Recurring revenue is the holy grail for fast-growing companies. However, there is a downside to growth: departing customers.

The book by Jos Burgers, 'One fan a day', has not been chosen as the best for nothing management book of 2018. Pampering and retaining customers is crucial. But there are also other ways to achieve that.

Take stickiness. The stickier your business model, the harder it is for customers to cancel.

45% EBITDA thanks to a sticky business model

One of the most successful software companies in the Netherlands AFAS. CEO Bas van der Veldt and his team have built a company that is fully focused on recurring revenue.

The numbers don't lie. In 2018, AFAS had a turnover of €141.9 million and an operating result of €64.9 million. That amounts to €327,200 in sales per employee and a profit of €149,896 per employee.

To put this in perspective: Coolblue, one of the most successful webshops in the Netherlands, generated almost 10 times more turnover than AFAS in 2018 and amounted to €1.35 billion.

Nevertheless, Coolblue's profit is less than half that of AFAS, namely €26.9 million. That amounts to €7,415 profit per employee, which is 20 times less than at AFAS. What's the secret?

Upsell/deepsell to existing customers, connect many new customers every year and keep the back door tightly closed. These three aspects appear to be essential for the success of AFAS.

To keep that back door closed, the software company has managed to build a very sticky business model, with minimal customer turnover.

AFAS software is rooted in the primary process of companies. Over time, it is not an option to just switch. That hurts too much! It can also be useful for you to think about ways to play a role in your customers' primary process. What pain do you solve? 

No pain, no stickiness

One of the sayings I firmly believe in is 'No Pain, No Sale'. Actually, the same goes for stickiness. After all, you are more likely to cancel a subscription or membership if it has little impact on your life. If I cancel my Spotify subscription today, it won't hurt.

After all, I can still listen to plenty of music via YouTube or the Freemium version. I get to hear some more commercials, but that's all. Canceling my mobile subscription is a completely different story. If I do that, my business and private life will be completely messed up.

Product optimization

At least that's how it feels, because even I can go without a phone for a day. But imagine what happens in an organization that depends on software or a certain technical system.

If the hospital can no longer access your Electronic Patient File, if Zalando can no longer send invoices or if Intel's chip factory goes down.

It can hurt a lot when programs or systems don't function properly. Moreover, it is complicated to switch to another system. Historical data, hours or days of downtime and uncertainty about the new system are barriers to making the switch.

If you have a business model that intervenes in the pain, you already have a 1-0 lead. 

Is your business model not so sticky? No problem. You can focus on customer retention. Because even with a retention of 50% you can still build a successful business.

50 to 60% customer retention and still successful? How?

You heard right. Retention rates in the fitness world are between 50 and 60%. In concrete terms, this means that half of the membership will disappear after a year. You won't get a better example of a business model with extremely low stickiness.

Nevertheless, a company like Basic-Fit manages to make good profits. In 2018, the organization even experienced a profit growth of 58%.

Now you may be thinking: "Nice, but what does that have to do with tech?" The answer is interesting though. Basic-Fit has focused on reducing complexity by digitization and automation. In addition, there is an extreme focus on member retention.

To begin with, Basic-Fit knows exactly what the acquisition costs are for older versus younger target groups. Do you have no insight into these costs? Then take a good seat.

Who is your DMU and how much does it cost to sign one new customer? These are the basic questions to ask yourself.

Then, according to the fitness chain, it is time to permanently influence the behavior and habits of the new members. In an interview with Emerce.nl (February 2019) Pierre Coolen, International Customer Care Manager at Basic-Fit, said that a lot of attention is paid to this.

“We want to bring about a change, from not exercising to exercising. We offer digital support to help a new member get started as well as possible. The first few weeks are crucial when changing habits. We want to help our members start their fitness journey in the best possible way.”  

Train and inform your customers

Successful tech companies are thinking about ways to train their users or provide them with the right information. A good example of this is the community platform of a Brabant software company that I was able to help with its growth strategy.

With almost 300,000 daily users, the number of questions and contact moments with customers increased.

Of the 75 FTE, no fewer than 15 FTE were full-time answering questions.

In time, the growth ambition to double the number of users would lead to dozens of people in the Service & Support department. This scenario, of course, does not fit the picture of one scalable organization.

That is why the implementation of a community platform was started in 2018. The concept is simple: users can ask and answer questions on this platform.

This builds up a knowledge base and encourages users to help each other. Of course that takes time. That's why one Community Manager was working full-time on expanding the platform.

Tip: in which category does your company fall? Walking Dead or hockey stick?

In addition, every department of the company had to provide input to create valuable content. Below the line, the positive effects were already noticeable within six months.

User involvement was high and satisfaction increased. Not only had the company laid a foundation for future growth, but it had also built an accessible solution for continuing to bind its most important capital: happy users.   

3 tips for stickiness and/or customer retention

  1. Come up with a way to get a place in your customers' primary process. If this doesn't work, focus on solving customer pain.
  2. Help your users to change their behavior or to use your product/service in the best possible way. Negative experiences or people who don't understand your product can lead to cancellations.
  3. See how digital solutions, such as a community platform, can contribute to the customer experience.