In our modern economy, client acquisition and retention are absolutely crucial to the success of any business, but especially for small businesses whose primary client base is made up of other businesses.
Attracting and onboarding a new B2B client can be a costly and time-consuming endeavor, and losing even one of those valuable clients can be devastating to a small business working with limited resources.
Yet our recent survey of more than 400 B2B business leaders found that 22% of those SMBs lose 40% or more of their clients every year.
Considering that more than one-third (37%) of our respondents estimated that recruiting and onboarding a new B2B client costs their business $50k or more on average, you can see how client churn can quickly turn into a major drain on a small business’ profitability.
To further explore this critical small business challenge–and potential solutions–we asked our survey respondents about their client retention struggles, strategies, tools, and results. In this report, we’ll dig into those findings to hopefully illuminate a path forward toward reducing B2B client churn and driving growth.
Prioritizing client retention means that SMBs need to have a retention strategy in place with devoted resources, for both loyal customers and at-risk customers. This strategy should be built around analytics and engagement. By tracking and analyzing customer feedback and retention-focused KPIs, small B2B businesses can identify gaps in their customer retention strategy, target client pain points, and retain more clients and customers to increase annual revenue.
The costs of customer churn
Decision makers are constantly seeking the best service or solution for their business needs at any given time, so it’s important to recognize that some level of client turnover is inevitable in business. But acknowledging that client churn is a certainty doesn’t make it any less costly. To increase revenue stability, SMBs should focus on reducing churn, which in turn minimizes customer acquisition costs.
1 in 5 SMBs are experiencing massive customer churn rates of 40% or more
Almost two-thirds (65%) of our respondents report manageable client turnover rates of 20% or less year over year. At the opposite end of the spectrum, however, one in five of our respondents (22%) are experiencing massive levels of customer turnover, with more than 40% of their clients discontinuing the business relationship in the last year.
Larger client bases are harder to maintain
Digging into the trend of increased churn, we found that more than 30% of SMBs maintaining a client base of 100 or more clients report churn rates of 40% or higher. This could be the result of limited staffing, poor customer service tools and strategies, or industry nuances. Regardless of the underlying cause, growth in your customer base requires a solid operational foundation on the back end to support it. We’ll dig into this more later.
Focus on relationship-building and retention, because it’s more expensive to acquire new customers
There are major benefits to strengthening relationships with your customers, largely around reducing the overall costs associated with client acquisition. Our survey findings bear this out, as our SMB respondents reported significant costs associated with their client acquisition efforts.
- More than 25% of SMBs report that it costs them between $25k and $50k to identify, convert, and onboard a new client.
- Almost 40% of SMBs report that it costs them $50k or more to transition a lead into a client.
- Business volume doesn’t reduce these costs as you might think. For businesses serving more than 100 clients, more than 43% claimed that it costs them in excess of $50k to convert a lead into a customer.
Let’s look at these two findings relative to one another, in order to understand just how expensive client acquisition can be. With almost one-third of SMBs that have more than 100 clients claiming a churn rate of 40% or more, and 2 out of 5 of the same SMB cohort paying $50k or more to bring in each of those customers, the potential losses on the P&L statement could be astronomical.
Because client churn can be very costly, we wanted to know what resources SMBs were leveraging in order to reduce their losses.
B2B customer retention strategies and retention tools
While churn is an inevitable seepage on the expense side of the balance sheet, it doesn’t have to be an uncontrolled flood. We queried our respondents on the strategies and tools that SMBs are using to retain more clients and fight churn, and we found that they’re using a number of interesting methods to mitigate these losses.
Customer voice is king in understanding customer needs
A core tenet of customer service is to listen to your customers to understand more about their satisfaction (or dissatisfaction) with your team’s efforts. Their feedback and insights are some of the best sources for determining where your business is missing the mark in either the services you offer or the products you sell.
According to our survey, more than 60% of our respondents use feedback requests and client surveys in an effort to increase client retention, making that the most popular client retention tactic among our respondents.
Inviting your clients to share feedback and reviews shows them that their opinions and feedback matter to you. It also allows potential customers to see what type of experience existing customers have had with your business. Of course, it’s important to include all fair and honest reviews, rather than handpicking only the most glowing examples. After all, these reviews can translate into increased loyalty and trust when customers either see others happy with their experiences or that your business is willing to address shortcomings when they inevitably arise.
Client feedback can also be used to produce valuable data which in turn can help you improve your business. For example, if you notice that an inordinate number of clients are complaining about missed deliverable deadlines, you’ll know exactly where to devote resources to correct that issue. Of course, not every problem and solution will be so clear, but experienced marketing consultants can help you interpret the data you collect from client feedback and determine what to do with it.
Let customer loyalty programs incentivize and inspire your clients to promote your brand
While direct client engagement is effective and deserves dedicated resources, the other leading client engagement tactics our respondents selected are somewhat indirect and passive, relying more on loyal customers to take action on your behalf.
For example, the next two most popular tactics in use by our respondents are client loyalty discounts and rewards (59%) and client testimonials and referrals (55%). Creating a multi-tiered customer retention program around these strategies can go a long way toward adding value and building a strong foundation for long-term relationships with customers.
Testimonials and referrals are especially important in the modern social media-focused marketing landscape. Engaging with visitors who are already talking about their experience with your brand on your social channels provides invaluable content that you can leverage in social proof campaigns.
Interestingly, dedicated client success representatives appeared fourth on the list of most used client retention tactics, used by less than half of our respondents. Whether this is due to staffing limitations or lack of experience, this could represent a major missed opportunity for creating personal connections with clients.
In the next section, we’ll further explore how our respondents are leveraging staff in this role and how it can add value to the bottom line.
Client retention specialists are leading the charge, but opportunities remain to create dedicated success teams
Our SMB respondents have structured their client retention teams around a number of different roles. The most common roles our respondents are leveraging are split almost evenly between individual sales managers and client success specialists or teams, which were each cited by 28% of our respondents.
While sales managers spend time nurturing repeat business and managing sales teams, retention specialists focus their efforts on gathering feedback, managing customer expectations, and keeping clients as happy as possible.
Sales teams are still a part of 24% of our respondents’ client account management efforts, but dedicated customer success teams, which are end-to-end solutions helping to manage the customer journey and beyond, are only in use by 17% of our survey respondents.
Because these teams are focused not only on retention but also on taking a holistic approach to client success and satisfaction, restructuring client engagement efforts around building out these success teams is one of the most powerful ways to boost customer retention both now and in the future.
Most SMBs choose software over consultants in providing customer support and improving the customer experience
As with many other business processes, SMBs struggle to field the necessary staff and expertise to properly manage customer engagement. Our survey revealed that almost 75% of our SMB respondents mitigate this shortcoming by using a combination of SaaS solutions, including CRM software and customer feedback tools, in order to leverage automation to improve customer relationships.
Less than half (48%), though, report turning to an outside expert in customer or client retention, which could be a much more effective method for processing the data and metrics gathered through CRM software and making more informed decisions on how to engage and retain customers.
To further support this point, our survey results showed that 94% of our respondents who employ the services of a consultant or service provider in customer retention are moderately (37%) or very (57%) confident in their ability to retain customers, while only 90% of those relying on software solutions felt the same.
An even bigger divide appears when we look at how those software users break down their confidence level, with 49% reporting moderate confidence, and only 41% claiming that they are very confident in their ability to retain clients.
This indicates some level of doubt among our respondents in their ability to retain clients, which we’ll explore further in the next section.
Client retention challenges and concerns
Client retention can be a challenging undertaking, as modern B2B customers are as discerning and sensitive to costs and customer service as traditional B2C customers. This carries over into the office for B2B companies, as decision-makers are constantly on the hunt for the best service available in order to keep their staff focused on keeping their own businesses running smoothly.
Our respondents in particular reported a number of major challenges and concerns that they contend with regularly. The biggest challenges our respondents face when it comes to client retention are centered around competitive pricing and staffing.
- In a volatile economy, clients have the propensity to be extremely cost-sensitive and this is illustrated by the fact that switching to competitors for better rates (51%) is far and away the top client retention challenge reported by our respondents. This should be a focus of leadership, to ensure competitive pricing whenever possible, but cost sensitivity can also often be offset by stronger engagement and service and quality standards.
- High price sensitivity can also make it that much more difficult to sign clients onto long-term contracts. And our survey reveals that 28% of our respondents struggle with getting their clients to sign on to these lucrative, secure contracts.
Agency and service provider hopping can be expensive both in terms of constantly onboarding new customers who are seeking a fresh experience and better rates, and then again when those same customers see greener pastures in a competitor. This is why it’s so crucial to have a dedicated team of customer success representatives who are able to build valuable relationships through personalized service, and to show clients the value they’re receiving from your business.
The challenges our respondents face don’t stem only from customers. Finding and hiring staff with the proper client retention skills and experience, or finding other resources to successfully execute a client retention strategy (37%) was the next most challenging concern faced by SMBs. Related to staffing and hiring, our SMBs pointed to high client management costs (34%) as a related concern.
Are respondents overconfident about the effectiveness of their customer retention efforts?
Despite these persistent challenges, we found that overall, 90% of respondents rated their client retention efforts as moderately (48%) or very (42%) effective. This translates into an overwhelming 91% of all respondents feeling moderately (49%) or very (42%) confident in their team’s ability to successfully retain customers.
However, circling back in the survey, with 20% of SMBs reporting a churn rate of 40% or more, there seems to be a disconnect between perception and reality, and we are confident there are opportunities to make improvements. For example, customer retention specialists can help SMBs alleviate the challenges cited and set higher expectations for client retention.
Benefits and challenges of working with a customer retention specialist
Entrepreneurs and small business owners build teams that prioritize growing sales and can support the services or products they provide to clients. This leaves a wide range of business processes that need to be supported through additional skills training or development in-house, or by bringing in third-party consultants and service providers.
The respondents in our survey that have turned to outside client retention specialists revealed a number of benefits that SMBs who have not worked with a service provider might not even realize are available to them.
Top benefits reported by SMBs who have worked with a client retention specialist include:
- Better customer retention data/analytics (33% of respondents)
- Faster acquisition and onboarding process for new clients (33%)
- More effective client loyalty programs and reward programs (32%)
- More insightful and actionable feedback from clients (30%)
Of course, they also revealed a number of challenges that come up when working with a client retention specialists. Top challenges reported include:
- More work for sales reps (32%)
- Client onboarding now costs more and takes more time (27%)
- Service provider costs too much (25%)
- Lack of communication with the provider (22%)
With this mix of pros and cons, which–taken as a whole–show that businesses leveraging a client retention specialist are able to create stronger and longer-lasting relationships with their customers, it’s ironic that lowering churn rate (7%) was the lowest reported benefit of working with a retention specialist.
Looking deeper into these numbers, though, it becomes clear that a customer retention specialist spending more time, effort, and resources in customer retention activities can lead to lower churn rates over time.
By reducing the time and costs of the onboarding process and retaining these customers for a longer period, more time is spent building repeat business through these customers rather than replacing them year after year. This keeps your retention team focused on profitability rather than recovery.
Another hidden benefit of working with client retention consultants is the educational value. Any good consultant will not only identify and help solve immediate problems, but also instill long-term strategies and lessons that your sales and marketing staff can use for years to come to retain loyal clients, sign long-term contracts, derive data-driven insights, and offer valuable, personalized service.
Hiring client retention specialists is a proactive way to improve customer retention rates over time
Much like any marketing strategy or business strategy, working with a client retention specialist or team isn’t going to be an instant solution. Small business leaders shouldn’t expect these consultants to magically reduce churn overnight, just like you wouldn’t expect an SEO consultant to immediately overhaul your entire content library.
Instead, these providers can help nurture business growth in a more holistic way by saving time on customer onboarding, improving insights, and creating more effective retention strategies.
These short-term, incremental process improvements can add up to reduced churn over time, setting your SMB up for long-term growth. But it’s important for business owners to be honest about the effectiveness of their existing programs and the benefits that making changes could bring to their bottom line in the form of revenue growth.
Despite overwhelming confidence in their ability to retain clients, an equally astounding 93% of B2B client retention leaders admit that their company’s profits would increase if they devoted more resources to client retention efforts.
Don’t fall behind the curve in the coming year. Partner with a professional to improve your client retention efforts, stabilize your revenue streams, and weather future uncertainty.
UpCity’s Survey Method
This survey was conducted using Pollfish in November of 2023 among 441 U.S. B2B small business leaders to learn more about their client retention strategies and challenges. Respondents were screened for their role in overseeing client retention for a small-to-midsize B2B business.