The ultimate guide to client retention for small businesses

Client retention strengthens your bottom line and helps you build a solid foundation. Learn how to entice clients to stay and discover the tools that make it easier.

Repeat clients are critical to success, no matter what your industry may be. They shop more often, spend more per order, and recommend your business to their friends and family. 

Plus, each purchase makes a client more likely to choose your business the next time. By the third purchase, a repeat buyer has a 62% chance of returning. That’s business you don’t have to hustle and spend marketing dollars to get.

An effective client retention strategy increases your odds of keeping clients over the long term. Here’s how to build that strategy.

Jump to:

• What is client retention?
• Why is client retention important for small businesses?
• 6 ways to improve your customer retention rates
• 5 tools for your customer retention strategy
• Improve your client retention with less legwork

What is client retention?

Client retention is a measurement of your returning business. It shows you the percentage of your clients who stay with you versus moving to a competitor during a specific time frame.

It’s also the process of keeping your clients coming back. Businesses develop client retention strategies to promote loyalty and build a strong reputation.

Why is client retention important for small businesses?

Running a small business can be challenging in today’s economy. More than three-quarters of small-business owners report feeling the stress of inflation, and 24% say that the economy has driven customers away. Meanwhile, cost increases and economic uncertainty make new customer acquisition even more difficult.

Client retention is critical to closing the gap. It encourages businesses to focus on cultivating a great customer experience that inspires clients to keep coming back and tell their friends.

Retention doesn’t eliminate the need for marketing, but it does reduce a business’s dependence on new customers. It lowers your overall customer acquisition cost (CAC) because you can rely on existing customers to drive revenue. And with each new customer costing 222% more now than in 2014, those savings add up.

Returning customers also deliver the social proof you need to grow. They’ve chosen your business over the competition multiple times, which means they’re prime candidates for leaving positive reviews and recommending you to others.

6 ways to improve your customer retention rates

Retention happens when clients believe you can meet their needs better than anyone else, so they don’t need to shop around. Excellent service is crucial, but most customers need reminders of how well you fit into their lives. Here’s how to make that happen.

1. Personalize your sales process

In a 2023 Salesforce survey, 65% of customers said they’d be loyal to a company that provided a personalized experience. 

As a small business, you have the advantage of personalization. You’re less likely to have a multi-department sales flow and more likely to onboard customers with one-on-one conversations. Embrace the connective power of those conversations and start building connections as soon as someone expresses interest in your business.

Set the stage for retention by focusing on the customer as an individual. That means:

• Asking about their needs and pain points
• Highlighting relevant aspects of your service
• Referring back to what they’ve told you
• Suggesting next steps based on where they’re at

Let go of any scripted intake process and focus on listening. Although not having a road map can initially be intimidating, the client will tell you what they need. Respond genuinely and keep your focus on them. You’re sure to make a positive, lasting impression.

2. Implement a loyalty program

Service quality is a powerful incentive for retention, but loyalty programs give you an even more substantial advantage.

According to Deloitte, loyalty programs are a top growth opportunity for leading marketing executives. A 2024 survey showed that loyalty program members express trust at a level that’s 61% higher than that of non-members, and that such membership can encourage repeat purchases.

The flexibility of loyalty programs makes them ideal for small businesses. You can structure the program according to your clients’ needs and offer highly personalized rewards, from discounts to early appointment access.

One type of loyalty program that’s trending right now is the tiered program. By supporting your business more, clients can earn their way to a higher status and better benefits. One Deloitte respondent saw a 98% retention rate from their top-level subscribers.

3. Start a referral program

Referral programs are the perfect match for small businesses. U.S. consumers are more committed than ever to supporting local small businesses, with 57% of shoppers saying they’ll pay more to do so. One in five already shops at small businesses often, and 90% want to see more in their area.

A referral program lets you reach would-be local shoppers while encouraging your current clients to stay. Some clients will refer you without being prompted, but the right incentive boosts your chances.

Shopify says store credit is the most popular referral incentive, followed by freebies and loyalty points. You may reward only the referring client, or you can include the person they send your way as well.

4. Upsell and cross-sell

Research shows a direct connection between perceived value and customer retention. When people feel they benefit from doing business with you, they stay longer and make more purchases.

One tangible way of increasing your value proposition is to cross-sell and upsell. Upselling encourages clients to buy a higher-ticket product or service, while cross-selling offers complementary products as add-ons. You may already engage in these practices without even knowing they have names.

For example, if you own a hair salon, you might cross-sell by inviting clients to buy the shampoos, conditioners, and styling products you use during their appointments.

Whether you already upsell and cross-sell or not, making it a regular practice can increase your value perception. Customers enjoy getting more than they asked for, which makes them excited to return and repeat the experience.

5. Quantify your results

Your client retention rate (CRR) is the first metric you should track. It’s easy to measure, too. Just subtract your acquired-client count from your total number of clients at the end of the tracking period, and then divide the result by the number of clients you had at the beginning.

The typical CRR varies by industry, ranging from 55% in travel and hospitality to 84% in media and professional services. 

Your CRR is helpful if you know someone is still an active client, but what if someone simply hasn’t made another appointment yet? You’ll learn more by tracking multiple retention metrics, including:

• Loyal customer rate: the ratio of repeat clients to new clients in a given period
• Time between purchases: the average period between one booking and another
• Customer lifetime value: the average purchase amount multiplied by the average number of purchases someone makes with you
• Customer churn rate: the ratio of customers who actively stop doing business with you in a given period

Start by tracking no more than 3 or 4 complementary metrics across at least 3 periods. Once you start to see trends, you can identify when it’s time to take action.

6. Identify new sales opportunities

Reliably excellent service is a crucial retention driver, but don’t underestimate the power of novelty. Always look for services and add-ons that can enhance your customer experience.

Customer feedback loops are immensely helpful. Analyze your customer reviews and customer service records and look for what your customers love and what they’d love for you to do better. Take the most frequent comments and act on them, and then announce them with sincere thanks to those who provided the feedback.

Clients will appreciate your taking their comments to heart. Why wouldn’t they patronize a business that listens to them and customizes their experience over one they’ve never used before?

5 tools for your customer retention strategy

As a small-business owner, you’re used to carrying the load. Fortunately, the information age provides tools for boosting customer satisfaction so you can provide the top-notch service you’re famous for.

1. Email automation

Your clients appreciate personal messages for critical issues, such as order updates and account questions. But for simple reminders, confirmations, and other administrative messages, automated emails do the trick nicely. For most clients, this automation even improves the overall experience.

In a survey of small to midsize businesses, 35% said automation helps them provide better customer support. For 88%, automation is a net gain that makes them more competitive.

Automated emails let you communicate one on one without the time investment of writing each message manually. Email automation tools also make it easy to match messages with the right clients, enabling you to build the ongoing engagement that drives retention.

2. Segmented communications

Segmentation improves your personalization, organizing your contacts into interest groups. For example, if you own a photography business, you might segment your list into family photography, engagements and weddings, and professional headshots.

Segmenting lets you stay in touch with relevant announcements, promotions, and updates. It enables you to set up advanced retention strategies, such as drip email marketing campaigns. These campaigns are sequences of promotional emails that drive interest in a product, service, or event based on the recipient’s past actions.

You can also use segmentation to send service updates, seasonal promotions, and loyalty program updates. Each segmented message is another chance for a repeat purchase.

3. Digital products

When you run a service business, repeat purchases can feel like a waiting game. A dog you groomed yesterday won’t need another haircut tomorrow. The couple whose vacation you planned may not go away again until next year.

That’s where digital products come in. Even hands-on service providers can sell digital items that supplement what they do. Those items also provide value the client can’t get elsewhere. Possibilities include:

• Personal workout journals from trainers and gym owners
• Student planners from tutors
• Printable kids’ activities from childcare providers
• Budget templates from accountants and bookkeepers

There are digital products that can match any business, whether it sells products or services. List these products on your website and promote them by email, on social media, and in your newsletter if you have one. 

4. Communities and groups

So far, we’ve focused mainly on improving engagement between you and your clients. Now, we get to look at a connection opportunity that many small businesses miss—the chance to build a community of clients who talk to one another, not only to you.

More than three-quarters of all internet users—76%—participate in at least one online community. Some of these communities are public, living on sites such as Reddit and Facebook, while others are company-sponsored.

A strong online community can boost your retention by keeping you in your clients’ daily lives. Such a community offers value to clients through mutual support and advice, keeping you top of mind when a client has a problem related to your business.

Clients can also turn to online groups and forums to offer feedback and discuss their issues. If they already use your forum as a resource, they’ll be even more likely to communicate their thoughts and give you valuable insights. Those insights are gold for customer relationship management.

5. Analytics and reports

Finally, let’s discuss the one tool that informs all the others, even though your clients will likely never encounter it: data analytics.

Data reports summarize all of your activity—bookings, contracts sent, payments collected, and more. At first glance, these reports mostly give you the numbers—what you sold, how much you made, and whether your bottom line is improving or not.

If you look deeper, though, these analyses will give you insights into your clients’ needs and preferences. They’ll show you what services your clients value most. 

For example, suppose you generate year-end reports to examine your cash flow. Your total income didn’t increase as much as you expected. Also, most of your conversions came from social media or Google ads.

You realize your current clients mostly book directly through your website, so you might be getting fewer repeat bookings. You then run a targeted email campaign to remind clients of your value and convince them to rebook with you.

Improve your client retention with less legwork

Keeping your clients happy is what you do. But it’s a big job, and as your business grows, you need more help to keep up with everything. Client relationship management software can take the manual work off your plate with communication templates, automated reminders, and post-service surveys.

HoneyBook is an all-in-one clientflow platform that makes booking, planning, and following up easy. From smooth payment collection to project management, HoneyBook helps businesses provide a seamless experience for their clients.