Good Word

Carpet cleaning companies, gyms, and cable companies do it. Even your dentist does it: $25 off the price of your next teeth cleaning for each new patient you refer.

Five years ago, it might not have mattered if you rewarded those who refer you, says Beverly Koehn, author of Loyalty is Love, a book on customer satisfaction in residential construction. Today, she says, you need to give them a reason to want to. “It’s not their job to build your business,” Koehn says. “If you do an exceptional job and ask, you’ll get referrals. But if you just do an exceptional job and never make the effort [to ask for referrals], you may get some but not many.”

What you’re asking for is a favor, and a reward acknowledges the favor. What the reward consists of depends on you, your company, its resources, your clients, and what you’re comfortable with. Whatever the incentive, it should be consistent.

It takes work to create a system and work to sustain it. But the experience of many contractors shows that a well-designed and consistently managed system regularly yields leads. And the more referral business you get, the less you’ll need to spend on your overall marketing.

4 Types of Referral

Not all referrals are alike. We asked sales and marketing consultant Chuck Anton to define the different types of referrals:

1. Direct The customer connects you with the prospect and endorses your company.

2. Indirect The customer gives you permission to use his name, but otherwise takes no action to connect you to the referral prospect. It’s up to you to make the first move. It’s “not a great referral, but it’s better than no referral.”

3. Unqualified You have a name, but you don’t know whether or not the prospect actually needs your product or service. “This is worst kind of referral lead and a waste of your time.”

4. Qualified You know the prospect needs what your company sells.

The referral you want, Anton says, is the direct, qualified referral because the client recommends your company and connects you with a prospect who needs your services.

How do you get it? Ask clients if there’s someone they know who needs your services and would they be willing to recommend you. Talk about your reward program as a way of saying thanks for that referral.

Referral reward programs, Anton says, get clients on your side and bring “the kind of referral you should be looking for.”

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[Step 1]

Gatekeeper

Before you put your program together, a few essentials must be in place: a database of past customers with contact information and some assurance that the work your company does is so consistently good that just about every client would want to recommend you.

Close out every job with a customer satisfaction survey that ends with a question about whether or not the client would use your company again or would recommend you to others. Make someone — a marketing manager, office manager, or you the owner — accountable for managing your referral system.

Key to success: Track clients who refer and the outcome of those referrals (Lead? Appointment? Sale?) as well as rewards issued.

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[Step 2] 

Size matters

Are you rewarding clients who provide you with a customer contact (lead), an appointment, a sale, or a job that’s officially closed out? Size matters. If your business model calls for lots of small jobs — say window or roof replacement or handyman work — and you have others selling for you, you may want to reward just for leads.

Mark Kaufman, of Mark Kaufman Roofing, in Englewood, Fla., issues $50 gift certificates to clients who refer new business, regardless of whether or not those prospects buy. “It’s up to me whether or not I sell it,” Kaufman says. “And I want them to keep referring me.”

“You can have customers, you can have clients, or you can have advocates. In today’s economy, you need advocates.” —Steve Rennekamp, owner, EnergySwing Windows

On the other hand, if you’re a full-service remodeler or design/build company set up for big multi-trade projects, you’re not looking for hundreds of leads but for a handful of high-quality prospects. Rewarding for jobs that are actually sold will help ensure that clients steer that kind of lead your way.

Key to success: Set a target in leads or in percentage of revenue, and a time for achieving that goal.

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[Step 3]

Something suitable

Cash, check, gift cards, gift baskets, baseball tickets, restaurant vouchers — remodeling companies reward in many ways. Remember that beyond saying thanks, the goal is to motivate clients to refer again. The point is not to just give something away but to create a feeling.

You can increase the likelihood that people will talk you up by making the reward something memorable that clients wouldn’t ordinarily buy or do on their own. Jackson Design & Remodeling, in San Diego, rewards not leads but appointments, and offers clients who refer the company a multi-tiered “Client Adventures Program.” Accessible by password through the company website, program rewards include balloon rides or a limousine tour of the California wine country. The program “solidifies the relationship,” JDR marketing director Coco Harper says.

Ed Cholfin, of House Doctor, in Atlanta, advises a gift that “shows you’re thinking of the client on an individual basis.” As a thank you for the large job they referred, he sent a couple fond of golfing to the well-known golf resort Reynolds Plantation, in Greensboro, Ga.

Key to success: Personalize the reward with a note or a follow-up phone call.

The Setup

A good way to approach setting up a referral reward program is to consider where you want it to take you. Say, for instance, that one-third of your business is already generated by referral or repeat customers, you have no referral program, and you’re spending 4% of revenue on marketing to generate the remaining two-thirds. If you design a rewards program to double referral and repeat business, you could cut your marketing costs in half (to 2%) and still do roughly the same amount of business. Or, you could continue spending 4% on marketing and watch your sales grow.

Yes, the referral program will cost you something, but referral leads close at a far higher rate than leads from home shows, magazine ads, or yard signs. The client who refers a friend likely does so with glowing descriptions of their experience with your company. The referral gives the prospect a vote of confidence in your firm that no other type of marketing or selling can. Plus, you get first crack at prospects before they talk to other companies. In the end, the referral rewards program will save more than it costs.

So, do you want to do more business, close more business, or add 2% to the bottom line? Define what you want your program to accomplish for your company, then design a rewards program to meet those goals.

Perfectly Clear

The rules and terms of your reward program must be simple, spelled out step by step, and communicated to clients, staff, and trades for two reasons: It makes it easier for them to send you business when they know what they have to do to get rewarded, and it eliminates misunderstandings.

Create a letter, e-mail, or Web page (or all three) that spells out the steps clients need to take to earn a referral reward. Be clear about how clients should alert you (phone, e-mail, etc.) to the fact that they’re sending you a referral. Otherwise they may assume you know when you don’t. The prospect who’s referred should also confirm who suggested your company. To avoid confusion, explain whether you expect the referral to contact your company, or whether someone from your office will contact the prospect. Indicate what you’re rewarding and when you will deliver the reward. 

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[Step 4]

Broadcast it

Standard industry practice is to discuss referral rewards when the job is closed out. That’s the optimum time — when excitement and enthusiasm are at a pitch — but not the only one. Bob Sturgeon, at Westside Remodeling, in Thousand Oaks, Calif., talks referral before, during, and acknowledges referrals with movie tickets or a Starbucks card, more if a job results.

A good reward system should make you and your company top-of-mind to any client who knows anyone interested in remodeling. The more you publicize it, the more likely clients are to refer. All Pro Builders, of Fullerton, Calif., discusses its referral reward program in a thank-you letter to clients when the job is closed out, regularly mentions it in an e-newsletter and on its website, reminds yet again in a leave-behind packet, and spells it all out on a special business-card–size card distributed at networking functions, according to vice president Lisa Paniagua.

George Cleary, owner of The Cleary Co., in Columbus, Ohio, announces it from the get-go: “I tell people in my sales presentation: ‘I guarantee you somebody you know is going to become a client of ours,’” and 88% of the time, they do.

Key to success: Make your reward program part of the ongoing customer conversation.

The 1% Solution

James Barton Design-Build has a program called “You Refer, We Reward” that pays clients who refer business 1% of the contract amount. “We spend between 4% and 5% of gross sales each year on marketing. If we can retain or get a new customer for 1%, then we have saved substantially,” owner James Madsen says. Jobs range from $10,000 to $1 million, though average job size is about $100,000. Madsen says that 80% of James Barton D/B’s business comes from repeat and referral. The company spells out the details of its referral program online.