When times are good, we’re swept into believing they’ll stay that way. Been there. The pipeline seems to magically fill with less effort and the attitude of, “So what if we lose a few customers?” creeps into the overly comfortable mindset.

In fact, most contractors’ customers don’t even know they’re customers because the reminders of this presumed status are either nonexistent, infrequent or merely a plea to buy more. So when a lean, aggressive contractor comes along with a great deal, or simply makes more noise than you do, the customer migrates. I mean, why not?

They’d prefer loyalty — but you gave them no real reason to stay. No ties, no relationship, no loyalty. Not their fault, either.

Maybe you’ve been making too much money lately to care, but the above is becoming a daily occurrence in the face of a possible recession and a flood of competition.

But don’t feel alone. I asked a national crowd of about 650 pretty enlightened contractors, “Who in here has an active customer retention program?” About 100 hands went up. The dozen or so whose faces I could make out are the movers, award winners, multimillionaires or the up-and-coming contractors.

That means about 85% were playing business roulette with a bunch of hungry, aggressive, low-balling contractors loaded in the chamber. Bad odds.

I know I harp on this subject a lot (my calling, as it were), but our closest and most valuable clients have been paying for the same advice, piling in the leads and erecting walls around customers for months. Some for years, without relent. Why?

Retention has never been more necessary. As copywriting genius and marketing guru Dan Kennedy put it, “Retention is the new acquisition.” Without it, your high-value customers (the goal of prudent business) will leave you for the underpriced, overly-aggressive competition. Absent effort, or assuming they’ll stay, means you left them no option. Bye-bye.


Slap the recession silly

Retention marketing keeps customers. A retention effort is notabout pumping a sale in someone’s face with each contact. It is about maintaining credible, reliable, trustworthy relationships with your client base.

A strong retention program will out-pull, out-profit and generally out-perform other forms of marketing — dollar for dollar — than any other marketing investment you can make.

You just heard that from a direct response copywriter. I’m paid much more to pull someone out of the ditch than to keep them from entering it. The cost of prevention is always less than the cure.

For now, though, the prevention and cure are the same.

The value move now is to increase the retention rate (the persistence) following the first sale. As very expensive, exhaustive studies in insurance, banking and catalog retail have shown, when people own two (or more) products from a company, their loyalty and value increase.

This is echoed by M.L. Kelly, vice president of marketing for Ashford: “When customers return, their purchases are almost double (plus 84%) the size of their first purchase.” The identical outcome of repeat buyers comes from Dr. Frederick Reichheld in “The Loyalty Effect” who found that repeat customers spend 67% more than new customers. This higher value/transaction size, coupled with the fact that 80% of a company’s revenue comes from 20% of the customer base, generates an even more staggering statistic.

Just a 5% increase in retention yields profit increases of 25% to 100%. “This alone can easily double profits in seven years over the company whose retention remains at the industry norm,” Reichheld says.Then consider these gold nuggets from “Leading on the Edge of Chaos” by Emmett C. Murphy and Mark A. Murphy:

  • Acquiring new customers can cost five times more than retaining current customers.
  • A 2% increase in customer retention has the same effect on profits as cutting costs by 10%.
  • The average company loses 10% of its customers each year.
  • A 10-point reduction in customer loss rate can increase profits by 45%.
  • The customer profitability rate tends to increase over the life of a retained customer.


Make retention happen

The case for retention is more than warm fuzzies — it’s about your bottom line. So how do you make retention happen? By following these six steps:

  1. Thank-you cards, calls, emails;
  2. Deal-sealer cards, emails;
  3. Newsletters (actually your own media);
  4. Maintenance agreements;
  5. Reactivation letters; and
  6. Referral requests.

The entire marketing effort above costs roughly $5.80 per customer. Considering transaction size, repeat frequency, closing ratio and referral rates, the contractor who chooses not to do retention is intentionally sinking profits. In other words, it costs more not to have a retention program than to have one.

Our top consulting clients do all six steps, but if you can only choose two, pick No. 1 (current transaction-based) and No. 3 (long transaction-based). The beauty of a newsletter is that you also can “sell” maintenance agreements, filtration and water heater replacements in it for a fraction of the costs of doing it separately, while you build customer relationships.

Sure, email, Twitter and Facebook can all support the effort, but you’ve got to have a mailed component since the house is rather important to the business case. Plus, anyone can blast emails, Tweets and posts — but they are simultaneously deleted/disregarded because they look cheap. Newsletters differentiate and support a higher image.

If you choose not to protect your customer base, please know that many will celebrate your inaction and collect accordingly. Yet, you and your customers will celebrate if you remind them of your great value to each other during tighter times. And that is no myth.

Do you use retention marketing in your business? Tell us about it in the comments section below!


Adams Hudson is president of Hudson, Ink, a creative marketing firm for contractors. PM readers can get a free Customer Retention Kit by emailing their polite request to freePMstuff@hudsonink.com or faxing company information to 334/262-1115334/262-1115. See other marketing reports at www.hudsonink.com or call 800/489-9099800/489-9099 FREE.