When I evaluate a business, one of the biggest unknowns is customer loyalty. A company may have strong revenue today, but will customers stay after the seller leaves? Will they continue buying if prices change, competitors push harder, or if service dips slightly during transition?
I’ve learned that customer loyalty is one of the most important indicators of durability. Without it, the business may look healthy on paper but collapse in practice. Over time, I’ve developed a set of questions I use to test customer loyalty before closing a deal. These questions, along with how I interpret the answers, help me separate businesses with staying power from those held together by weak ties.
Why Customer Loyalty Matters
Revenue is only valuable if it’s repeatable. If customers leave at the first sign of change, then I’m not buying a business—I’m buying a fragile stream of short-term sales. Loyalty is what makes revenue sticky. Loyal customers forgive mistakes, resist competitors, and stick with the company through ownership transitions.
That’s why testing customer loyalty has become one of my top diligence priorities.
The First Question: Why Do Customers Buy From You?
When I meet with a seller, I always ask: Why do customers choose your company instead of competitors?
The answer tells me whether loyalty is built on price, convenience, or something deeper like trust, service, or relationships. If customers stay only because the company is cheapest, loyalty is weak. If they stay because they value quality, reliability, or the team, loyalty is stronger.
The Second Question: What Would Make Customers Leave?
I ask sellers what they believe would cause customers to switch providers. Their answers reveal vulnerabilities. If the seller admits that lower prices or faster delivery from a competitor could cause churn, I know loyalty is fragile. If they say it would take a major service failure to lose customers, I feel more confident.
The Third Question: Who Owns the Customer Relationship?
This question is critical. If customers are loyal to the company as a whole, that’s a good sign. But if they’re loyal only to the owner personally, the risk is high. In one deal, I discovered customers called the owner’s personal cell phone for everything. When he retired, customers drifted away. That taught me to always test whether loyalty is to the business or the individual.
The Fourth Question: How Many Long-Term Customers Do You Have?
I ask about customer tenure. Are customers with the company for one year, five years, or twenty years? Long-term relationships signal strong loyalty. Short-term, transactional customers signal churn risk.
The Fifth Question: What Percentage of Revenue Is Recurring?
While this overlaps with recurring revenue analysis, it also tests loyalty. If customers renew contracts or subscriptions year after year, I know they see value in staying. If most revenue is from one-off projects, loyalty is weaker.
The Sixth Question: How Often Do You Lose Customers?
I ask about churn rate directly. Sellers may downplay this, so I always compare their answers to the data. Even so, asking the question puts the issue on the table and often surfaces stories that numbers alone won’t show.
The Seventh Question: What Do Customers Say About You?
I review testimonials, online reviews, and references. But I also ask the seller: What’s the most common compliment you hear from customers? Their answer reveals how customers perceive the company. If feedback centers around price, I know loyalty is fragile. If it’s about reliability, expertise, or trust, that’s stronger.
The Eighth Question: Can I Speak to a Few Customers?
When possible, I request customer calls during diligence. I ask open-ended questions like: Why do you stay with this company? How do they compare to competitors? What would make you leave?
Hearing directly from customers often reveals more than anything the seller says.
Mistakes I’ve Made
I’ve made the mistake of assuming repeat business equals loyalty. In one acquisition, customers bought frequently but were not emotionally attached to the company. When ownership changed, many left quickly.
I’ve also trusted sellers’ verbal assurances without verifying. In another deal, the seller insisted customers were loyal, but the data showed high churn. That mistake reinforced the need to always test loyalty through data, not just words.
How I Strengthen Loyalty Post-Acquisition
Even if loyalty is fragile, I sometimes still buy the business if the price reflects the risk. In those cases, I strengthen loyalty by:
- Meeting key customers personally.
- Offering continuity of service with the same employees.
- Improving service in small but visible ways.
- Building contracts or subscriptions where they didn’t exist before.
The goal is to move customers from convenience-driven to relationship-driven loyalty.
Why Customer Loyalty Impacts Valuation
Businesses with strong customer loyalty command higher multiples. Buyers like me will pay more because the revenue is durable and transferable. Businesses with weak loyalty are discounted heavily because churn risk is high.
That’s why I always test loyalty before closing because it directly affects how much I’m willing to pay.
Final Thoughts
Customer loyalty is one of the most important factors in whether an acquisition succeeds. I’ve learned to test it through questions about why customers buy, what would make them leave, who owns the relationship, how long they stay, and how often they churn.
These questions reveal whether the business has durable value or fragile revenue. And in the end, I only want to buy companies where customers are loyal to the business itself, not just the owner or a set of temporary circumstances.
I continue sharing my acquisition frameworks, lessons, and strategies at DrConnorRobertson.com, where I document what I’ve learned deal by deal.