Chris Gash

David West recently queried Facebook connections about paying those who refer his company, Meadowview Construction, in Georgetown, Mass. “A couple of people responded that they felt a fee would make it artificial ... rather than doing it from the heart,” West says. But many others had no qualms about accepting a referral fee.

The question of whether paying for referrals is awkward or tacky or just “not right” has plagued remodelers for years. “Referral fees are paid by virtually every other business out there,” counters Michael Stone, an industry consultant and author of Markup and Profit. “Why is it wrong for remodelers? If you pay a finder’s fee, you will get more leads; it’s plain, simple mathematics.”

At What Price?

Stone suggests using your marketing budget, which he counsels should be between 4% and 5% of sales, as a baseline for the amount to offer a lead source. He acknowledges that if you land a large job you might scale back the reward. And it doesn’t have to be money. “I might buy round-trip tickets to Hawaii or [pay for] some time in a hotel,” Stone says. “Or you could offer a discount on a job.”

But won’t clients argue that you’re running up the costs of their project to pay your referrals fees? This will come up, Stone warns. “If you advertise that you pay referral fees, you have to have a solid explanation about why it won’t affect the job you’re working on.”

Set Program

To find new prospects, two years ago Todd Jackson, owner of Jackson Design and Remodeling, in San Diego, formalized a client referral program called “Adventures Within.” Lead sources sign up on the company website. There are four levels of rewards, from baseball tickets to trapeze flying lessons, gondola rides, and wine tastings. Rewards are not contingent on Jackson’s getting the job, but they must be substantial. “I’ve never had anyone take advantage of this” and offer a false lead, Jackson says.

As part of an overall marketing strategy, a referral program is one more way to brand your company and stay top-of-mind. Jackson’s program has its own logo, which is on all client correspondence including the calendar he sends out annually. He admits that the two-year old program is bringing in about the same number of referrals there might have been without the program, but time may change that, and he says, “It’s a way to get in front of our clients and be able to say, ‘What can we do for you?’”

—Stacey Freed, senior editor, REMODELING.