Happy Tuesday Folks!
Welcome back to another edition of The Contractor Finance Playbook.
Many contractors think that saying "no" to jobs means leaving money on the table. The instinct to say "yes" to every job is understandable. The name of the game is selling work and bringing cash in the door.
It's understandable to take the smaller jobs to keep the crews busy in the leaner months. But if it's peak season and you're already booked out six weeks, sometimes you're better off saying "no" to those jobs than filling your schedule with less profitable work.
In this week's issue I break down why it's important to keep a strong referral network, when you should consider referring jobs out and how to build a referral network that pays you back.
Let's dive on in!
The Importance of a Strong Referral Network
A little over a year ago I started getting more involved in the local community and going to other local networking events. I’ll be honest, most of the time it felt like a chore and I didn’t know what to expect.
Over time through these resources I met I met CPA’s, financial advisors and all sorts of people people that had specific expertise and worked in areas I don’t touch. Through those conversations I’ve developed a network of referral partners that I trust.
I didn’t build this network because I ran out of clients, I needed partners that could fill the gaps with clients or leads that aren’t the right fit or have specific needs outside of the services I provide.
Why?
Because as I talk with contractors they have a variety of needs and some are some fall outside of my expertise. I need professionals that I trust to get the work done quickly with a high quality of serivce.
The same goes for contractors, you should be investing and building a strong referal network of contractors that complement the services you offer and even some that offer the same services that you do.
When You Should Look To Refer Out Jobs
Customer Needs A Complementary Service
Many home projects touch more than one trade. For example, a bathroom remodel often needs a plumber working alongside whoever is doing the tile and the rest of the renovation. Tree companies often times do not handle stump grinding in-house, so they either subcontract that part of the job or refer it to a stump grinder that they trust.
If you don't have a trusted contractor you can bring in, you're either trying to cover work you're not set up to do well or turning away the rest of the project.
Booked Out Too Long
Being busy is a good problem to have, but if you're booked out six weeks, that doesn't mean it's six weeks of guaranteed revenue. Some customers can wait, but plenty can't.
Urgent jobs — like a broken water heater, failed AC unit, or leaking roof — can't wait. If you can't get there fast enough, they're calling someone else and you've lost the job anyway. At that point you're either losing the job to someone in your network or to some random contractor.
When you refer that customer to a contractor you trust, you're protecting your reputation and the customer gets taken care of quicker. That goodwill will also likely turn into a referral back the next time they need something that only you do.
Job is Too Small or Not Profitable Enough
Everyone running a service business eventually starts getting these leads once they get established and start taking larger jobs. The customer may be great to work with during the bidding process, but the scope of work is either too small or the gross margin isn't enough to make it worth it with a competitive bid.
This is where having a strong network of referral partners pays off. While the job isn't profitable enough for you to take on, it could be the perfect job for another contractor. Typically in this case smaller contractors that are just starting out, still building their client base, or don't have the equipment or crew needed to take on larger jobs tend to be a great fit here.
By referring the job out instead of taking on a job that's low profit, you are not only helping out another contractor, you are protecting your schedule for the larger jobs that can actually make you money.
A great real-life example of this is Ryan Tomich of Victory Outdoor Services. I don't know how many of you are familiar with him or his YouTube channel, but he is a concrete contractor out of Menomonee Falls, WI. His YouTube channel documents the daily life as a concrete contractor.
In his videos he's referenced several times that he usually has all the leads he can handle and often refers out the smaller jobs to his son or employee Eric - both do concrete work on the side.
If you want to check out Ryan’s channel you can check it out here: https://www.youtube.com/@VictoryOutdoorServices
Project Scope Isn’t In Your Expertise.
Contractors can offer a variety of different services, but there is usually one thing they are very good at and at least one area they aren't so good at. The best contractors tend to play to their strengths and take on the jobs that are in their wheelhouse, and pass on those that aren't.
To bring back the example I used above with Ryan and Victory Outdoor Services, there are certain types of jobs he doesn't take on. He's mentioned in his videos that he doesn't do retaining walls or concrete walls because, in his words, "I'm not very good at them."
Staying in your lane and referring out adjacent work is often more profitable than trying to be a generalist.
Outside of Service Area
Driving 1 to 2 hours each way for a small job takes up your entire day and can ruin your profitability. A referral partner that's closer to the customer makes more sense for you and for them.
You Aren’t Oblilgated To Refer Red Flag Leads or Customers
I also want to note that if you spot any red flags with leads during the initial contact, estimate process, or even with an existing customer, you don't have to refer out.
Referral networks are about connecting good customers with the right contractor, not about passing your problem leads onto someone else. At the end of the day, we are dealing with adults who are capable of finding contractors on their own.
How to Build a Referral Network That Pays You Back
Show up to local events: Get out there and show up to in-person events. It could be a local chamber of commerce, a networking group such as BNI or an industry specific event. I recently guest attended a local BNI event and met a several contractors that do several different trades that complimented each other.
Build your list of referal partners: List 3-5 trades that are adjacent to your but not competitive. The electrician to your HVAC business or the stump grinder for your tree company. These are the first calls when a job isn’t right for you.
Track where jobs come from and where they go: A simple spreadsheet tracking referral source and referrals sent tells you which relationships are sending you revenue so you know which ones to invest more time in.
Communicate: When you refer a job out, tell the receiving contractor what to expect. When someone refers a job to you, follow-up and let them know how it went. The follow-up and communication is what turns a one-time favor into a standing relationship.
At the end of the day its about helping people. Helping the customer find the right contactor for the job if you aren’t a good fit and helping other contractors by referring them business. they will likely return the favor.
Question of Week
Think of one job you turned away in the past month. Did you refer the job to another trusted contractor or did you let it slide?
If the answer is you let it slide, ido you personally know a contractor in your area that job would have a great fit for?
That’s all for this week folks!
Want More?
Shoot me an email at [email protected] if you have any questions or requests for topics you would like me to write about. I’m all ears and I respond to all emails personally.
Til next time, cheers!
Preston