Avoiding Referral Only Business

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Referral only business isn’t safe for the long run

Contractors, solely relying on referrals is not enough. It’s time to up your game and think about implementing a year-long marketing campaign.

I recently came across a great article by Michael Stone of MarkupandProfit. Allow me to share some of what Stone relayed in his article “Working By Referral”. As he puts it, “I’ve read a few recent articles where contractors report getting 70%, 80% or even 90% of their leads by referral.” This is a huge amount of business coming from word of mouth. What happens when that well goes dry and no one else knows your business exists? This is precisely the problem with running a referral only business. It may be the easiest, but it also carries the most risk. As soon as the market takes a tumble, odds are your referral leads aren’t going to be worth much.

If you pay attention to construction cycles, you’ll know that we are about due for another. This doesn’t necessarily mean a crash, but rather a slight decline. Look what happened in 2001 and then in 2008. No one can predict the future, but odds are it’ll show up eventually. The question then is, “Am I prepared?”. You can say yes to that question by implementing a strong marketing and advertising campaign. Business may be bad for everyone at the end of a cycle, but at least with a marketing campaign in place, you won’t be out of business. Companies that survive downturns like these are the ones who don’t strictly rely on referrals. It goes like this with any aspect of business, diversity is important.

Stone also notes that today’s customers want a general contractor who is a specialist. When a customer brings on a contractor, usually that contractor is well known for a certain facet of work. This is called a niche. Your niche is a great way for you to market and advertise. If you’ve got a certain job that sums up the work you do, advertise it. This is your way of letting people know what you specialize in. A niche could be something as general as remodeling kitchens or bathrooms. Whatever it might be, advertise and market it to stay prepared when hard times arrive.

Don’t get me wrong, referrals are a great way to obtain business, but they shouldn’t be the sole provider. Let your marketing and advertising campaign take charge, do good work, and continue to let referrals come in. After all, as you become a more well-known company, the main byproduct will be referrals. Become more popular and you can pick and choose which jobs you take, allowing you to make more money overall.

You can read Michael Stone’s article “Working by Referral” here.

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