expectations.
If a customer thinks that they are getting results A, but get results B, it causes problems. Chances are, the client is going to churn.
But here’s the thing about unrealistic expectations. It’s not the client’s fault for having unrealistic expectations. It’s the customer service rep’s fault for not disabusing the client of those expectations.
This situation may roll out like this:
- Donk, the Dishonest Salesperson, promises the client the moon.
- Client has expectations of receiving the moon. Client signs up!
- Client does not receive said moon.
- Client is angry.
- Client leaves.
A case in point. My “best” sales rep was actually my “worst” sales rep. He was the “best” because he was signing 20 deals a month! But he was the worst rep because those clients were churning like a strawberry smoothie in a Vitamix blender.
He would raise the client’s expectations, but the agency was in no position to deliver on those expectations. They were shockingly unrealistic. The clients he signed on were usually gone in 4-6 months.
How do you solve this problem?
- Train your sales team on properly setting customer expectations. A customer whose expectations are met or exceeded is highly likely to stay.
- Incentivize the sales team with client longevity rewards.
- Terminate the employee. Sorry, Donk. (I recommend this only as a last resort.)
Incentivization may work like this. If the client stays longer than six months, the salesperson gets a reward. If they stay longer than 12 months, the salesperson gets an additional bonus, and so on in perpetuity.
Incentivizing your sales team in this way will help them to go into their work with the long view — taking time on the sales process, managing expectations, and then staying at your company a long time to reap the reward of their patient and careful sales process.
NPS or Net Promoter Score is one of the most data-driven methods that I’ve come across for identifying the clients who might churn.
Now, I realize that not everyone puts their faith in NPS. It’s darn hard to quantify sentiment. But as scoring mechanisms go, NPS has value for predicting which clients you might not retain for the long-term.
Net Promoter Score or NPS is a rating scale that tells you how willing a customer is to promote your brand. The NPS question is simple — how likely are you to recommend us to your colleagues on a scale from 1-10.
- 6 and below – detractor
- 7-8 – passive
- 9-10 – promoter
You arrive at the Net Promoter Score by taking the percentage of promoters minus the percentage of detractors.
In the agency world, net promoter scores typically aren’t sky-high. You aren’t selling a sexy product like an iPhone or something. You’re selling a boring B2B service. There are moving parts, lots of money involved, and human interaction. Things can go wrong.
So, is your NPS good or could it use some improvement? Here’s my reference chart:
|0 or below||Bad|
|30 or higher||Unicorn|
Go back to the NPS record for those who gave you a ten-star rating. Ask them for a referral. Incentivize them if necessary.
You are five times more likely to get a deal from a referral than you are from a cold call. Besides, the quality of the referral from a really happy client is going to be high.
I understand that some people are afraid to ask for a referral. Won’t it annoy the client? Don’t worry about it. The client is already happy, so your request for a referral probably won’t bother them.
As you’re measuring NPS, you will come across clients who simply don’t like you. They’ve given you a score of six or below.
What do you do with these disgruntled customers?
My research-driven solution is to provide them with the absolute best client care possible.
The client retention method that I’m proposing here involves your client service representatives. They are the client retention task force. To grow your agency, give your client service team lots of love, attention, training, and even financial incentivization.
Low-NPS clients are likely to churn, and your client reps are here to save the day. When you encounter a low-NPS client, follow this process:
- Track the low-NPS client to their respective client service rep.
- Have a conversation with the rep to find out the reason for the client’s discontentment.
- Make whatever changes necessary to improve the working relationship.
- Consider giving the client to a more qualified customer service rep.
Following this process with low-NPS clients is a client-retention marvel. Instead of simply letting your disgruntled client leave, you’re giving them superior care and retaining them.
Of course, this tactic won’t work for every client, but it will work for most, thereby improving your client retention.
When we performed our client retention study we came up with a really surprising result.
We wanted to find out, what KPI is more closely tied to retention — amazing results or a client loving their service rep.
My assumption was that the most important factor would be the results, of course. If a client is getting great results, then, of course, they’re going to stay!
You can imagine my surprise when our results showed that, nope, the KPI most closely tied to retention was the client’s love for their service rep. Happiness with a rep was more strongly correlated with client retention than account performance.
In some cases, a client was getting low results, but they had a great customer service rep which improved their retention. Of course, the quality of the work matters! But if the client hates their rep, it doesn’t matter how good the performance is.
Based on these findings, there are several changes we made to our customer service team:
- Instead of measuring NPS generally, we made sure we connected individual client scores to their respective client service rep. In this way, we could identify which reps were struggling and which were succeeding.
- We reviewed customer satisfaction and retention metrics with the client service reps on a monthly basis.
- We provided bonuses (up to 15% of the rep’s salary) based on client retention. The longer a client stayed, the more money the rep could make.
- We invested in customer service rep training to ensure that reps were providing the best possible service for each client.
The primary takeaway here is to salvage the clients whose NPS score predicts their departure. But there are plenty of other tactics that you can put into place to make sure that client’s don’t get to that point.
Ten years ago, I launched a marketing agency and grew it to more 300 employees, tens of thousands of customers, and over a billion dollars of ad spend.
When I sold the agency for $150 million, I started a new marketing agency and delusionally set my growth goals more than twice as high as my first agency’s delusional goals.
These client retention tactics work.
Now, it’s your turn.
You have seven powerful client retention tactics, and with this knowledge, your agency is poised for massive growth.
Originally Published on Mobilemonkey.com