You spent $4,200 on marketing last month. Got 18 new leads. Closed 6 new clients. Good month, right? Wrong. While you were focused on filling the bucket with new clients, you lost 4 existing clients out the back door. You didn’t even notice.

Those 4 clients you lost represented $32,000 in annual revenue. That’s nearly 8 months of your marketing budget gone. You’re spending money to acquire new clients while losing the ones you already paid to get. It’s like filling a bucket with a hole in the bottom.

Most service business owners obsess over lead generation. How many calls did we get? How many estimates did we send? How many new clients did we close? But they have no idea what their customer retention rate is. They don’t know how many clients they’re losing. They don’t know why those clients left. They just know the bucket never seems to stay full no matter how much they pour in.

You have just a few days left to calculate your 2025 customer retention rate before you set your 2026 growth goals. If you don’t know how big the hole is, your growth plan is built on quicksand.

Why You Should Listen to Me About Customer Retention Strategies

I’m Ryan Herrst with Media Ace Advisors. I’m a Certified Profit Advisor and author of “Profit Foundation.” I help service business owners earning $250K to $5M annually discover hidden profit opportunities across seven profit levers. Retention is one of the most overlooked levers with the highest ROI potential.

My father taught me “All because you can, doesn’t mean you should.” That applies to customer acquisition. Just because you CAN spend more money chasing new clients doesn’t mean you SHOULD, especially when you’re losing existing clients at rates you haven’t even measured.

The 7-Step Pathway to Profit examines leads, conversion, transaction size, frequency, margins, retention, and referrals. Most businesses spend 80% of their energy on the first lever while ignoring retention entirely. But here’s the math that changes everything. It costs 5 times more to acquire a new customer than to keep an existing one. Repeat customers spend 67% more per transaction than new customers. A 5% improvement in retention can increase profits by 25% to 95%.

Over the past 18 months, I’ve been interviewing service business owners for the second edition of my book. One area I’m researching is how different industries approach customer retention and what causes client churn. The pattern I’m seeing is shocking. Most businesses don’t even calculate their retention rate. They’re flying blind.

December is your window to calculate your 2025 retention rate before setting 2026 goals. If you’re planning to grow 20% next year but you’re losing 30% of clients annually, your growth plan is actually a survival plan. You worked hard to get those clients. You deserve to keep them.

The $78,000 Leak Nobody Noticed

Let me share a real example from a business owner I spoke with recently. I’ll call him David. David owns a commercial HVAC company. $980,000 in annual revenue. Strong reputation in his market. Busy every season. Spending about $4,500 monthly on marketing to generate leads.

When I asked David his customer retention rate, he looked confused. “I don’t really track that. We just focus on getting new jobs.” So we did the calculation together using his data from the past year.

David started January 2025 with 147 active maintenance contract clients. By December, he had 168 total clients. That sounds like growth, right? Here’s what we discovered. David acquired 52 new maintenance clients throughout the year through his marketing efforts. But when we did the math, he had actually lost 31 clients somewhere along the way. His retention rate was 79%.

David was shocked. He had no idea he’d lost 31 clients. He couldn’t name who they were. He didn’t know why they left. He just knew he was always busy chasing new work.

Here’s the financial impact. David’s average maintenance contract is worth $2,500 annually. Those 31 lost clients represented $77,500 in annual recurring revenue that walked away. He spent $54,000 on marketing to acquire 52 new clients, replacing the 31 lost plus adding 21 net new. If he’d kept just half of those lost clients, he would have saved $27,000 in acquisition costs and added $38,750 in retained revenue.

David was filling a bucket with a $78,000 hole in the bottom. He didn’t even know the hole existed. He deserved to know he was losing clients, but nobody was measuring it.

Calculate Your Customer Retention Rate Right Now

You need to know how big your hole is. Here’s the simple formula to calculate your customer retention rate, what I call CRR.

Start with the number of customers you had at the beginning of the year. Let’s call that S for Start. Then count how many customers you have at the end of the year. Let’s call that E for End. Finally, count how many new customers you acquired during the year. Let’s call that N for New.

The formula is simple. CRR equals E minus N, divided by S, multiplied by 100. It looks like this when you write it out: CRR = ((E-N)/S) x 100.

Using David’s numbers as an example, he started with 147 customers. He ended with 168 customers. He acquired 52 new customers. So his calculation is 168 minus 52 equals 116. Then 116 divided by 147 equals 0.79. Multiply by 100 and you get 79%. That’s his customer retention rate.

Industry benchmarks vary depending on your business model, but most healthy service businesses should be retaining 85% to 95% of customers annually. Anything below 80% means you have a serious leak that needs immediate attention. Between 80% and 85% means you have work to do but you’re not in crisis mode. Above 90% means you’re doing something right with your customer experience and retention strategies.

Take 15 minutes right now and calculate your 2025 retention rate. Pull your customer list from January 1, 2025 and your customer list from today. Count how many new customers you acquired this year. Do the math. You can diagnose this yourself without hiring anyone.

Why Retention Matters More Than You Think

Here’s why that retention rate number matters so much. It directly impacts the lifetime value of your customers, and lifetime value determines how much you can afford to spend on acquisition.

Lifetime value is calculated by taking your average dollar amount per sale, multiplied by your average frequency of sales per year, multiplied by your average number of years a customer stays with you. If you sell a service once for $5,000 and the customer never comes back, the lifetime value is $5,000. If you sell a $2,500 annual maintenance contract and the average customer stays for 4 years, the lifetime value is $10,000.

David’s maintenance contracts average $2,500 per year. Before we calculated his retention rate, he assumed customers stayed about 5 years. That would make lifetime value $12,500. But with a 79% retention rate, the actual average customer lifespan is closer to 3.2 years. That makes the real lifetime value around $8,000. He was overestimating customer value by $4,500 per client, which means he was potentially overspending on acquisition thinking customers would stay longer than they actually do.

Here’s the more important insight. If David improved his retention rate from 79% to 90%, the average customer lifespan jumps to 6.7 years. That increases lifetime value to $16,750. Now he can afford to spend more on acquiring the right customers because he knows they’ll stay longer. Or he can maintain current acquisition spending and dramatically increase profit because he’s not constantly replacing lost clients.

The math is simple. Keeping customers longer increases their value. Higher customer value allows more aggressive growth or higher margins. Both scenarios win. But you can’t optimize what you don’t measure, and most service businesses have never calculated either their retention rate or customer lifetime value.

Building long-term relationships creates sustainable business. Chasing new customers every month while losing existing ones creates chaos. You get to choose which business you want to run, but you need to know your numbers first.

What Your Retention Rate Tells You About 2026

You have just a few days left in 2025 to calculate your retention rate before you start planning 2026. This isn’t just an academic exercise. Your retention rate should inform every major decision you make next year.

If your retention rate is 70%, you need to fix the leak before you pour more money into lead generation. You’re losing clients faster than you’re gaining them. Your 2026 priority should be customer experience improvements, not marketing expansion. Spend your energy understanding why clients are leaving and fixing those issues first.

If your retention rate is 85%, you’re in good shape but there’s room for improvement. A 5% increase to 90% retention could add 25% to 50% to your profit margin without acquiring a single new customer. Focus on the clients at risk of leaving and the moments in your customer journey where relationships typically break down.

If your retention rate is 95% or higher, you’ve nailed customer retention. Now you can invest aggressively in acquisition knowing those clients will stay. Your growth plan can be ambitious because your foundation is solid. You’re not filling a leaky bucket, you’re building a reservoir.

The businesses that thrive in 2026 will be the ones that know their numbers and act on them. The ones that struggle will be the ones still filling leaky buckets without knowing how big the holes are. Your 2026 plan is guesswork without this data. You deserve to build your business on a foundation of real numbers, not assumptions.

Want to See How Your Industry Compares?

I’m currently interviewing service business owners for the second edition of “Profit Foundation,” my book on profit strategies for small businesses. One of the areas I’m researching is how different industries approach customer retention and what causes client churn across various business models.

During our 45-minute conversation, I’ll share what I’m learning about retention strategies across industries and you’ll see how your retention rate compares to the patterns I’m seeing in your sector. It’s a research conversation, not a business evaluation, but most people walk away with two or three specific ideas about reducing churn and improving customer lifetime value.

If you’d like to participate and receive a complimentary copy of the book when it’s published in 2026, you can schedule here: https://mediaaceadvisors.com/contact/

There’s no cost and no sales pitch. These are genuine research conversations where I’m gathering insights for the book while sharing what I’m learning about customer retention strategies across different service industries. The December slots are filling up quickly, so if this interests you, schedule before the end of the month.

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About the Author:

I’m Ryan Herrst with Media Ace Advisors. I help service business owners (annual revenue $250K to $5M, 10 or fewer employees) identify hidden profit opportunities and create clear pathways to growth. My approach focuses on systematic improvements across all seven profit levers, with special emphasis on customer retention strategies and lifetime value optimization.