Part 1 - Customer Referral Sales
May 11 2007 | By admin | Comments (off)
To quantify the financial return on customer care, Woodland, O'Brien & Scott combed through our database of over 200 home builders to find a study group of 20 builders who had shown significantly improved customer satisfaction ratings over a four-year period. The selection criterion was a substantial and consistent improvement in the key categories of "Customer Willingness to Refer" and "Customer Enthusiasm." The study group's performances covered various time frames from 2000 through 2009 to minimize the influence of the ebb-and-flow market conditions.

The group was asked to complete detailed questionnaires asking for their financial reports for the corresponding time period. They provided us with sales and financial data that we used to evaluate the association between their improved customer satisfaction and their performance in "Customer Referral Sales," "Warranty Costs," "Gross Sales," "Hard Cost Reduction," "Realtor Cooperation," and "Employee Satisfaction."

The results of each of the performance categories will be discussed within this and the next five newsletters, starting with this issue’s topic: Customer Referral Sales.

Customer Satisfaction’s ROC as Measured by "Customer Referral Sales"

Our Return on Care (ROC) Study revealed that when customer satisfaction, as measured by consistently improving "Customer Willingness to Refer" and "Customer Enthusiasm" improved, then 100% of the time "Customer Referral Sales" also improved.

Over the four-year time period, the study group improved "Customer Willingness to Refer" from an average of 80% up to an average of 92%. More importantly, these builders improved the number of customers who were highly enthusiastic about their builder (aka "Customer Enthusiasm"*) from any average of 38% up to an average of 63%.

This customer enthusiasm rating is a much better predictor of the customer’s propensity to refer, and correspondingly, EVERY builder in the study saw their "Customer Referral Sales" improve to an average of 32% of sales. On average, this improvement equated to an additional 37 "Customer Referral Sales" units per year! This average increase of 37 "Customer Referral Sales" sales units multiplied by the average contribution dollars per sale ($20,000) reflects the potential for an incremental sales increase of $740,000 annually!

Study Update…
Since the time of the study (before the market collapse), referrals for many of our clients have risen to as much as 45 to 50% of sales, illustrating the increasing value of customer satisfaction for survival cash flow, maintaining and gaining market share, and the durability of referrals as a source of sales.

In Our Next Issue… Part 2 of our Customer Satisfaction Study will feature “Customer Satisfaction and Lower Warranty Costs."

*Customer Enthusiasm is a Woodland, O’Brien & Scott proprietary calculation taking into account weighted Key Areas of Performance indicators plus a customer’s Emotional Connection calculation based on each customer’s ratings and customer commentary.

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