The HVAC business is relatively simple. Your company’s objective is to find customers, solve their problems, and serve them in a capacity in which they will use you again in the future. Herein lies the question and the challenge: How well are you doing at retaining your customers?
Some contractors claim to have thousands upon thousands of customers in their database, yet their businesses have been in a steady decline over the past few years. Sure, the easy excuse is the economy has been the reason. However, blaming the economy - whether it’s valid or not - does not pay this month’s bills. For success-minded owners, you must be committed to discovering the real issue, so that you can find what’s causing this regression.
There are a limited number of ways you can lose customers. In the HVAC industry, it happens when:
1. You served a client for years, but when it comes time to replace the system, he/she chooses a competitor;
2. You failed them in service experience, so the customer chose one of your competitors as a result;
3. The client moved out of the service area or moved into a retirement community; or
4. The client passed away.
Obviously, reasons three and four are outside of your control. With a little creative brainpower, though, you may be able to impact the first two. To do so, you will need to determine how many customers you’re losing or failing to earn their repeat business. That requires you to separate everyone in your database into a customer life cycle.
For example, one contractor I recently worked with had 83,238 names in his database. To conduct this analysis, we grouped his customers into several categories based upon the last time they used his services. He chose to break his categories into:
• 0-3 years;
• 4-8 years;
• 9-15 years; and
• Greater than 15 years.
Why did this contractor choose 15 years as the ceiling to his customer life cycle? He believed the average system should last approximately 12 years in his marketplace. He then gave himself an additional three years to cover any margin of error. Those collective 15 years represent this contractor’s replacement opportunity zone. In other words, if after 15 years this contractor hasn’t replaced a customer’s system, in all likelihood, that customer chose to purchase a new system from a competitor.
Before continuing, it’s important that you understand that a database of 83,238 customers looks really good - at face value. But that’s not how many customers - true customers - this contractor really has to service. Those are simply people who have done business with him in the past, many of whom will likely never contact him again. Instead, true customers are people who intend on using his services again and again.
In today’s world, consumers are far more knowledgeable about their heating and cooling systems. They understand the importance of maintenance; they’re familiar with IAQ products. Consequently, true customers are individuals you visit, at a minimum, once every three years. And it’s realistic to say that your only true customers are those people you visit every year. That’s how you judge loyalty.
This particular contractor had 43,416 customers who had not done business with him in more than 15 years. That reduced his database to 39,822 customers that remained in his replacement opportunity zone. After digging some more, we soon discovered the likelihood of his company earning those customers’ replacement business wasn’t very good. In the last three years, they had serviced 8,982 customers, and 798 people used his company a second time in that three-year period.
Only 9 percent of the customers who had used his service from 0-3 years ago had used his services multiple times. The analysis of his database didn’t stop there. Following a few additional calculations, we discovered customers who he serviced:
• 4-8 years ago only repeated 5 percent of the time.
• 9-15 years ago only repeated 2 percent of the time.
• More than 15 years ago was virtually 0 percent.
In this example, you can see the importance of seeing customers several times over three years. If you have not, those thousands of names in your database may mean nothing. They’re lost opportunity. The longer it’s been since you’ve seen the customer, the higher the probability that customer has fired you and taken his/her business elsewhere.
The question becomes, why does this contractor have such a low repeat customer rate? That will be addressed in my next column in this series.
Finding out your repeat customer life cycle is the first step to making money every day.
Publication date: 01/17/2011