As a home service business owner or manager, you probably hear a lot about customer retention. What is customer retention, exactly?
This comprehensive guide walks you through everything you need to know. Learn how to define customer retention and why it’s vital to your company’s health.
You’ll also get the formulas you need to calculate customer retention. Get strategies for increasing customer retention. And read about software tools that make the job easier while you’re in the field working.
You don’t have to sacrifice billable hours to keep customers and grow your client base. You just have to know the right tools and tactics. These will help you work smarter in today’s competitive home service market.
What Is Customer Retention?
The definition of customer retention means hanging on to the customers you already have. You offer a service, and clients use that service on a repeat basis, not just one and done.
Customer retention is a vital part of operating any business. For home service businesses, it’s essential for financial stability, referrals, and growth. You’ll read more about that in detail below.
Customer retention definition
To define customer retention, we can look at the roots of the term. “Retention” comes from the word “retain.” This means to keep possession of something.
You brought in new customers via marketing and advertising. Now you need to retain (keep) them.
What customer retention means for home service businesses
Customer retention meaning varies based on your specific industry and business model.
Say you’re a roofing contractor. Installing a new roof every 20 years or so isn’t a great way to create stable repeat income. But you could offer other services on a regular basis:
- Spring and fall roof cleaning and inspection
- Post-storm roof inspection and debris removal
- Roof gutter and downspout cleaning in fall
- Ice damming prevention and remediation
For some home service companies, like lawn care, repeat business is normal. But for others, the business model is more sporadic service.
Find clever ways to provide repeat business to home service clients. That can help boost your revenue. Some other examples for field service professionals include:
- Performing seasonal furnace and AC cleaning and inspection
- Checking drains and clearing plumbing lines annually
- Autumn and spring tree trimming and branch pruning
- Applying pesticides once a month to eliminate ants and roaches
What if you’re an electrician or audio/entertainment expert? Your services are hard to provide on a regular schedule.
Customer retention for these companies is a little different. Repeat business means having customers call you first whenever they have a problem. They turn to your expertise before your competitors.
Maybe last year you installed a new electrical panel for a client, for example. You want them to call again when they want a dimmer switch installed. Or perhaps you set up a smart television for a customer in the past. Now, customer retention means they book you to add speakers to their outdoor living space.
Why Customer Retention Matters in Home Services
Understanding customer retention meaning in business is crucial. Let’s explore more why client retention matters. It’s more than just convenience—it affects your company’s ability to survive and thrive.
Retention vs. acquisition cost
One reason customer retention matters so much is cost. It’s far less expensive to keep an existing client than to bring on a new one.
It costs roughly five to seven times more to attract new customers. That’s a serious hit to your bottom line.
It makes much more sense to keep your current customers to increase your profits. Then, adding new customers is the cherry on your ice cream sundae. It’s a revenue bonus that lets you set aside funds for slow times, capital purchases, and expansion.
Repeat jobs, reviews & referrals
Did you know repeat customers tend to spend more than new ones? That’s another reason to build customer retention. Your first job might be planting some shrubs for a client. But it could turn into landscaping and maintaining the entire yard if they’re happy.
Happy customers who stay with you also leave positive reviews online. And they refer companies they like to friends and family. Those reviews and referrals help you attract new customers. This keeps your sales funnel full.
Revenue stability across seasons
It’s typical for home service providers to experience lulls throughout the year. This is especially true in weather-dependent professions, like lawn care and roofing.
Having a stable of regular clients helps fill up your calendar as much as possible. If there are periods of inactivity, the extra income can take up the slack. Busy spells can also carry you through quiet times like holidays.
Customer Retention vs. Customer Acquisition
To review, customer retention is different from customer acquisition. Customer retention is keeping your existing customers. Adding new customers is customer acquisition. They’re both essential in running a home service business.
When to prioritize each
Is there a time when it’s better to prioritize customer retention vs. acquisition, or vice versa?
When you first launch your business, naturally customer acquisition takes priority. You need to build a base of customers before you can work on retaining them.
But once you have been up and running for about six months or more? You need to start adding customer retention to your priorities. Ideally, you want a mix of both to keep your business healthy.
How they work together in a home-service funnel
Your sales funnel is the channel customer leads follow. It takes them from interest to actual purchase. It’s best to have customers dispersed evenly along the entire funnel.
Why? When you finish one job, another customer is waiting for your services. Think of the customer lifecycle like an income conveyor belt. You always have clients coming, so your income stays steady.
You might have customers in these lifecycle positions at any one time:
- Noticing your advertising or post on social media
- Clicking through to your website to learn more
- Calling to schedule an appointment for an estimate
- Booking services for a specific date and location
- Using your services for scheduled jobs in progress
- Reviewing your services for future customers
- Calling you back for repeat business later
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How to Calculate Your Customer Retention Rate
Before you can improve customer retention, you need to calculate what your rate is. Then you’ll know how much attention it needs, so you can formulate a plan.
The customer retention rate formula
There’s a standard formula used to figure a business’s customer retention rate:
Retention rate = [(Total customers at the end of the measurement period − New customers acquired during the measurement period) / Total customers at the start of the measurement period] × 100
You plug your numbers into each part of the equation, and that gives you the rate.
A worked home-service example
Here’s an example of how the formula works. Imagine you own a handyman business, and you want to calculate your retention rate.
Let’s make the measurement period one year. At the end of the year, you have 250 customers. You added 40 new customers during the year. You started the year with 270 customers.
Your retention rate = [(250 − 40) / 270] × 100.
That works out to a rate of roughly 77%. That’s actually not too bad. You can read more about desirable customer retention rates below.
Related metrics: churn, repeat-job rate & CLV
There are a few other formulas that are helpful to know.
Your business churn rate is the opposite of your retention rate. It calculates how many customers you’ve lost:
(Customers lost during the measurement period / Customers at the start of the period) × 100
A repeat-job rate figures your percentage of repeat customers:
(Number of repeat customers / Total number of customers) × 100
Customer lifetime value (CLV) is how much a customer brings to your business over many years:
Average purchase value × Purchase frequency × Relationship lifespan
You can use all these formulas. Together, they give you a better total picture of your customer relationships.
What Good Retention Looks Like
Should you spend time improving customer retention? It helps to know what a good retention rate is first.
Average retention rates for home services
“Good” retention rates vary widely by type of business. Recurring services and preventive maintenance usually have higher rates than more on-demand professions.
So, cleaning, lawn care, and pest control retain more customers. The lowest tier is contracting and roofing. Plumbing, HVAC, and electric work fall in between.
The average benchmark for businesses is 30%. But the most successful service businesses see a retention rate of about 70%. If you’re at that level or above, you can focus on client acquisition or other aspects of your business.
Signs your retention needs work
What are some signs your business needs to work on customer retention? You might fall below the percentages given above. Other signs include:
- Customer reviews saying they won’t use your services again
- Struggling to fill your calendar with regular clients
- Spending the bulk of your marketing on client acquisition
- Experiencing budget shortfalls due to an uneven sales funnel
Top Customer Retention Strategies for Home Service Businesses
There’s good news even if you need to improve your customer retention rate. You can use the strategies below to keep more customers.
Deliver a standout service experience
Obviously, giving customers stellar service is the top way to retain them. Arrive on time, and deliver what you promised. Clean up when you’re done. Use quality materials, if relevant.
Not sure what makes a great experience for the customer? Check out the reviews for the top competitors in your area. What do their customers rave about?
Of course, the quality of your technical work is important. But so are other factors like punctuality, efficiency, and cheerfulness. Your employees represent your business. Talk to them about the role of these things in building your reputation.
Proactive communication
Part of outstanding service is maintaining good communication with customers. Technology makes that easy today.
You can send text and email reminders about seasonal specials and scheduled appointments. Your technician is running late in traffic? You can send a text for that too.
Once the appointment is over, use that same software to follow up with the customer. Make sure everything meets their expectations. Was the experience as terrific as you hoped it would be?
You can also prompt the customer to post an online review. Be sure to include the link to the site where you want them to leave the review.
Respond to every review if possible with a brief message. “Thanks for your business! So glad you were happy with the results!” Or “We’re sorry everything wasn’t just right for you. We’ll reach out to discuss your concerns.”
Review & feedback loops
Customer feedback drives business growth. But it’s about more than just glowing reviews. All feedback can be helpful if you use it.
The key is to make even negative comments part of a feedback loop that influences change.
First, you solicit feedback from the client. Next, you evaluate that feedback. Was it legitimate? If so, what can you do about it?
Finally, you close the loop by acting on the feedback. Examples might include:
- Changing your routing process to improve punctuality
- Retraining employees on collecting on-site payments
- Scheduling client estimate consultations faster
- Providing emergency service during weekends or holidays
- Developing a post-service cleanup checklist for staff
- Adjusting pricing to meet current market competition
- Adding new services or technology for convenience
Maintenance plans & loyalty offers
A popular way to keep customers coming back is to make it easy for them with built-in plans and memberships.
A maintenance agreement gives customers special benefits. In return, they give you a commitment to regular service. These plans typically offer priority scheduling, discounts, and a pre-set calendar for convenience.
Loyalty plans are similar to those you see in coffee shops and hair salons. Customers receive a free or discounted service after multiple paid appointments. Or they might get a perk for referring a new customer.
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Tools That Help You Retain Customers
Technology today makes it simpler than ever to increase customer retention. But these tools can also be combined with more traditional methods. Let’s review a few examples below.
Review generation & reputation tools
Lots of home service businesses have small staffs. They have little time to manage non-billable tasks. So software that can take on these elements is ideal.
It helps coordinate the review process by linking your company with the customer. And it improves transparency, which boosts customer confidence in your business.
SMS & email follow-up automation
You don’t have to manually send the text and email messages suggested above. Instead, why not have software automate that too?
It can remind customers about upcoming appointments. It can also ask customers to leave a review later, after service has been rendered.
Direct mail
Customer retention management software can be used to attract leads. It can convert them into customers. Then, you can leverage its power with targeted retention campaigns.
The benefits of this software are multifold:
- It can be used across the entire customer lifecycle.
- You can strengthen relationships with new customers.
- Your company can tailor solutions to specific markets.
- You can spur revenue growth through repeat business.
RELATED ARTICLE — How Do You Automate Customer Feedback?
Frequently Asked Questions
What is customer retention in simple terms?
Customer retention is the practice of keeping your current customers for repeat business. Rather than providing one-off service, you see the customer at regular intervals (lawn care, pest control, etc.). Or they call you every time they need work (plumbing, HVAC).
What is a good customer retention rate?
A good rate depends on your industry. For home services that can be performed regularly, aim for about 70%.
How is customer retention different from customer loyalty?
Customer loyalty is a feeling customers have about your company. It’s what keeps them coming back. Customer retention is the process you use to accomplish that.
Why is customer retention important for home service businesses?
Retaining customers is far more cost-effective than acquiring new ones. And having a steady stream of regular customers gives you greater financial stability. This is important for weathering slow periods and for eventual scaling.
Conclusion
Ready to start working on your client retention rate? Here are steps you can take today to get the results you want:
- First, calculate your retention rate to see what you’re working with. Set an objective goal for improvement, like moving from 60% to 70% retention.
- Write out a plan using the strategies above to increase your customer retention. Be specific. Use measurable tactics, like “ask all customers for a review before leaving the jobsite.”
- Review your retention rate at specific intervals to see if it’s getting better. Tweak your plan if you’re not getting the results you want.
- Explore how field service management software could assist with customer retention. See how pulseM works online. Then, book a free demo, and be sure to ask about Customer Lobby. It will help you turn prospects into long-term customers while you’re in the field earning income.