131. Referrals Are Not A Strategy With Rick Moore

Today's episode of Professional Builder Secrets is brought to you by smarter content that sells. Relying on referrals is a surefire way to mediocre margins. Yet 48.4% of builders are guilty of it. Set yourself up as an authority and close more high margin building contracts by getting smarter content that sells free report at smarter content that sells.comau/report. That's smarter content that sells dot com.

Referrals are not a strategy. Referrals are the result of a great strategy.

Welcome to Professional Builder Secrets, a podcast.

For building company owners wanting to grow safely and securely.

I'm your host, Will Blunt, and today I'm joined by one of APB's executive.

Business coaches, Rick Moore. Rick, welcome to the show.

Well, thank you, Will. I'm happy to be here.

Very good to have you on the show today. I feel like our relationship has improved since meeting in person in Las Vegas last month.

Yeah, it was, it was a great, great event. And for me, being able to meet everybody in person that's on our team versus seeing them on Zoom was, was a, was great. And meeting you was just fantastic. So thanks so much.

Yeah, really enjoyed it. Really enjoyed it. So today we want talk about referrals. Now, there's a common belief out there that referrals alone are enough to sustain and grow a building company. But I just wanted to get your thoughts on that.

Yeah, well, one of my mantras is that referrals are not a strategy. Referrals are the result of a great strategy. And, you know, I believe that to be evident in so many ways when we talk to builders. So, so many of them talk about, oh yeah, you know, I do, I get referrals. That's my main source. Yet the same reason that they're talking to us is because they want to grow their business and they're looking for ways to do it. And so it's, you know, when you dig down that idea of having a strategy to grow your business with referrals being a complimentary item in that strategy, is what I truly believe in.

Is it, is it common for building companies to rely heavily on referrals as their primary growth strategy?

Yes. Yeah, it really is. You know, even in the recent sourcing report, it was just under 50% of builders responded that half of their sales come from referrals.

And is that, do you feel like that's a problem? Like, is there something wrong with just relying on referrals?

The problem with relying just on referrals is that there's no predictability. And so You've, you've got this peaks and valleys that, you know that go on in your business. And because you don't have any. Well, there's no predictability on when a referral is going to come in. And, you know, that's a, in what we talk about at the APB of wanting that consistent lead flow coming in so that you don't have these peaks and valleys in your business that you've got, you know, you've got leads and in fact, sales, contracted sales going out, you know, 12 months, 18 months, even further if you can, you know, for, for the best builders out there. If you tried to do that on referrals alone, you know, there's, there's just not. I just don't think it could happen on referrals alone.

What are some of the implications of relying on referrals?

Yeah, if you rely on referrals, chances are there's a few things. Number one, we talk about wanting to have in your lead generation in your marketing, you want to try and attract a particular avatar, somebody that is the, you know, the ideal customer for you. And by having that ideal customer, you're able to, you know, kind of, you can control that whole sales process. You become the authority in the relationship. And ultimately what that means is you're going to be able to price and get your profitability, your margin out of that. If you think of a referral that comes in, somebody that sends you a referral isn't necessarily picking that person to send your way because they fit your avatar. So you're really, you know, in many cases, even if it's a referral, you're dealing with a kind of an unqualified lead that may or may not fit what you want to do. Because it came in as a referral, you maybe feel obligated to take it on as a contract, even if it's not your ideal client. And we all know that there's a lot of difficulties that can happen through a construction project. If you're working with the wrong type.

Of client, that could potentially have an impact on margins as well.

Yeah, we know that when you are bringing in the lead flow for the ideal customer for you, you are able to price and get your margins because these clients are, are more suited to what you do as a builder. So they come through their, you've created some value, you've created a trust in them with your marketing, brings them into your stable and they want to build with you. Right. You've created scarcity and urgency and your professionalism. A referral doesn't necessarily come in that way. Right. So if it comes, a referral might come in a different way and come through your process and you haven't necessarily created all of that along the way. And we know that creating that allows you to price, you know the price is the price they want to build with you. They know they're getting a premium quality product and price doesn't become an object. A referral coming in because it's not part of that may not fit that category for you.

Yeah, interesting. We had a bit of a chat off air about and I asked you the question as we were looking through them around like the long term implications of a referral strategy and you spoke about succession planning and being able to sell a company. And I'd really like to dive into that a little bit more because I know you've written a book about this. I interviewed you on episode 109 of Professional Builder Secrets about Building to Sell as well. So is having a referral only or a high, high portion of your sales coming from referrals affecting your ability to sell your building company in the future?

Yeah, so in my book I talk about blind spots, the blind spots that owners of businesses need to understand so that when they go to sell their business they're not being robbed of value because they didn't recognize these. And I co founded a private equity company so we, we bought companies we would not have been interested in a business that had a high concentration of referral only business coming in. It just, it probably would have just, you know, as the minute we found that out, we probably would have just discarded the business as something we were interested in buying. Reason being we're looking for repeatable systems, profitable systems that are in place that anybody can step in to the business. And because of those systems being in place, they just operate the systems. With a referral based product, a lot of those referrals could be based on the owner. You know, the owner might just be a really strong personality, might even do ads or just have a public personality. And that's why, you know, people want to be referred to them or want to come to the business that way. It's not, again, it's not a system per se. Right. It's just a benefit and probably a benefit that would, well, it would rob you of value if anybody did want to buy your business on that basis.

I guess there is an opportunity to have a referral system though that could be repeatable.

Yeah, absolutely. I think referrals should be part of your, your greater marketing and advertising program. So that when you are say you've got, you've got lots of lead flow coming in and on the other side you've got lots of prior customers that are happy with what you did. You've got your circle of influence, which is you've got, you know, in the builder sense, architects, realtors, designers, bankers, those types of people that will refer people to you if you can bring those people together, you know, say at events, bring those people together, you've got leads that already are attracted to you. Now you've got the people that would normally refer to you in the same room with those people. I think that's a brilliant strategy to have implemented and just always have the idea through the process as a lead is coming through and progressing through your sales funnel, you know, at every kind of monumental step that they take, maybe they, a paid concept agreement or a paid preliminary or a signing a contract. And certainly at handover you should have an automation, it should be automatic in your business that you're asking for referrals at those points, points in time because that's when those people's emotions are at their highest. That's when they're loving you as the builder. So yeah, you should have a system in place. You don't want to just say, oh, I never asked for a referral. No, absolutely you do. But build it into the greater program.

Can we, can you dive into the, that greater marketing and sales program a little bit more? What is a, a good strategy for builders to look at implementing which complements referrals?

Yeah, well, you know, our strategy starts with paid advertising is something that we wholeheartedly endorse. We want you to do paid advertising. Well, how do you do paid advertising? You create great content that's valuable to that potential lead who you've identified through a process. We take you through at the APB and our builders, in our coaching program, we take you through a process of identifying that avatar that you, you know that, that you want to build for. Right. And it's based on the people that you've built for, that you've had great experiences with. So you've identified an avatar. You understand what makes them tick. You've created a bunch of content that you then put out into the marketplace through paid ads. And you start to bring people through that way. You have a great sales system in place that once they become a lead, you have an elegant way of bringing them through the process to a, well, ultimately to a contract, to a building contract. So, you know, we, we know that again, Predictability and a system from, you know, marketing at the top of your marketing funnel. All the way down, it's predictable systems all the way down. And there's going to be natural areas to ask for referrals or to use people who would refer people to you to be injected along the way to help move those leads through to building contracts. If that makes sense.

Yeah, so, yeah, it does, it does. And so what I'm hearing is like, you've got your marketing and then your sales process and then the referral system or strategy almost comes in after that. So, like, you've got a consistency of delivering leads and converting them into building contracts and then the referral system works in the background once you've got people coming in to work with you.

Yeah, yeah. I believe that at every step along the way, what you're doing with your lead flow is creating credibility, providing value. And those people, that referral network you have, they just add to that all the way along. But yes, they probably are coming in further down the pipeline from that.

Rick, do you have an example of where relying purely on referrals in the building industry was a recipe for disaster?

Yeah, probably several. Because when we talk to builders, we know that, you know, through Covid, every, you know, builders were, they were full, right? They were booked out 18 months in advance and, you know, work was just falling in their laps, essentially. And, you know, so they had record years of revenue when that ended because they hadn't had to do any marketing or advertising. Now there was a closed tap, right? So they went from busy to nothing. And so what that does is really puts in the spotlight the need to always be generating lead flow in a very systematic way and being very committed to it. You know, we talk about spending 1 to 3% of your revenue on marketing and advertising, being committed to it, not caring how busy you are or not, you know, saying, oh, we're busy, we don't need to advertise. Well, sooner or later that is going to stop. You're going to finish that work and you won't have any leads. So never turn that off. Right. You always, no matter what is going on, never turn that lead generation strategy off. Then you don't get into these situations where a lot of builders found themselves in, and I don't know statistics on how many have gone out of business in the ensuing couple of years since COVID but I would imagine it's fairly high. And I know that we talk to a lot of builders who are still trying to figure their way out of that, right? They're trying to figure out a strategy to get back to that.

Yeah, I'm sure it's, it's probably quite obvious at the moment. With leads drying up as well, with interest rates so high, a lot of consumers unable to get funding to build homes and things like that. That's probably really tightening the screws on building companies as well.

Yeah, so it's, you know, it's probably the number one thing I hear when I'm talking to builders in our workshops and you know, at ibs, you know, people coming through, you know, where's your business at? Well, we're, you know, we don't have any, we don't have any leads. You know, that is a very predominant thing to hear and maybe even more so than at any previous time just because of how busy everybody was through that period we just spoke about. And they weren't thinking that, you know, hey, that's going to end at some point. Right. We never want to believe that the good times are going to end. And one way to ensure that they don't is by marketing and advertising consistently. Whether you need the leads today or not, keep doing it.

Well, I guess if you get more.

Leads than you can service, that's also a good thing. Right. Because then you get to pick and choose who you work with and all that stuff.

Yeah. So that comes back to, you know, defining that avatar, defining that perfect person that you want to build for. And when you've got leads coming through of the right quality that are aligned with you, you've got more leads than you can build for. Well, that, that creates that scarcity and urgency which allows you to be salesy without being salesy. Right. If you've got 12 building spots slots in a year and two of them will allow somebody to be in a home by, say, December, and that's when people need to be in. You don't have to be too pushy. You can say, well, I've got two slots that will allow you to get there.

Yeah.

Right. And so, yeah, always have more than you need, be choosy about who you build for. The nice thing about having more than you need, it can also, you know, if people really want to build with you, they might say, okay, well, I'd like to be part of your next 12 slots of building that you do. So that gives you that workflow that may flow into as guaranteed revenue into the following year.

Yeah. And that's genuine scarcity. Right. Like you're not just making that up.

No, that's right.

You only build so Many homes in a year.

Right.

One.

One thing we didn't talk about actually just came to mind is when you get a referral from someone, you don't know who that referral is. So you can't necessarily guarantee they are your perfect ideal customer and that you can charge them the margins you want to and, and build the homes you want to build for them.

Yeah. Just because somebody was. You got to keep in mind that a referral comes from the place. The person who makes that referral, if you've built for them before or you know, however it comes in, the referral is made more with the person that's being referred in mind than you as a business owner in mind. Right. Because it's a personal relationship they have with this person that they're referring to. So they're, they're referring to solve that person's problem. But they're not doing any of the avatar. They don't even, maybe even realize that they were a perfect avatar for you when you built for them. But this could be their brother who's a completely different person. Right. Who's, you know, cheap, who doesn't want to spend money, who doesn't believe that a builder deserves to make, you know, a proper margin. You know, it just. So yeah, it's a funny thing. You want to make sure that when a referral comes in, you've got to do your same diligence. Right. You've got to add that aspect to it. Who are these people? You know, what do they do? They represent somebody we can build for.

And what does that look like? How do you identify whether or not there's someone you want to build for?

Well, I would start with. Because they're not coming through the traditional way, which is the messaging you'd have out there would really touch some emotion. Right. They're not really coming in that way to you. So you got to be very diligent about the, what I would call the disqualification questions. Right. We've got seven close ended questions which are really meant to deselect somebody. Right. And you've got to ask those. You've got to treat it just like you would a lead coming through your funnel, you know, because those seven questions are, you know, a yes or a no to any of those questions really means that they're not person that you can build for. They might represent somebody you could build for in the future because it might be a timing issue, but there's a whole other bunch of landmines that that can unveil by asking those questions. So I would say for sure, you know, even if it's a referral from your, you know, your. Your sister or your. Your parents, like, just ask the questions. Don't just assume it's going to be the perfect person for you.

Well, that can cause other challenges. Right.

I'm.

I'm assuming there might be some expectation of discounts and things like that that come through some of those referrals.

Yeah. Great that you put that out there. Because isn't the assumption that, you know, oh, they've been referred to me by my favorite client. I better give them a deal. In your mind, you might be thinking that. In their mind, they might be thinking, well, he just built a $4 million house with this guy. This guy, you know, this builder must have made a lot of money. And I'm this guy's brother. I. There's got to be a deal for me.

Yeah.

Remember what we say, there's no mate rates. Right. Family and friends rates, nothing like that. You've got to price everything to make your margin, your profit. So the price is the price.

It probably gets tricky as well. Like, for example, if one of your best clients refers you someone else and then you disqualify them, how do you handle that with the client?

Well, I believe that the relationship that you've developed with your client and the quality of your work, the things that you've done as a professional, will have cemented with that client, your former client that you are, you know, you build a certain way for a certain type of person. You can soften the blow by saying, you represent my ideal client. And because of that, we need to be very particular about who we build for and just make. Make them know that it's not a personal thing against them. It's just that that person maybe didn't fit the mold of. Of what you do. Always tricky, but, you know, handled professionally, it. I don't believe that it should represent a huge issue.

Yeah, fair enough. Rick, do you have any other advice for the building company owners listening to the show today around balancing consistent lead generation with a good referral strategy?

The advice, I would say, is the most important thing is to have a strategy around lead generation, as we've spoken about as the overarching theme of what you do. And when you bring people through in a professional manner and they're people that, you know, you want to build for, you're, you know, the end result is going to be great. They are so happy that as a result of how you treated them through that entire process, they're Going to be happy to refer to you. Do the same thing with your circle of influence people, you know, the architects, the realtors, the designers, anybody out in, in, you know, in the industry that you have relationships with. Cement yourself as a true professional, somebody that they know as somebody that they would want to refer one of their customers to. Also remember, if you're getting referrals from your circle of influence people, you got to return the favor every now and then. Right. Can't just be a one way street. So be a pro. Everything you do is done with quality that will naturally draw. You'll be a magnet to people to come your way. And at the meantime, guess what's going on. You've got a lead strategy out there that's, that's feeding the funnel.

So the referrals are the cream on top of consistent lead generation.

They really are. Yeah.

I just had a thought as you were talking about being the trusted partner of your circle of influence. I've been chatting to a lot of potential rewards partners for our members recently and one consistent thing that comes up is these software providers, service providers in the industry. They've heard about APB members. They say, I hear that your members are the most professional in the industry. They're the ones we want to work with, which is a really powerful pull from, from the people that we work with. So. Yeah, yeah.

And I, I, you know, from, I've had the privilege of meeting a lot of members, a lot of our, you know, coaching clients, our elite clients, many of them at ibs. And you know, there's just a certain, there's a certain way about them. Right. It's almost like they've got a little spring in their step because they know something that the other builders don't.

Yeah, right.

So you know, the secret sauce, it's real. Yeah, the secret sauce. Right. And it's very real.

Well, Rick, thanks so much for sharing all those tips about referrals and obviously not relying heavily on referrals in building companies to make sure that you've got consistent lead flow. Where would you recommend the listeners go to take the next step to learn more about what you've talked about today?

Sure. I think that, you know that the fundamental action plan is introduction to marketing and then there's other action plans that naturally flow from that. Start with introduction to marketing that will, you know, get you familiar with what that overarching strategy should be. And as part of that, there's also an action plan on creating a great referral strategy. Go to that one first. Go to the marketing introduction to marketing. And then at the other end of the spectrum, here's one I really want you to go to. Andy's done one on succession planning and again going back to my roots, you know, and what I'm passionate about is the builder creating a saleable asset or an asset that can be passed along to a family member as a blessing, not a curse. Again, what we said is repeatable systems that result in profitable contracts are necessary. Right. So that'll bring it all home. If you watch, you know, kind of watch all of that and then that end result, the carrot at the end of it is what you've created by not relying solely on referrals, putting those systems in. And at the end of the day it's your choice. Remember it's all about choice. Even in, you know, your choice to decide which people you're going to build for that are coming through your funnel. You want to have choice of when you want to leave the business and how you want to leave the business. Sometimes it might be a health related reason which really isn't your choice, but at least your business is in a position to be transitioned to somebody. So get, get the systems in place and we talk about marketing being the most important. That's the system you start with and roll on from there. There's another resource, it's a free resource for that non members can access and it's the builder's marketing audit. And this is a great checklist to go through and see what you have in place that'll lead to success and what you need to put in place. So that's a, that's a resource that I'm really excited about. It's a new resource created by you, I believe Will and excited played a part.

There was, there was lots of contributors.

Yeah, well I'm excited to see it as a new asset that's available to people and, and just again, you know, moving the, the needle for builders, you know, moving it in a positive direction for them.

Yeah, perfect. Well thanks Rick. Yeah, those action plans you mentioned will include links to all of those in the show notes. We could include a link to the builders marketing audit for a free download for anyone listening. And also if anyone out there heard how passionate Rick was about building a sellable asset in their building company, they should check out episode 109 of Professional Builder Secrets because Rick and I have a good chat about that and he's written a book about it. So well worth a listen that one.

Thank you.

But Rick. Yeah, thanks so much for coming on Professional Builder Secrets today. I've really enjoyed the chat.

As have I. Thanks, Will. Thank you everybody.

Also, a big thank you to our listeners wherever you are in the world.

Thank you. If you like the show today, please.

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