Make previous customers a part of building your business with Partner Points, rewards, discounts ... and drinks.

Source: REPLACEMENT CONTRACTOR Magazine
Publication date: 2007-05-01

By Jay Holtzman

Seth Selesnow looks around, admiring all that he sees. And what he sees is a party in full swing. In one corner, an artist hired for the occasion draws caricatures of the guests. In another corner, a dozen or so people seeking a quick massage from the pair of masseuses hired for the occasion have formed yet another line. On stage a steel band is playing. And around the ballroom, about 150 guests are sipping wine and sampling shrimp, steak, and sushi.

Alure Home Improvements, the Long Island power-house that last year generated more than $40 million in sales of windows, siding, kitchens and baths, and basement finishing, throws its “Caribbean Party” every three months. The party is a key element in a reward system that Alure has set up; a system in which customers receive points for any new business they send to the company and which enables them to track those points on a Web site. The system ensures a steady flow of repeat and referral business to Alure. And in a market like Long Island, with some of the highest media costs in the country, that business — more than 50% of Alure Home Improvements' volume — means life or death for the company.

Most home improvement contractors recognize that existing customers are, potentially, an excellent source of future business. But most would concede that they could get a lot more of that business than they do. Now, with lead costs rising and leads from sources such as expensive media and overcrowded home shows harder than ever to come by, more home improvement contractors are developing marketing programs to mine this valuable resource, whether for repeat or referrals.

Done right, marketing to past customers results in more revenue with a lower marketing cost. It offers a strategic alternative to growing the business through geographic expansion. Targeting existing customers can help you manage your company's workflow by enabling you to generate jobs during off-months. It's also a boost for sales-force morale. So why don't more companies do it? Either because they're running from lead to lead or because they have no systems in place for generating business from past customers.

About five years ago, Weather Tight Corp., of Franklin, Wis., made its previous customers the target of company marketing with phone calls and a discount offer on new projects. The calls produced, “a really good response,” president Tod Colbert remembers. “When we did something like $300,000 in one December, which is typically a pretty slow month, we recognized that we were onto something,” he says.

Since then, Colbert has continued to refine the program. Now Weather Tight fires off a direct-mail piece, bracketed before and after by phone calls. The mail piece typically offers a discount on new work, plus a shot at a trip or airline tickets as a special premium.

When the program started, Weather Tight's sales to existing customers were 5% or less, Colbert estimates. By 2006, they were 13% of revenue and 19% of all sales contracts, he says, produced at a dramatically lower lead cost. “Our lead cost marketing to previous customers is less than 2% of sales, versus 15% overall,” Colbert says, “and the cost per lead issued is $37, as opposed to $272 overall.”

An additional benefit, Weather Tight's president points out, is the ability to “smoke out disgruntled customers, and take care of them before they go tell other people.”

You can reach out to past customers in many ways. Weather Tight, for instance, uses a combination of direct mail and warm-call telemarketing. Other methods work just as well, contractors report, depending on how creative and ambitious you want to get.

Alure Home Improvements, for instance, made an all-out effort to align itself with previous customers via “Partner Points,” a loyalty program with which other home improvement companies are now experimenting. The idea is simple. Customers can earn points three ways: one point for each dollar they spend with Alure; one point for each dollar their referrals spend on their first project (points for subsequent jobs are credited to the referral); and 10,000 points the first time they attend one of the company's Caribbean parties. They're welcome to as many parties as they like, Selesnow adds, but they don't earn additional points.

Points never expire. Earn 200,000 points and you win an all-inclusive, one-week vacation. This year's is to Puerto Vallarta in Mexico.

The program is particularly effective because, Selesnow says, it's at the center of all the company's marketing efforts. Alure Home Improvements promotes Partner Points in every sales presentation, on its Web site, in its annual catalog, in sale flyers, and in dedicated newsletters twice a year. A companion program enables employees to earn the same trip by bringing in referrals to Alure. Especially important are those who come into contact with customers in the process of servicing past jobs. “We count on everyone in the company to promote repeats and referrals,” Selesnow says.

In five years, 47 couples have earned Caribbean vacations from the company. “Plus we've got probably another hundred couples who are within the 120,000- to 180,000- point range,” Selesnow adds. At a dollar a point, that represents more than $9.4 million in sales, at a direct cost of about $4,000 a trip and $7,000 per party.

Neither Weather Tight nor Alure Home Improvements use e-mail in their programs, yet. However, other contractors find e-mail well-suited to list-based marketing of this kind.

“It's inexpensive and easy to put together, it flows more easily from your data, you can be a bit more timely with it, and the cost to send a single piece of e-mail is negligible,” says Marc Waldeck, president of Brave New Markets, a marketing company in Owings Mills, Md.

E-mail is the major form of previous-customer outreach for Waldeck's client, S&K Roofing, Siding and Windows, in Eldersburg, Md. When Waldeck developed the company's marketing program six years ago, repeat business was in the single digits, says Charlie McCurry, S&K director of sales. By contrast, in 2006 “previous customers generated more than half of our revenue,” he says, adding that, together with referrals, they now account for almost 70% of all leads generated.

S&K sends monthly e-mail messages to some 5,500 previous customers, offering seasonal product discounts rather than trips or other premiums. “Better pricing than we would give the regular public” is, McCurry explains, the draw for repeat and referral clients.

Using information from the company database, he periodically targets customers who bought a particular product. Similarly, every invoice leaves S&K Roofing, Siding and Windows with a cross-selling message. “If I sell you a roof, included with that invoice for final payment is an envelope stuffer that says, ‘Did you know we not only install roofs, but siding, etc., too?'” McCurry says.

This e-mail plays a key role in balancing the company's high and low spots throughout the year, he adds. The idea is to “look at where we might be wanting in our business,” McCurry says, then use targeted e-mail messages to create a backlog that the company is comfortable with. “If we're slow on roofing, we push roofing,” he says.

At Bloomfield Construction, in Bloomfield Hills, Mich., a newsletter delivered primarily by e-mail is the linchpin of owner Jeff Petrucci's successful previous-customer marketing program.

Petrucci started the newsletter two years ago specifically to cross-market to existing customers, most of whom had previously bought a roofing job from the company. “The newsletter allows us to go back and mine our old customer base and tell them that we now do bathrooms and kitchens, and that we won a design award,” Petrucci says.

Generally, an issue includes company news, consumer advice, and a spotlight report on one Bloomfield Construction project — a screened area converted to a sunroom, for example — that describes the job, the planning, the design elements, and the materials and accessories choices.

Usually Petrucci gets a couple of calls after the newsletter hits from customers interested in a similar job. “They'll call [that winter] and say they were just wondering what that job sold for, and ask me to come out in the spring. I tell them I want to come out now so that I can get it figured out, get them prices and a schedule, so we can start when they want,” he says.

Petrucci develops the content in-house, with help from two salesmen. He e-mails some 3,500 customers, sends regular mail to 1,300 more, and posts the newsletter on the company Web site, where consumers can subscribe to receive it. All versions use the same materials, and Petrucci outsources all editing and production so it looks professional and is time- and cost-effective.

He'll spend around $9,500 to mail the newsletter four times a year — about 5,000 pieces each time — plus e-mail, he says. That's a small fraction of the value of business that the newsletter helps bring in. Last year, at least 28%, and perhaps as much as 40%, of Petrucci's jobs were from previous customers. (People aren't always clear if the newsletter prompted the contact, he says.) That's two to three times more previous-customer leads than the company had prior to marketing with the newsletter.

You can get some results marketing to previous customers without an elaborate or dedicated system. If your list is small enough, you can manage it with something as simple as a Microsoft Excel spreadsheet. But why would you want to? Sufficient computer power and “customer-relationship management” software to build and manage your customer database will put your marketing into a new league, marketing expert Waldeck says.

“The cost of this technology has come down so much — relative to capabilities that are so vast — that there is no reason why even the smallest of operations shouldn't be taking advantage of what any larger organization has,” Waldeck says. “You're putting yourself at a competitive disadvantage if you don't.” And there are many such software programs readily available to home improvement contractors, he adds.

But a database demands data. Previous-customer marketing depends on the customer data you've collected; the more the better, contractors advise.

“Keep good records and keep them current,” says Larry Summer, co-owner of K&H Home Solutions, in Arvada, Colo. Summer, like many contractors, now records every detail of the sale: the product, any problems that occurred, the customer's satisfaction, etc.; and all inbound and outbound customer contact by whatever means — personal, by phone, e-mail, and direct mail — in the company database.

And you can go beyond that. Petrucci, for example, has similar data plus 12 years of job photos in his database. You can also capture data to classify customers on their likely future profitability, suggests Eric Schmitt, executive vice president of Allant, in Naperville, Ill. “The odds are very good that a minority of your customers drives the financial performance of your company,” he says. Did the customer pay promptly, or choose high-end options? Keep that information and you can direct more marketing attention to the segment that is most likely to provide more future profits, he explains.

Marketing to previous customers isn't an event, like a one-time media buy or the year's big home show. It's a continuing process of refinement and improvement.

“You want to have a database as the foundation, but then have a set of marketing and business processes that allow for a controlled test-and-learn environment,” Schmitt says. You can test almost every aspect of your marketing effort — mailing frequency, various offers, the color of the envelope, e-mail versus direct mail, you name it. “But do it in a way that is methodical so that you can learn from the exercise and put what you learn into practice.”

Selling previous customers another job typically demands that you offer an array — at least three — of home improvement products or services.

For instance, before launching its previous-customer marketing program, Weather Tight sold just windows and siding. Now the company sells sunrooms, basements, roofing, and gutter protection.

“I don't know that we added a line because of this marketing, but it definitely influenced the decision to go in that direction,” Colbert says. “The opportunities to cross-sell are there immediately, which is a big incentive to [add a line] instead of adding more territory or branch offices.”

K&H Home Solutions chose adding products and services as its strategy for growth, Summer says. “We thought about opening branch offices, but it's easier to control everything out of one location, and we like to have the control of keeping something as tight as we can in one area,” he says.

For more than a decade, K&H Home Solutions sold windows and siding. During the last year and a half, the company has added gutter protection, bathtub liners, and shower conversion, and has changed its name to K&H Windows and Exteriors to reflect its broader product range.

Summer recently started marketing to previous customers using a combination of direct mail and phone follow-up with a discount offer. The idea, he says, is “to give them an incentive to talk to us about additional products,” and drive repeat sales up from the 10% they've been for many years.

“We [home improvement contractors] are all running out there to find new customers, when we have a lot of them sitting right in our databases,” Summer points out. “I think that too many companies, including ours, fail to recognize the power and benefit of the account base they've built and how much extra business is there. After all the years we've been in business, it's only in the last year or so that we've started to tap into this, and it's a whole new market,” he adds.

Regardless of whether the systems you have to do it are simple or elaborate, the most important aspect of marketing to previous customers is simply to get started.

As repeat-business and referral customers become a larger part of your revenue, your systems to generate these leads will become correspondingly sophisticated. “We were unsure of what to do and we procrastinated,” Colbert says. “But you don't have to have a sophisticated marketing program in place. We just needed to start doing it and learn by doing. Talk to your previous customers. Ask them for business and they will say, fine. You'll do a lot of business.

“I keep whacking myself in the head for not paying attention to it sooner.” <i>—Jay Holtzman is a freelance writer based in jamestown, R.I.</i>