About a month ago, I had the opportunity to sit with the CEO (formerly the CFO) of a mid-size company. Our friendly conversation moved from cashflow to customer-centric strategy and execution. It was heavy on his mind that the company was trying to isolate and resolve a cashflow issue—sales were high but mid-term projections for a new market segment clearly were not going to meet or exceed their standard revenue/profitability model. He told me he was struggling with several questions: so what’s wrong with the model? and do we need to change the model for this segment? However, I sensed that his fundamental question was a little bit different: why did we go into this new market anyway?

Being the CEO of a company, I, too face cashflow considerations. So with an understanding of the intricacies of cash in and cash out, I delved deeper. What was almost immediately apparent was that what looked like “cashflow” to him was really “customer outflow.” The company was losing about 30-40% of customers for its newest product line every year. Whoa! They were investing significant funds to gain awareness and interest from prospects, and then to cultivate those leads and on-board the customers. Yet those investments were performing more like money spent on the lottery than anything else. You don’t have to be a CFO to know that this is a very expensive and potentially dooming problem.

Anyhow, the conversation turned to how do you first understand why new customers are defecting in droves, and second either create stickiness for those targets or reduce the cost of acquisition because churn is a given. Regardless of whether you’re growing a net-new business or transforming an existing one, customer retention and repurchase rates are essential to driving a successful strategy and to feeding cash into the business coffers. Cash is king, but if the following questions haven’t been thought through, the king’s ability to manage the empire will be limited.

Before entering a new market, consider (or get your marketers to address) these questions:

• What is the purchase and loyalty behavior of customers in this market?
• Can the new market provide the customer retention rates we need to support the profitability model and grow the business?
• When do we break-even in this new market; what services/products must those customers buy; how long do we need them to stick around to keep breaking-even; and when do we hit the profit zone?
• Once we acquire these new customers, what barriers to retention and greater share of wallet will we face?

I was reminded of this conversation when I finally read September’s Inc. Magazine. (Yes, I realize it’s October.) It’s the infamously-large Inc 500 edition where they rank the fastest growing and smartest companies. Well, there was a simple and smart article on page 57 called Keep Your Customers: It’s hard to make the Inc. 500 if you’re always churning clients. I highly recommend it. The author shares a simple story and some personal experiences I think you’d appreciate. Here’s a snippet—

I can speak from experience. My messenger business, Perfect Courier, lost 25 percent of its customers every year, mainly because we were operating in an intensely competitive industry with no barriers to entry and almost nothing to stop customers from switching from one supplier to another if they could save a few dollars. We managed to make the Inc 500 list three times by coming up with ways to tie customers into our service. –Norm Brodsky, Keep your Customers, Inc. Magazine

For some marketers, taking a numbers-driven approach to new market planning and looking in the rearview are painful. Why did you leave is one of the toughest questions to ask your customer. It’s wrought with emotion because no one likes to fail—especially the person managing the account or who sold the deal. But knowing why customers are leaving will help you escape desperate moves to keep customers—deep discounting, giving away services and other non-license revenues, and simply working the customer relationship until it’s no longer profitable. And you know what? Despite all your efforts, the customer often still leaves. Start at the beginning—know the buying, retention and repurchase behavior of markets before you enter them.

As you’ve heard for 100 years: it’s cheaper to keep her. It really is. My advice, know the loyalty and account growth triggers before you enter a market—as you may find that its going to disrupt your growth model. If all else fails, don’t be afraid of the post-mortem. Do it soon enough after an event, and you may win an advocate or reclaim an account.

At the end of the day, new-marketers must bow to the king and queen of finance and put on their financial hats. In a quest to “OWN” a category, we can’t forget the financial side of the process.