“A monthly review of your client retention numbers is important because every client has the potential to provide income — not just one time, but over the life of that client,” says Patti Biro of consulting firm Patti Biro and Associates (www.pattibiro.com) “Long-term clients generate more profit for the business not just in increased service dollars, but because they are more likely to refer and also buy more retail products and gift cards. The bottom line is that your marketing dollars are better spent on client retention versus new client acquisition.”
The good news is that most salon software will automatically generate a report detailing client retention statistics — usually for the entire salon, but also by individual technician as well. New client retention is usually tracked from the first appointment to a second. With most software, you can specify the time period you want to track — a month, quarter, and year are all common time points. Biro recommends running a monthly report that can give you a current snapshot and can also be compared to the same month in the prior year.
For those without salon software, Biro explains how to do the math yourself:
1. To calculate overall retention rate (not new customers):
You’ll need three pieces of data before you pick your time frame and calculate:
A. The number of customers at the end of a period (such as the end of the month prior). Don’t count individual appointments, as that number can be higher.
B.The number of new customers you got in that next month
C. The number of customers at the start of the current month
Calculate: [(A-B )/C X 100] to arrive at the percentage.
For example, 100-25/85 X 100 = an 88% retention rate.
2. To calculate new client retention rate:
You’ll need to know:
A. The number of new clients (in a given month)
B. The number of those clients who returned for a second visit in 4-6 weeks
Calculate: [B/A X 100]. For example, you had 25 new clients in December and 9 returned within 4 weeks, so 9/25=36% retention.
So what conclusions can you draw from your numbers? The first consideration is your location. If you get lots of tourists or seasonal visitors, a lower retention rate will be the norm. “For new clients, industry averages run around 30%-35% — and that is pretty weak,” says Biro. “You should try to increase this every month. For existing clients, you should retain at least 50% and you should always be working to get up to the 70%-80% mark depending on your clientele and location.”