I’ve read a few recent articles where contractors say they are getting most of their leads by word of mouth. I’ve talked about depending on referrals before, and it’s time to discuss it again. Let me share a few thoughts.
We’ve had a strong building and remodeling market during the last ten or twelve years. When you’re getting a lot of leads already, it’s easy to get lackadaisical about marketing because finding new clients is a breeze.
I don’t know the future, but I know that the construction industry runs in cycles. The pendulum swings about every five to seven years; we have too much business, then we have no business, then we have too much business again. That last downtime many of you painfully remember began about December of 2008, and we are more than overdue for another swing to the south. Keep in mind that business always slows down during election years.
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I’d love to be wrong, but is it worth the gamble? If you’re prudent, you’ll pay attention to historical cycles and plan accordingly. If you don’t want to participate in the next downturn you need a strong marketing program. It won’t hurt your business to be marketing on a regular basis; it will help.
Those who depend on word of mouth leads are the first to take a hit during a downturn. If you’ve been in business for at least twenty-two years, do you remember how referrals dried up after September 11, 2001? If you’ve been in business at least fourteen years, do you remember how referrals dried up in 2009?
With a strong marketing program you can survive downturns. Business slows down for everyone at the bottom of a cycle, but if you’re marketing even when times are good, a slump won’t put you out of business because your name has been in front of more potential buyers.
Don’t forget that today’s buyers want a general contractor who is a specialist. They want a contractor known for the specific home they build, or who specializes in kitchens, or focuses on bathroom remodels. When a potential buyer wants a certain type of job performed, companies in that niche are the first companies they’ll call. That means companies that promote their specialty get the first leads in that specialty.
The late Zig Ziglar used to say that you can be a wandering generality or a meaningful specific. When you are marketing, you can aim for the clients who are looking for your specialty. With referrals, you take what you get.
A strong marketing program will put you in front of your ideal customer. You’ll be able to pick and choose the jobs you do, at a higher markup or hourly rate, instead of taking whatever job comes along. That might not seem important today, but it’ll be important if things tighten up. If you wait to start marketing when times get tough, it will be far more difficult to catch up.
It’s great to gain a customer by referral. But if you take charge of your marketing and let the leads you get by referral be the frosting on the cake, you can count on quality leads in your specialty. It allows you to cherry pick the leads you want to pursue.
If you’ve been working by referral only, are you getting all the leads you need? How many more phone calls could you be getting if you advertised? How many more jobs could you have sold and how much additional profit could you have made? If you’re depending on referrals for all of your leads, you’ll never know.
Getting all your leads from referrals sounds good and feels great. But it’s not a smart long-term business plan.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.
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