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How a Messy Divorce Drives up the Value of Your Business

June 15, 2021 | By John Warrillow

When couples divorce, it’s messy and expensive.

 

The financial costs and emotional heartache associated with breaking up are massive, and the avoidance of these act as an incentive for many couples to work through their differences. Of course, given that almost half of all marriages end in divorce, it doesn’t always work, but making divorce the last resort gets some couples through tough times.

 

Now consider the cost your customers incur when they break up with you. I’m not talking about a romantic split; I’m talking about the resources your customers have to invest in when stopping doing business with you. If breaking up with you is easy, expect your customers to bolt at the first sign of a hiccup in your relationship.

 

However, if breaking up with you is challenging, expect them to stick with you through the tough times.

 

How HLM Kept Customers Loyal

 

Wes Mathews built High Level Marketing (HLM), a digital marketing agency, to $6.5 million in annual revenue and 49 employees on the back of a simple model. First, he charged his customers a set-up fee to build a website and then a monthly fee to maintain their digital marketing programs.

 

As part of their service, HLM provided their clients with access to a proprietary technology platform that enables HLM clients to update their marketing campaigns. HLM built its content management system (CMS) from scratch. It became a significant benefit for clients who liked having the flexibility to change a marketing offer or a section of their website in minutes.

 

Most agencies require their clients to submit change orders when the client wants a tweak to a campaign. Unfortunately, these change orders mobilize a team of people, including an account manager and a creative person, to do the work, which is why most marketing agencies are expensive, and changes take way too long to implement.

 

Not only did Mathews’s CMS platform make HLM nimble, but it also made their customer relationships stickier. For example, if a client wanted to leave HLM, they needed to write off the set-up fee they paid HLM to get their site built on their CMS platform and find someone else to develop and maintain their website. Notably, the client also had to give up the ability to update on the fly or learn a new CMS platform.

 

Giving customers access to the CMS was a big reason HLM’s revenue retention rate was 88% per year which stands out as impressive in an industry that is notorious for fickle customers who break up with suppliers regularly.

 

The stickiness of HLM’s customers ultimately led to HLM being acquired for six to eight times EBITDA — a significant premium over the valuation of a typical marketing services company.

 

Drive-Up the Value of Your Business with Sticky Customers

 

Recurring revenue is one of eight factors we use to measure the value of your business over at The Value Builder System™. The stickier your customers, the more valuable your business.

 

Customers are loyal to great products and services, but even the best relationships go through rocky periods. By making sure there is a reasonably high barrier for your customers to leave, you can motivate them to work through the natural problems that arise in any partnership.