A Simple Recipe For Contractors Part Two:

Referrals, Websites, and Social Media, By: Bobby Parks

In part one  of “A Recipe For Contractors” I shared views on the importance of a contractor’s building philosophy, choice of project deliveries, and messaging.  In this second segment, I’ll share my thoughts on additional ingredients with referrals, websites, and social media. It’s a combination of what I did as a former contractor and what I’d be doing in today’s market.

Prior to entering the business I had no sales or marketing experience, but yet I was able to sell and build a lot of projects with an emphasis on margin growth versus traditional production growth. It involved an effort of maintaining an awareness of what was going on in my market, but also what was not being done and where I could gain an edge. It was an effort to help set the trend instead of following it. For me, it was about laying simple but effective groundwork and creating the layers of credibility with a business recipe that allowed for success. This included implementing a strategy that provided leads through a combination of a website, referrals, and later utilizing social media. 

Leads Equal Opportunity 

The upside potential for contractors is directly affected by leads generated, the profit contained in each job, and production capability. The better the lead, the better the opportunity.  It’s also a numbers game involving a balance of quantity and quality of leads along with closing ratios. Although some brag about high closing ratios, for design-build contractors this can be a bad thing in that you’re likely leaving money on the table. It also comes down to production as most contractors have a certain “buildout capacity” that’s based on their labor availability. No matter how much they sell they can only deliver so many jobs in a year’s time. Depending on how well these projects are priced from a profitability aspect determines how well they do each year. Some stay busy, some make wages, and some are operating profitable businesses. 

Referrals, Website, or Social Media?

When it comes to customer leads and jobs sold, what is your best source? Website, social media, referrals, or another source? Of the first three, referrals are typically the best quality because they’re coming from someone that you’ve already satisfied that provides an actual testimonial referral to a friend or coworker. The fact that you’ve proven yourself to this past customer means this referral carries more weight than any other source. This provides you credibility going in and lowers the sales resistance walls that most prospects have. It also raises the prospects confidence level in you earlier in the game. To an extent it can lessen the depth of this potential customer’s due diligence efforts if they trust the person that referred you as they consider part of that process already completed. On occasion you may be their only proposal. The closing ratio is generally higher so from a lead quality aspect, all of us prefer good referrals over any other lead type.

Good and Bad Referrals

The good referrals come from past customers that you charged in a way that provided good profit margins. These customers communicate to the new prospect that although they paid a premium they consider it a sound value investment. They verify that the quality of the project and the delivery experience made it worth the price. This new prospect understands they’re going to have to pay so they’re not expecting any type of discounted deal therefore allowing you the potential profits you should be striving for.  

The bad referrals come from those where you lowballed a price and profit was limited. Some contractors who count on referrals only may have several quotes out there and they need a job to move to. They have to keep people busy and cash flowing. In order to assure they’re not going to come to a stop they contact the prospects with quotes and offer a discounted deal. This means that not only will you not be profitable on this project but the referrals that come from this customer won’t allow for good profit as well. If this  customer refers you they’re likely to communicate that the contractor works cheap and they should call them. This new prospect expects a deal same as the first so there’s no upside potential for profit. It’s another job you have to give a deal on and the process repeats itself. 

Referrals Only Can Limit Upside Potential 

Even with good referrals your companies profits can be limited if you work off “referrals only”.

On average, most organized contracting businesses that produce significant volume get 30% of their leads and jobs from referrals. This means that 70% of the leads and jobs come from other sources most of which are website or internet based. It also means that those working off referrals only are working off a fraction of the lead and quote opportunities compared to those with effective websites and internet presence. Because the ones with websites have this lead surplus they can afford to quote at higher margins and work off a lower sales closing ratio compared to the referral only leads. If you’re running referrals only you have to have a higher closing ratio as opportunities are limited by two thirds or more. Because the opportunities are limited the built in margin is likely to be lower.

The effectiveness of referrals can depend on the types of projects you deliver. For example as discussed in “Part One” your building philosophy regarding the kinds of jobs you’re known for factors in. If they’re lower end wood deck jobs that have weathered, your effective referral rate weathers with them. Whereas higher end projects with better performing materials that stand the test of time allow for longer referrals periods. 

Of course there is an argument over quality versus quantity which applies here but counting on the phone to ring and run a business by “word of mouth” from referrals creates an unpredictable aspect of reliable leads. No doubt many operate this way and many “stay busy” while some actually hit good profit numbers. A lot depends on your desired volume and the amount of buildout capacity you have.

Website Provides More Opportunities 

A website is the gateway and billboard for a company that communicates what you do and the types of projects you deliver. It’s your online headquarters that allows a display and communications of everything your company is about.  If done properly it establishes a strong layer of credibility prior to having contact with a prospect. Because online searches have become a standard process for today’s customers, without one you can be overlooked and unknown. Again, it’s a numbers game that funnels potential customers your way that far exceeds the numbers referrals only bring. 

My website for my former company focused  on two main aspects which were first impressions created by photos and simple messaging. The interior behind the scenes aspect was on optimization. It’s kind of like looking at a sleek looking race car. As good as it looks it’s what’s under the hood that makes it competitive. So regardless of your company size its important that most invest in one and that you use a professional to build and manage it.  You’ll compete with others that do so to try and go cheap or manage this yourself will likely result in an ineffective site that won’t have potential to accomplish the objectives. 

I Stay Busy and Don’t Need a Website

In my opinion many contractors that “stay busy” and don’t see the need to have a website are missing out. Why not provide yourself more leads that allow you to quote at higher prices? Why not add the layers of credibility that separate you from others? When you’re quoting from word of mouth only,  you have to be careful with the price tag as you could exhaust all opportunities and not have enough work on the board. If you have a surplus of leads that allows you to add to the price tag you have a better chance of filling up your job schedule with more profitable jobs. Because you couldn’t build out everything you quote, you can afford to take 2 out of 10 or less compared to having to hit one or two out of three from referrals. It more than covers your website investment as well as adding to your annual earnings. It does require an efficiency in terms of creating quotes which I’ll cover in a future piece.  

There are always exceptions and it is true for some that realize their value, charge good margins and fill their job board with profitable jobs. But in many cases this approach imposes a limitation on upside potential. There’s also the time aspect of being able to run more leads and provide proposals. If you’re working within the crew every day, how do you find time to do both? I’ll cover this in more depth in another piece but a lot has to do with creating a quick quote system so you avoid doing takeoffs to quote every job. It requires models for expedited pricing that allows you to do several quotes in the same time period it may take to do one. This is a necessity to operate efficiently. 

Social Media

Although FB and Instagram can produce leads and can show up in searches, in my opinion these serve more as an expanded internet presence providing social media content and secondary branding purposes. They work in conjunction with a website which is the foundation and mothership for localized leads and prospects. Social media is an enhancement tool and pathway to a site and not the same as having a truly optimized website that shows up in local searches that displays your work and messaging. It’s more likely your peers and followers who are spread out across the rest of the world will see you on the social media platforms but it’s the website that provides you a set up that communicates with local prospects. It’s where your messaging and galleries are.  FB and IG can produce feathers in your cap and add another layer of credibility. It’s a way to directly communicate with others but at the end of the day it’s the prospects in your market that you must connect with and illustrate what your company is about.  

Many businesses such as millworks, subcontractors, and other trades can be connected with builders and remodelers as FB and IG serve as a networking portal. It’s an advertising platform within the building community. It’s like a national builders show compared to a local home show. For the most part they have different audiences. I’m sure some do obtain work through these outlets but counting on social media alone is likely to limit the upside potential. To grow and be selective with jobs and attach a premium price tag, the percentages are going to favor a website.

Work With a Blended Approach

There are exceptions for every aspect here. Some contractors can hit their numbers and maximize profit off referrals only. Some may actually do the same with only a social media presence. A lot depends on the volume required and an individual’s effort in each area,  but in most cases these two aspects alone won’t provide the necessary upside opportunities. Neither replaces an effective website that allows for a better sharing of messaging and photos with local search advantages. Even if you’re a one crew operation with limited buildout capacity you can benefit. It’s not about selling more but more about filling up your job board with more profitable jobs and providing the necessary opportunities to accomplish this. It’s about not operating on hope and prayer. Most will benefit from a balanced three pronged strategy because one day the referral leads that have always seemed to arrive in time to keep you busy may slow to a point that even staying busy is a challenge. Having this balanced plan will produce more opportunities with better predictability providing for a smoother operation and better profits. It’s an investment that some may believe they can’t afford but I would argue you can’t afford not to. It’s an investment in your business and should be part of the plan. For me it was a key ingredient of my recipe. 

Bobby Parks / Instagram: @Bobbyparks007

Copyright Bobby Parks – March 11th, 2020