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5 Ways to Build Customer Retention Into Your Growth Model
 

As you build your business, think about how to ensure that your customers stay with you as you grow.

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In most cases, nascent businesses focus on whatever it takes to gain new customers.  They build a business model that works for them in this early stage, and figure they can hone it as they go.  But in many cases, the attributes and practices of a fast-growing business become hard-wired into the culture--making it difficult to rewire the business as your requirements change.

Some businesses choose to rewire early--as soon as they detect a rise in customer attrition.  One business we've worked with saw steady increases in customers until it hit $250 million in revenue, but then began to see significant attrition.  Another business we worked with was well over $600 million in revenue, but it had to add new customers at double-digit growth rates just to keep pace with the customers it was losing.  Not a great way to grow.

In each of these cases, we realized that building a customer retention model into the initial business plan would have been a better route to sustainable growth.  Here are five things a management team can do to ensure that customer retention is not an afterthought:

Build your customer service model appropriately. As you service your customer over time, you are presented with dozens of low-cost opportunities to increase their loyalty and keep them in the fold.  Identify things, such as increased customer service, that you can embed into your day-to-day interactions with customers that assess and support retention.

Ensure that price matches value over the customer lifecycle. The value a customer receives changes over the course of your relationship.  You need to build a pricing model that recognizes and adapts to these changes.  Too many businesses charge a regular price that never deviates, even though the customer gets more value at certain times.

Figure out what makes you "sticky." Understanding what makes some customers stay longer than others can help you find ways to address at-risk customers.  For example, one of our clients found that customers who bought two products were three times less likely to attrit than those with just one product, and those with three products were 10 times less likely to leave. The obvious solution: find ways to more aggressively cross-sell to those first-time buyers.

Acquire customers who are less likely to leave. Most businesses can figure out which customers are more likely to stick around even before they come onboard by analyzing the historical trends of similar customers Prioritize marketing and sales efforts towards customers who are less likely to jump to your competitor as soon as they see a better offer.

Increase value over time. As with any relationship, you need to add some spark to keep it going.  Relationships with your customers can get stale, so you should always be on the lookout for ways to increase the value customers receive as they stay with you.  Maybe they get lower prices, but you may also be able to give them more while maintaining prices.

As you grow, retaining customers is just as important as increasing sales.  If you don't build in practices and processes to retain your most valuable customers, attrition will likely catch up to you sooner rather than later.

Have you built customer retention into your growth model?  Send us your comments and questions at karlandbill@avondalestrategicpartners.com.

 

IMAGE: CIMMYT / Flickr.com
Last updated: Sep 5, 2013

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KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree.
@karlstark




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