The Importance of Relationships

June 30, 2008

The Importance of Relationships
By Adams Hudson

A study funded by Imperial Financial found that for service businesses 37% of customers said the relationship was the most important reason they bought. Another 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. Good enough. But, contractors generally spend up to 80% of their marketing money going after people with whom they have little or no relationship. (Yellow Pages, broad market stuff, “fishing in the middle of the ocean,” if you want to put it that way.)

Thus, the big disconnect. Customers need a relationship to remain loyal. Contractors are chasing the disloyal. This all votes decidedly in favor of relationship marketing, or what we call “Customer Retention Marketing.”

Finally, let’s make sure there’s a financial case.

Back to the study: Loyal customers spend 33% more than non-loyal. Referrals among loyal customers are 107% greater than non-loyal. Rate of referral is highest when closest to the point of contact, dropping off to “immeasurable” after 90 days. This simply encourages staying in touch with customers regularly. Why? Because we’re inundated, overwhelmed, consumed, busy, interrupted, confused, and distracted. Now, what was I talking about? Oh yes — Money.

You’re in business, as I recall. Dr. Frederick Reichheld writing in The Loyalty Effect (Harvard Business School) gives a rather significant business case for retention.
Thousands of hours, hundreds of businesses, dozens of business categories reviewed and the most applicable table for contractors shows that two businesses, with an average “acquisition rate” of 15% per year, identical in every regard except for a 10 point change in retention have dramatically different growth rates.

His findings show that by year 7, profit and growth rate have doubled (due to the higher value of customers, the lower cost to keep, and greater referral rates).

Adams Hudson
Adams Hudson is president of Hudson, Ink “Creative Marketing that Works.” His company creates a full line of marketing tools for contractors including Customer Retention newsletters, Yellow Page ads, “turn-key” Marketing PowerPacks and custom copywriting. You can get a free subscription to his “Sales & Marketing Insider” by faxing your letterhead to 334-262-1115 with the request. Also check out on the web for free marketing tips or call 1-800-489-9099 for more info.

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