A high churn rate seems bad, right? Not always! Client churn can be good for your agency… if it’s intentional and done strategically.
Some agency owners fear churn, saying, “I need more clients to grow.” Instead, I recommend you use churn to your advantage, by pursuing strategic churn.
If you want to grow your agency, you don’t just need new clients… you need bigger and better new clients. Yes, a $10,000 client is more work than a single $2,000 client—but one $10,000 client is much less work than five $2,000 clients.
Grow Profitably via Strategic Churn
I’ve coined a new term to describe this technique: “Strategic Churn” grows agencies by replacing bad, mediocre, or low-paying clients with higher-paying great clients, by attracting a steady pipeline of these new, high-paying clients.
For strategic churn to make sense, one or both of the following likely exist at your agency:
- Toxic Clients: Toxic clients are terrible to work with, and they make you and your team miserable. You might be tempted to keep toxic clients if you need the money—but as I discuss in my article about revenue vs. happiness—the longer you keep them, the more you’ll hurt team morale. You risk losing your best team members if you don’t fire your worst clients.
- Small-Budget Clients: Small clients aren’t always terrible or even toxic—but if you have revenue lined up to swap-in a higher paying client, you should consider it. The smaller client might have met your minimum budget a couple of years ago, but as you’ve raised your prices (as I recommend agencies do), they’re no longer in line with your minimum. And they’re distracting you from taking on tomorrow’s bigger and better clients.
For strategic churn to happen, you need a strong bizdev pipeline—which I describe in many, many other articles. This could take you months or even years—especially if you have a Client Concentration problem.
How to Operationalize Strategic Churn at Your Agency
Don’t start firing clients immediately! Specifically, hold off on clients that you feel you can’t afford to lose. If they’re your biggest client, don’t give them an ultimatum unless you’ve got a new client under contract and ready to go. For strategic churn to work, you need a strong business development pipeline with new clients replacing the churned ones, especially with Client Concentration.
It’s easier with small clients. Let’s say you have a client that’s one half of 1% of your revenue yet they regularly want 5-10% of your team’s time. They are a prime candidate for strategic churn, because they’re aren’t paying for the attention they demand. Get rid of them.
During the process of terminating and onboarding clients, your old and new revenue won’t perfectly align—but the goal is to minimize that overlap as much as possible. Ultimately, strategic churn is an opportunity to grow agency revenue without growing client count.
Rank Which Clients to Churn First
You may have read my classic article about ranking clients by tiers in terms of t-shirt sizes. For any client producing less than 1-2% of your revenue (a Client Dilution risk), think about how much attention they’re getting, and whether they deserve to be part of your future. With the “no more than 20 clients” constraint, you’ll always be thinking about which ones to drop next, so ranking is key.
Having “The Talk”: Offering Options is Critical
You’ve now ranked your clients and are ready to have the conversation. Providing options is critical, especially if you think you’ll need to fire a client.
- Increase spend, and keep working together: Say something like, “Our minimum for new clients is now $5,000 a month. You’re spending $2,000 a month, our previous minimum, but things have gone up. We have two options. If you want to increase your spend to $5,000, we’d love to keep working with you. If you aren’t, we understand; we know you’d get bigger results, but we recognize it’s a big difference.”
- Referral to another agency: If they can’t or won’t increase their spend, say, “We’ll need to wind things down and can refer you to another trusted agency,” and offer an introduction. Give the client as much notice as possible—at least one month, but preferably 2-3 months—because otherwise it feels abrupt and risks damaging your agency’s reputation. This is also a great way to nurture your agency referral partnerships—with a 5-10% referral fee to you for the intro—which is a lot warmer and kinder than leaving the client to fend for themselves.
The upshot? Adopt strategic churn at your agency—you deserve to grow profitably, without as much stress.