He chuckles now, but Michael McCutcheon wasn't laughing the last time he realized the housing market was no longer surging, the big projects were no longer pouring in, and the referrals he'd been taking for granted were no longer an effortless money machine. “I got fat and happy back in the early 1990s,” says McCutcheon, president of McCutcheon Construction, now an $8 million, 40-employee design/build company in Berkeley, Calif. “There was so much work,” he says, and his company — hovering between $1.5 million and $2 million in revenue — had developed a bit of a swagger. “Past customers would call and ask us to put in a skylight or fix a gate,” and McCutcheon would respond, in effect, sorry, but we're too big to be bothered with such requests.
“When the market turned down, and the big projects stopped coming in, well, nobody called me for their skylights or gates,” McCutcheon says. Humbled, he contacted his entire referral base and offered to do projects of any size, including touch-ups on work done years before. His company continues to solicit such jobs today, writing off many as warranty work, and he encourages other remodelers to be similarly proactive.
“Now might be a good time to service the hell out of your customers,” McCutcheon says. “Make an appointment, see how things are holding up, get your foot back in the door.” It's these little things that sustain strong relationships, he insists. He should know: Referrals — actively sought and graciously acknowledged — bring in all but 10% of the company's business today.
F IS FOR EFFORTLESS Referrals are the lifeblood of successful remodeling companies, and it can be argued that the higher-end the home, the more likely it is that its owners will want that unofficial seal of approval — the trusted recommendation of neighbors, friends, or colleagues — before opening their doors to a crew of strangers for months or years on end.
Referrals alone can be dangerous, however, with small companies particularly vulnerable in the softening market. Growth can be difficult without new lead sources. Prospects are postponing big jobs. Meanwhile, your base is getting older, retiring, and otherwise drifting away. You may have even burned a few bridges.
“I used to be amazed that even successful remodeling companies would finish a job and then move on,” says David Alpert of Continuum Marketing Group. He uses the term “unaided” to describe referrals that seem to effortlessly roll in, without any active, ongoing marketing on the part of the remodeler. They can dry up quickly, he cautions, “even for companies that do really good work and have really satisfied clients. You have to keep in touch so they feel you're their remodeler,” he says.
One of Alpert's clients is Chagrin River Co., in Chesterland, Ohio. Other than donating a few hours of design services to a school auction and running a small ad in a community newspaper, “we were strictly referral” for the first 15 or so years, says president Michael Staffileno. At its peak, in 2004, the company had five employees and $1 million in revenue.
“Then we took a hard dive,” Staffileno says. The local market hit a downturn and lead calls slowed dramatically, ultimately bottoming at only two incoming lead calls in almost three months.
Alpert's “referral development program” for Chagrin River Co. consisted of several key elements, including a first-ever Thanksgiving card to past clients, a Web site, jobsite mailings, and a series of postcards (shown) that generated such a flood of calls from past clients and new prospects alike that they had to be stopped temporarily. “Now that we have a sense of response rate, we can refine a postcard mailing strategy that delivers the right number of leads each month,” Alpert says.
Branching beyond his old referral base doesn't come naturally to Staffileno, and the lead quality isn't always as strong. “The trust factor isn't there as much,” at least not initially, he notes. “But I don't have a whole lot of choice. My philosophy is that the company that pulls through this downturn will be the stronger company.”
Leah Thayer is a senior editor for REMODELING.