Growth is what we are all looking for. Growth in sales, growth in market share, and growth in our customer base. When working with our Clients, our initial conversations are always centered around how exploring the ways in which we can help them grow their business. However, in many of those conversations, we find ourselves making a common statement:
You are not ready for growth!
This bold statement is always met with trepidation. “What do you mean we are not ready for growth?” To better explain, we commonly share the following illustration:
When you meet with a personal Financial Advisor for the first time, they review a common set of questions. One of the questions they commonly ask is how much credit card debt to do you have?
If you have no or low credit card debt, their attention turns to investments. However, if your credit card debt is high, their advice is usually to address the credit card debt first before making any investments. This is largely because credit card debt costs us money due to its large fees and compounding interest.
So, any money earned through your investments is being negated by the losses earned through your credit card fees and interest.
Comparable to growing your personal wealth and retirement, growing your business suffers from the same issue. While you may be making strong efforts to obtain new customers and grow your sales, you could simultaneously be suffering from customers walking away and taking their business elsewhere on the backend.
Commonly referred to as the “leaky bucket,” customer attrition negates any efforts to grow your business. In fact, losing a customer is very similar to compounding interest because not only do you lose their business once, but you lose it over and over again.
Four Core Growth Strategies
This scenario is a good example to show that when you are looking to grow your business, it is important to consider all four core growth strategies:
Acquisition programs are key to bringing new customers into your business. They are investments that are worth more to the business than a single transaction commonly referred to as the “Customer Lifetime Value.”
Retention programs are vital to keeping these customers from leaving and plugging the hole in the leaky bucket.
Expansion programs many times represents the fastest path to growth because they leverage the trust and relationships already built within your customer base.
Reclamation programs require work to earn back a lost customer, but their value is known and they can bring significant dollars to your growth plan.
Getting Clients Ready
We have seen several Clients come to us with the scenario above. Efforts to grow their customer base by 5,000 negated by the loss of 4,500 customers. New customer revenue at $3.0M dollars met with a decline of existing customer spending of $2.6M dollars.
While investing dollars in acquisition programs are necessary to bring on new customers and grow the business overall, doing so without reserving dollars focused on retaining your existing customers may not result in truly growing your business.
In this scenario, like a good Financial Advisor, our recommendation will be to address the leaky bucket through retention programs first, so we can shore up the base business and really get them ready for growth.