Maximizing Referrals

Here's a way to increase your conversion rate of prospects into buyers without spending a single advertising dollar.
By Paul Cardis, NRS Corp. | June 30, 2006

Referral Prospects

With housing starts on the decline, home builders need to hustle just to stay even with last year's sales. Sure, advertising and marketing are still crucial for attracting new customers. But what if I told you there is a way to significantly increase your conversion rate of prospects into actual home buyers — and it doesn't involve a single advertising dollar?

Though it may sound too good to be true, it really isn't. In fact, the best builders in the industry are already cashing in on the strategies and techniques I'm about to explain. As easy as this system may sound, it will require some serious effort by you and your staff to better track referrals, screen potential customers and refocus your sales team.

Many home builders ask prospects how they heard of them. Typically, this information is used to determine the effectiveness of various advertising media, such as newspapers, billboards, radio, TV and even Internet search engines. When a prospect says he or she was referred by a friend or family member, that fact might be recorded, but it often dies there. Yet that is some of the most important information a sales team can have.

It seems obvious, but it's important to remember: not every prospect has the same likelihood of buying. For example, someone who has already been to a builder's Web site and knows about the types of homes the company builds and the industry awards it has received is partially sold before he or she sits down with the sales rep. Someone who hasn't done this homework may be at a much earlier point in the buying cycle and require a different sales approach.

The prospects who are most likely to buy from you are the ones whose family and friends back your business. Because of this third-party endorsement, referral-generated home buyers are the most cost-efficient, profitable and loyal sources of new business. Not only do they tend to buy quicker, they tend to negotiate less, purchase upgrades and refer more business to you.

Referral business clearly delivers the h

ighest return on your investment by dramatically reducing sales expenses and shortening the sales cycle. According to NRS Corp.'s research, referral prospects are twice as likely to make a purchase within six months than a marketed prospect. The conversion rate can be much higher, too. Oakwood Homes' Denver Division reports a conversion rate three times higher for its referred customers.

Tom Hopkins, a sales trainer and author of "Sales Prospecting for Dummies," maintains that your closing ratio for non-qualified leads is 10 percent versus 60 percent with referred leads. So it makes sense for your team to spend less time with cold prospects and more time identifying and servicing referred prospects. That doesn't mean ignoring prospects who are not pre-qualified; rather, it means realigning your resources to get the biggest return on your investment.

The best in satisfaction are focusing hard on these referral customers and experiencing higher conversions because of this focus. It's as simple as 1-2-3.

Step One: Identification

The first step is to institute a good tracking system for referrals. Not only do you want to know which prospects were referred to you, you also want to know who referred them and when the referral took place.

So many builders today have sales center tracking cards but fail to diligently record and utilize the information gathered. Start with reviewing your card. Does it have clear questions geared toward gathering the right information about the referral? What happens to the card after the customer fills it out? Who compiles the data and what happens next in your organization? As the saying goes, "The devil is in the details," and the same goes for realizing the full ROI from your referral customers.

Most companies do a below-average job in gathering, compiling and reacting to this type of information. A key indicator of a failed program is the length of time from the card was completed to reaction by the sales team. I know of companies that wait up to a month before they compile the results from their sales information card — not a good time frame for making use of the information. If your system is in need of some work, get some assistance fast, because you are letting hundreds of thousands to millions of dollars of sales go unrealized.

Step Two: Sales Strategy

After establishing a good tracking system, you need a clear plan for dealing with these high-priority prospects. This strategy will be different than the one used for other prospects because you are already starting from a position of knowledge and trust. Remember, the referral prospect came in the door because someone close — a relative or friend — sent him or her to you. This means you can move into personalizing your communications more quickly. Ideally, you'll want to bring the referrer into the conversation as soon as possible, because that person is the main reason you're even talking with the prospect. For example, I would say, "So I hear you are friends with Mr. Jones who bought a house with us a year ago. We are really glad he is telling everyone about his home." With referred prospects, you can lead into a deeper conversation by saying something like, "Are you looking for the same style of house as Mr. Jones? Or do you have something else in mind?" This is an easy way to build upon something you both have in common — Mr. Jones — and establish a deeper level of trust.

We often hear that it's not what you know, but whom you know. Yet, how many times have your sales reps capitalized on referral information like that? Chances are they don't if this information is not well-tracked and there's no sales training on working with this information.

Not all referred prospects will generate immediate business, but they do have potential. Remember, a referred prospect is twice as likely to buy a home as a regular prospect. So why don't we spend more time with referral prospects? Even though they represent a small percentage of your total prospects, referrals should be getting more of your staff's time because they have a higher probability of buying. Referral prospects are gold and should be treated that way at your sales centers. Ask your team if they are.

Step Three: Increasing Referral Traffic

Once you have resolved what to do with the sales traffic, you need a way to increase the amount of referrals coming in the door. I like to think of this in terms of an on-ramp and an off-ramp. The off-ramp involves programs designed to increase the likelihood that existing home buyers will make referrals to friends and relatives. The on-ramp involves programs designed to receive the friends and family members who were referred to your company. Both of these types of programs are necessary, but there are state laws that affect what you can and can't do. In some states, a builder can give away $500 for a referred customer. But there are more effective and less costly ways to encourage existing customers to talk to prospects. Pull your marketing team together to explore ways to develop the off-ramp for your company. Be creative and make it meaningful to receive.

On-ramp programs are designed to welcome and encourage the referral prospects to visit with the sales team. This is the first big step for some prospects, and they need a good reason for crossing that threshold. Your job is to make that decision much easier. The simplest way is to offer an incentive to the referred customer for coming in. This can be in the form of a discount or design center credit.

The housing market has been so hot for so long, home builders haven't had to struggle to find home buyers. But times are changing.

To meet the economic challenges of tomorrow, businesses need to start preparing today. A top priority is having a customer satisfaction program in place that delivers delight to every customer. After all, without a battalion of satisfied customers in the community, there's no one to make those referrals that are so important to every builder's success.

Author Information
Paul Cardis is CEO of NRS Corp., a leading research and consulting firm specializing in customer satisfaction for the home-building industry. He can be reached at


Referral Prospects

As you look at ways to increase sales from referrals, consider these statistics from NRS Corp.:

Only 7.4 percent of U.S. home-building industry sales prospects are referred by family and friends, and only 7.2 percent are referred by Realtors. The best-rated in satisfaction have more than three times the number of referrals coming to their sales offices.


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