How much is a retainer client worth? (It's complicated)

It feels simple, but it can be deceptively tricky to work out your average customer lifetime value from ongoing relationships like retainers. Unlike project work where the value is clear and finite, calculating value for retainer clients means wrestling with uncertainty. Some clients have been with us for years and show no signs of leaving. Others departed rapidly. How do we balance these in our calculations? It’s important data to understand though – especially when it comes to understanding what it is worth spending to acquire a new customer.

To help with this, I have created a free spreadsheet to help model this using an approach I have used with a few clients. If you just want to grab a free copy of the spreadsheet and take look then scroll straight to the bottom of this post. However, if you’re curious as to why this is even needed and how the spreadsheet works then read on!
Before you start, you’ll need:

• Start date for all current and past retainer clients
• End date for any completed retainers
• Monthly retainer value for each client

Two flawed approaches to calculating lifetime value

When I talk LTV with agencies, most don’t have a formal way to calculate it, but instead rely on one of two flawed methods:

A) All Revenue / All Client Count
This seems simple and logical, but ignores the potential long term value of current clients.

B) Off-boarded Client Revenue / Off-boarded Client Count
This ensures we’re measuring lifetime value, but ignores all current clients. Those are potentially our most valuable.

Cohorts and Survivorship

The truth is that we will never really know the exact answer, but with some simple modelling we can get close and continue to improve accuracy over time. Having looked at this question with a number of agencies (including my own, which was >95% recurring revenue), I’ve come up with an approach that gives a good balance of accuracy and ease of calculation. The approach introduces two concepts into the calculations to help us model LTV in a more useful way: Cohorts and Survivorship:

Understanding Cohorts

By grouping clients by the quarter in which they start, we can make useful time comparisons. For example, looking at Q1 2023’s cohort:

• Started with 10 clients
• 8 survived past 6 months
• 6 still active at 12 months This pattern gives us insight into typical client lifespans.

Measuring Survivorship

Survivorship looks at the likelihood of any client continuing to be active with us past key milestones. If we consistently see 70% of clients make it past the first year, and 80% of those stay for at least two years, we can make informed predictions about future value.

This combined approach allows us to:

• Track retention patterns over time
• Spot if newer clients behave differently
• Make evidence-based predictions about future value
• Identify trends in service value and pricing

Why Bother?

The spreadsheet make this modelling approach quick and easy, but why even bother? LTV is a fundamental metric for any business with repeat revenue from clients. Retainers is one example, but the approach can be applied to others.  Knowing the lifetime value of customers helps us budget for client acquisition, focus our retnetion efforts where they matter most, understand how changes impact that LTV, make better pricing decision and understand the ROI of much more of what we do. As with any metric, it should not be viewed in isolation, but it is one that I think has a lot of value and well worth adding to your quarterly reports.

The Free Spreadsheet

I’ve created a simple spreadsheet that helps analyse your client data using this approach. It looks at:

• Average retention by cohort
• Client value and predicted LTV
• Survival rates at key milestones
• Churn patterns over time

The results can be eye-opening. One agency I worked with discovered their average client lifetime was twice what they assumed. Another found recent cohorts were lasting significantly longer than historic ones – validating their investment in onboarding.