THIS FORM OF MARKETING is no longer a secret. Well, except for about 94% of you. Brace yourself. This is big: You like getting new customers. So, with heady observations like that, you may be equally shocked at this one — getting new customers is not the goal of your business.
Nope. It's a pursuit, not a goal. In fact, it is the most costly pursuit and it feeds upon itself ("We must have more customers!"). It is demanding, stressful and never satisfied. Yet after years of this pursuit, a plumbing contractor looks up and realizes the treadmill toward "getting" has "gotten" him nothing but a stack of names, with little or no value, recurring revenue or referral streams. What happened?
Misplaced focus. You think I'm about to sell you my version of focus? Hardly.
I make my living generating customers for contractors. Whatever you think is expensive, I believe we're the most expensive direct copywriters in contracting (currently $2,200 per page), and we're looking at a price increase. But I'll tell any contractor, any client, any manufacturer what I'm about to tell you about your "real" goal.
It's not getting customers. It's keeping them.
There. I said it. Yeah, I'd love to get you to spend eight or 10 grand here on acquisition programs, then watch you do what 94% of plumbers do to "keep" customers (which is essentially nothing) and then have you come back and pay me to do it again. Smart business, huh?
I "forget" to tell you how to keep your customers, and thereby create a recurring market. Yet, that returning business would expose itself as a lie. Meaning ...
If I make my dollars off a high percentage of customers returning to me for service, how could I not tell you to do the same? Fact is, since I need to sleep at night and do not consider money as the end-all, I can't.
Hear me again.
Keeping customers is the goal. In marketing, this is called Customer Retention. In some of the gold-plated newsletters I get or associations we belong to, they also call it CRM ( Customer Relation Management) and now the new phrase is CEM (Customer Experience Management). Whatever.
The point is that most plumbing contractors race to get as many new customers as they can and then steamroll ahead to get even more. I find that most contractors are actually getting one-time or occasional buyers, "names on a list," and not "customers."
Compounded Problems: No Relationship = No Real Customer.
If you service a customer once, and he leaves, you probably lost money on him. You pay on average $270 to get a customer but virtually zero to keep him. Plus, a customer doesn't tell you when he leaves you. His name is still in your database while he's writing a check to your competition.
This is very costly. When he leaves, there go all the sales to that customer and all his referrals. Whether he buys drains, supply lines, water heaters or filtration products, you can take him out of the market for at least eight years. Was it really worth not staying in touch? You tell me.
Keeping customers is far less expensive and more profitable than constantly acquiring one-time users. Especially when you consider:
- 37% of customers said the relationship was the most important reason they bought;
- 22% said it was because they owned another product of yours; and
- 14% were referred by a friend or family member.
Add those up and 73% of your business has some relationship tie-in. But I find that contractors spend up to 80% of their marketing money going after people with whom they have little or no relationship. It's no wonder why your marketing is not performing for you. Does this sound a bit like the customer retention we covered last month ("The fastest way to lose customers you paid for," pg. 72)? Good. Because successful loyalty programs are the offspring of solid customer retention. It's a two-step process. First, a customer. Then, a client. Goal achieved.
'Pay to stay' plan
If you've used some of the most fundamental elements of customer retention, including regular contact through newsletters or other mailings, you've made a wise investment in customer relations. (We offered you a free newsletter sample last month. Nearly 600 took us up on it. That offer is now over.)
Wouldn't it be great to have customers pay you to remain a customer? That's the power of a successful loyalty program — a mutual investment between the consumer and the service provider.
As a rule, loyalty programs are based on a volume of purchases occurring over a period of time. For instance, airlines use frequent flyer programs to encourage future purchases and contact. Many retailers use a "point system" to return rewards to frequent shoppers. Loyalty programs for plumbing contractors work the same way. They focus on regular maintenance that includes a higher level of service, exclusive discounts, and special treatment or guarantees. Basically, this means a maintenance agreement.
The price of loyalty
In some loyalty program versions, companies give away their loyalty. The customer gets a benefit for loyalty, but incurs no cost for disloyalty.
The better way of doing business, as many contractors have found, is to tie the benefits of loyalty with the costs of disloyalty. This spirit of mutual investment — which increases the value — is a core element in the success of a maintenance agreement program.
With a good renewal system in place, maintenance agreements go on and on and on. They create customers for life. As you build relationships, you will not only have a customer who renews his maintenance agreement each year, but he will also have you do all his service work and equipment replacement. Studies show these relationships become so strong that 96% of the maintenance agreement customers will not switch to a competitor, even if that company offers a better price.
That means there has to be some "pain of disconnect" for a customer who chooses not to renew his maintenance agreement. Be sure that the customer understands loyalty as a two-way street. For instance, when you lose his loyalty, he loses:
- Priority service;
- Discounts on repairs;
- Equipment discounts;
- Longer equipment warranties; and
- Service warranties.
When a cost or investment is associated with the height of service, customers will think more than twice before leaving you high and dry.
A recurring profit plan
A well-run maintenance agreement program can become a reliable income stream. Once up and running, this program grows predictable profits and the value of the company because it's money in the bank. It is not a hope or a maybe or a guess. It's a measured return. Plan to sell your company? Which would you value higher?
The $64,000 answer: See my feature story on the Marketing Makeover contest, "A dizzying result" (September, pg. 42), where Basnett Plumbing & Heating sent out its maintenance agreement letter and generated $64,000 in sales, plus renewals.
" The best marketing we've ever done," says Maryann Swift, Basnett's finance manager. "This is like putting our business marketing on auto-pilot."
Predictability is just one benefit. The maintenance agreement program evens out your cash flow, which is naturally one of the biggest concerns you face. Selling maintenance agreements year-round means that renewals come in year-round, allowing cash to come in year-round.
Yet the biggest benefit of a well-run maintenance agreement program is the guaranteed stream of repeat customers, especially for the bigger ticket items. Since your customers have a maintenance agreement with you and your techs see them at least twice a year, it is near certain that you will get the call for replacement. (The best maintenance programs include discounts for these items, so why wouldn't they call you?)
From there, you're clearly the frontrunner on getting the sale. And don't tell me, "Oh, I'm already getting all those from my customer base now." Without any version of a retention or loyalty program, that's more doubtful than you may be ready to believe.
You can design your own, create one using others as a model or use the program we designed. Regardless, check out the benefits of adding a maintenance agreement program to your company.
Otherwise, you may find yourself more than a day late and thousands of dollars short. Work toward your most fruitful business goal: Create a steady stream of predictable dollars from loyal, referring clients who get unshakeable value and give it in return. Get started today.
Adams Hudson is president of Hudson Ink, a creative marketing firm for contractors. Readers can get a free marketing newsletter by faxing their letterhead with the request to 334/262-1115. To get the free 12-page booklet "How To Convert Every Service Call to a Maintenance Agreement," fax your letterhead with the request to 334/262-1115, or visit www.hudsonink.com for other free marketing articles and reports.