Managing tenders as a client, a provider and a consultant, for many years, I have seen some very impressive client retention rates quoted in RFP responses. A review of all the tenders I have been involved in as a consultant over the last few years shows an average client retention rate of 94.2%, with no response indicating retention rates of less than 90%, and a highest of 97%. Very impressive figures.
Whilst I have no reason to doubt these figures, they suggest providers retain around 19 of every 20 contracts, which seems high. What I do know is there is no common formula for calculating retention rates, which I suppose leaves the figures quoted open to some debate. What is an acceptable figure is not that clear either, as it will depend on the number of contracts the provider has, the types of client, the reasons for termination, and more.
I also see RFP’s which do not ask the question at all, so is client retention rate important anyway?
My view is that the retention rate is not too important, it is what the provider does to ensure client retention that really matters. When supporting clients on tenders I dig deeper into the client retention approach of a provider, to understand how important this is to them and what they do to work collaboratively with their clients to develop long term mutually beneficial relationships. I look for evidence of client retention planning, relationship building and their methods for tracking their client’s likelihood to extend or retain the contract.
I look to identify evidence of strategic continuous improvement and adaptability throughout the relationship, as opposed to the all too common roller coaster ride of bid and mobilisation focus, service delivery decline, improvement plan focus, service delivery decline, and then increased commitment towards contract end in a bid to retain.
But client retention is not just about what providers do. It is also about the client, and how they interact with the provider to ensure a successful relationship. After all, there are not many clients who want to undertake regular tender exercises. Perhaps a benchmarking exercise is of some benefit, but if the client and provider both have aligned objectives, and they both achieve them, why change? Clients want to work with a trusted partner, as do providers.
Becoming trusted partners can have significant benefits for both client and provider. For the client, there is the opportunity to utilise the experience and knowledge the provider has gained from all their other clients and contracts, to gain valuable input to operational improvement, technical solutions, sustainability, cost savings and added value, additional services and so on.
For the provider, there can be tremendous opportunities. In a previous role, I saw some output of research carried out by BSG, looking at client/service provider relationships, and it identified that where the relationship had developed to a level where the provider was considered a trusted partner, the client was 9 times more likely to buy additional services from the provider, the relationship would last 4.5 times longer, and the service provider would achieve 3.5 times more wallet share. Moreover, none of the clients said they would change their trusted partner service provider, whereas those whose relationships had become just transactional or worse would expect to change provider in 80% of tenders.
That research also showed that for the UK FM sector only 6% of service providers were considered to be trusted partners, so what a great opportunity we have to significantly improve the number of trusted partners we all have.
G2Gsolutions provide contract anniversary reviews to clients and providers, and through these identify progress against agreed ‘What Good Looks Like’ criteria, RFP objectives, RFP commitments and contract requirements, and where needed, help clients and providers get back on track with their journey to achieving trusted partner status, and ultimately improving client retention.
So, next time you think about client retention, consider the benefits of long term relationships, of becoming trusted partners, and have a look at what you are doing to secure the benefits. As a provider do you have a retention plan aligned to relationship, service and contract needs, and as a client are you working collaboratively with your provider to ensure achievement of your strategic plan, and ultimately your vision?
If you need any support get in touch.