Lies, Darn Lies, Retention Rates!

It has been said that there are lies, darn lies, and statistics. The message behind this statement is that data can often be twisted by a crafty statistician to produce the results they so desire. It happens all the time in sports and business. Time periods can be adjusted; sample sizes can be expanded or contracted; and data elements can be merged or omitted all in an effort to create a statistic that tells a story that benefits a particular group. In my role as an independent HR Technology Consultant, I am constantly meeting with service providers to learn more about their products, platforms, and service models. I enjoy this part of the business as I truly enjoy seeing how different organizations have approached the market and hearing what they believe differentiates them. It was during one of these recent meetings with a provider that I reached a proverbial tipping point. That tipping point is related to retention rates and I feel compelled to pull the covers off this industry secret in an attempt to bring some reality and sanity to the market. I was always pretty good at math, so I’m pretty confident in making the following assertion: It is mathematically impossible for every provider to have a retention rate in excess of 90%! Impossible. And, yet, every provider I meet with touts themselves as having 90+% retention. Every single provider. I’m certain that there are some providers that truly provide world-class service and they retain in excess of 90% of all their clients and I applaud those that fall into this category. But, it is ridiculous for everyone in the industry to paint themselves in this light. It just can’t happen. Here’s an analogy to help make my point. My teenage boys and their friends love to boast about how much pizza they can consume. It is a guy thing…the more we can eat, the tougher we think we are. The other evening we ordered 3 large pizzas from our favorite place. Given my math prowess, I can easily deduct that there are only 24 slices to go around. So, at the end of the night, when all 6 boys pounded their chests and stated that they ate 7 slices a piece…the math just doesn’t work. There were only 24 slices to start!! So, jumping back to our industry, there are only so many clients to go around. Not every HR technology provider can be growing at a double digit clip and retaining 90% of their clients. It just doesn’t work! In an effort to standardize this calculation, I’ll offer up the formula I’ve used when running a service business. Retention rate = Number of clients at the end of the year / (Total clients at the beginning of the year + new business won throughout the year) That will yield a consistent retention rate every time. No need for manipulation, exceptions, or caveats. Simple math doesn’t require a lot of manipulation, exceptions, or caveats! Thanks for indulging me. I needed to get that off my chest. Lies, darn lies, retention rates!

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