3 Major Business Impacts of Developing Continuous Customers
By: Jeff Wissink, Navint Managing Director
In the book, The Discipline of Market Leaders, Michael Treacy and Fred Wiersma outline three, competitive strategies that companies can utilize to compete: operational excellence, product leadership, and customer intimacy. Their argument is that businesses must choose and achieve market leadership in one of these three disciplines before they should work to perform an acceptable level in the other two.
This book was written when the Internet was still in its infancy, but I’d argue that companies are still operating under a pre- “World Is Flat” paradigm. Today, customer intimacy must be the priority for every business, otherwise, customers will find a reasonable substitute elsewhere.
We are seeing businesses that once dominated in the areas of operational excellence or product leadership, now struggling to become more customer centric. Many emerging businesses are competing entirely on the basis of crafting the customer experience, supplanting the legacy giants as a result. And, today’s consumers are forgoing product ownership in favor of renting in both B2C and B2B purchasing. We now:
- Utilize Software-as-a-Service rather than on-premise boxed software (Salesforce.com, NetSuite, etc.)
- Leverage hosting services and data centers rather than build internal IT infrastructure (AWS, DigitalOcean, etc.)
- Invest in smart home services rather than one-time only device purchases (thermostat, refrigerator, etc.)
- Rely upon on-demand transportation services rather than hail traditional taxi services (Uber, Lyft, etc.)
- Stream services from a library of content rather than buy the CD or DVD (Hulu, Netflix, etc.)
- Expect continuous replenishment of razor blades, meals, clothing, or dog treats rather than shop (Henry’s, Blue Apron, Stitch Fix, Bark Box, etc.)
Yet, some businesses continue to struggle making the transition to a customer-first mentality. We’ve spent years—often decades—organizing people, processes, and systems around flagship products, or to guarantee just-in-time delivery. While these measures worked well for the development of a “product leadership” strategy at the time, they are now the very practices limiting our potential for future growth.
This new, dynamic relationship that businesses must create with customers at every touch point is a fundamental shift in thinking. A purchase is no longer simply an item-based transaction, but rather, the beginning of an on-going relationship. This means viewing every business function and transaction as an opportunity to enable continual, iterative, and frictionless interactions across the customer success life cycle.
Why go through this effort? Because Continuous Customers™ are the cornerstone of every successful business. Call it what you want—recurring revenue, subscription, usage-based, consumption, renewals—fundamentally, it’s about the continuity of customer engagement and building customer lifetime value.
Companies that focus on developing Continuous Customers™ benefit in the following ways:
1. Increased Customer Lifetime Value. Subscription models are sticky when done right. For consumers purchasing through eCommerce retail, the lifetime value of those who subscribe rather than make discrete purchases has been shown to be almost 2X higher based on a study by Compass. This only increases with business-critical SaaS applications such as CRM or ERPs. Continuously providing value through additional products, services, and partnerships keeps customers active, longer, deepening their loyalty and increasing their share of wallet to your brand.
2. Predictable Revenue Streams. The ability to attract and retain Continuous Customers™ is directly tied to developing recurring revenue streams. Predictable revenue streams allow you to more accurately forecast revenues, plan expenditures, and manage cash flow.
3. Higher Valuation Multipliers. The predictability and stability of recurring revenue businesses are very attractive to financial investors, acquiring companies, and Wall Street, making valuations much higher than other revenue models. According to John Warrillow, author of the book, The Automatic Customer, subscription businesses are being valued anywhere between two and eight times their annual recurring revenue (ARR). We’ve seen this recently played out when Sage Group purchased Intacct for almost 10X ARR.
These benefits make it clear why Wall Street and investors have a love affair with many of today’s recurring revenue businesses—the revenue upside far surpasses any other business model today. Therefore, we must break the old habits of operational and product-centric thinking and build new habits centered around the appetites, needs, and expectations of the Continuous Customer™.
How to Develop Continuous Customers™
Navint is one of the few firms that has a fully-dedicated Subscription Services practice with deep domain experience and a proprietary methodology to help organizations navigate the journey to success with Continuous Customers™.
Read our white paper, Navigate to Success via the Continuous Customer™, to understand the symptoms and barriers to recurring revenue and how to accelerate the journey.
Watch our 27-minute webinar, 6 Accelerators to Recurring Revenue, to learn the strategic and functional areas to focus to fast track recurring revenue initiatives.
Contact me directly at firstname.lastname@example.org to discuss Continuous Customer™ strategies and services.