Naturally as a tax business owner or preparer, you want to grow your client list. But gaining new clients without retaining current or past clients does not equal growth. In fact, it’s a bad sign when past clients don’t return year after year to have their taxes prepared by you or your firm.
Current clients are extremely valuable and thus should be a focus as they do not require nearly as much money to retain. Acquiring a new client however, can cost quite a bit. The average cost of acquiring a new tax preparation client is very high, possibly equal to or greater than the first year’s fee.
Here’s the breakdown:
The lifetime value of an average client is equal to the net present value (NPV) of the net revenue (after expenses) realized from the client for the number of years the client is served.
The NPV of an existing client is many times the net revenue realized from a new client in the first year.
Therefore, client retention is extremely important. A tax firm or sole tax preparer that has a low client retention rate will have great difficulty in growing the business. For example, if your client retention rate is only 75%, you must replace 25% of your prior clients before you will show any growth. Bringing in that number of new clients can be a daunting task (and very costly). The solution is to provide exceptional client service so your clients will never want to go anywhere else. Even if one of your loyal clients moves away, you can still serve that client given available technology.
In addition, your loyal clients, especially any raving fans, will refer new clients to you. Referrals are by far the greatest source of new clients and instituting a referral program to incentivize current clients is a great idea.
What are you doing to retain current clients or get referrals? Leave a comment!
For more on client retention and referrals, check out this blog post:
To learn more about marketing your tax business and running it successfully, check out our Tax Practice Management Manuals here. These manuals were designed to be a turnkey resource for small tax business owners or income tax professionals to successfully compete with national tax firms.