Contractor Talk - Professional Construction and Remodeling Forum banner
1 - 20 of 45 Posts

·
Registered
Joined
·
3 Posts
Discussion Starter · #1 ·
We spend a good amount of money to generate leads and about 70% end up not closing with us.

Out of the jobs we do close - I see opportunities for other contractors. For example, one client needs a roofer, another could use a lawn sprinkler system.

On the leads I don't close - there is opportunity for other contractors (for example, I get leads that 2 hours away - I can't use those. I could route them to another guy who is not my local competition.

I know if it were the other way around, I would be happy to pay a finders fee of $500 or more to a neighboring remodeler after I've made the sale and collected a deposit.

Does it make sense to turn dead leads into extra cash by regularly farming them out to good contractors?
 

·
Registered
Remodel
Joined
·
31,114 Posts
I know if it were the other way around, I would be happy to pay a finders fee of $500 or more to a neighboring remodeler after I've made the sale and collected a deposit.
That's the problem - you either buy and pay before a sale, or you wait for the contract to be signed, then collect. Before the sale, they aren't worth much. After a contract is signed, you have to be able to track referrals and trust people to let you know it's a go.

If you have people you trust, you could do it, but everyone I know just does it as a favor expecting referrals or other favors in return.
 

·
Registered
Joined
·
7,076 Posts
I refer other contractors all the time, but never for a fee or a kickback. This is my thinking:
  • I'm in the contracting business, not the lead generation business.
  • There's no goodwill generated by a paid referral. The guy who pays me $500 (!) for a good lead will never refer any business to me.
  • Homeowners know that a paid referral is less likely to be in their best interest than an unpaid one. And they're right.
  • I've never heard of a contractor making any money worth talking about from doing this. This question comes up frequently, and I've never heard anyone talk about getting any meaningful revenue.
  • The contractors I personally know who want to get paid for referrals are sleazy, hey-let's-get-together-and-roll-some-suckers kind of guys. It seems like the first step to becoming one of them, and I'm not interested.
  • Figuring out how and when you get paid isn't simple at all.
  • $500 is a pipe dream.
All JMPOV.
 

·
Registered
Joined
·
11,556 Posts
I'll have to admit that I've tried it a few different ways. Even when it's first suggested by the sub (flooring guy, hardscaper, etc.), it crashed and burned fairly soon. My floor guy got too busy and didn't seem to want my jobs so much (good ones, empty homes). I found out he went straight to my referral. I also did a couple with my stone guy, but I ended up being the "artistic overseer/middleman" with the clients too much. Suddenly $300 is a headache. Soon after that, the stone guy got a bad case of amnesia after I set him up on a 600 sf+ elevated stone patio job with retaining walls, stairs, features, etc. I even had a metal recycler forget about me after our handshake agreement that if I found him big loads, he'd take care of me. So I found him a warehouse full of metal, let him follow me there with a big truck, and then he got lost for 6 months. When I eventually saw him again, he miraculously forgot how to speak English. I think he got about $1500 or more in metal that day. Warehouse slated for demo.
 

·
Licensed Gas contractor
Joined
·
708 Posts
I used to refer people for things I didn't do but after getting bit in the ass a few times I've stopped doing it. I don't want my reputation ruined by recommending someone I thought was good only to find out they suck. Then I look bad. If I am now asked if I know someone that does X I kindly reply, "I do not know anyone good/reputable enough to recommend." I think it makes me look decent that I care about them which in fact is true.

The only time I might recommend/refer a customer to someone else is a job I do not want to do. Let the other guy do it. He'll surely under bid and then lose his shirt on the job. Lesson learned. Also thins out the competition.
 

·
Livin the dream...
Joined
·
6,624 Posts
I know a local GC duo who does that to their subs. The GC will have clients who want the GC through the framing and then want to do the rest of the subbing themselves. The GC will refer his subs to the client and then tell the subs to just tack on $500 to the bill and kick it back to the GC. They are shady suckers.
 

·
Livin the dream...
Joined
·
6,624 Posts
I used to refer people for things I didn't do but after getting bit in the ass a few times I've stopped doing it. I don't want my reputation ruined by recommending someone I thought was good only to find out they suck. Then I look bad. If I am now asked if I know someone that does X I kindly reply, "I do not know anyone good/reputable enough to recommend." I think it makes me look decent that I care about them which in fact is true.

The only time I might recommend/refer a customer to someone else is a job I do not want to do. Let the other guy do it. He'll surely under bid and then lose his shirt on the job. Lesson learned. Also thins out the competition.
Same here. Only one other remodeler that I will recommend and a painter. Other than that, I don't know anyone I'd feel comfortable giving a referral for.
 

·
Registered
Joined
·
129 Posts
I refer other contractors all the time, but never for a fee or a kickback. This is my thinking:
  • I'm in the contracting business, not the lead generation business.
  • There's no goodwill generated by a paid referral. The guy who pays me $500 (!) for a good lead will never refer any business to me.
  • Homeowners know that a paid referral is less likely to be in their best interest than an unpaid one. And they're right.
  • I've never heard of a contractor making any money worth talking about from doing this. This question comes up frequently, and I've never heard anyone talk about getting any meaningful revenue.
  • The contractors I personally know who want to get paid for referrals are sleazy, hey-let's-get-together-and-roll-some-suckers kind of guys. It seems like the first step to becoming one of them, and I'm not interested.
  • Figuring out how and when you get paid isn't simple at all.
  • $500 is a pipe dream.
All JMPOV.
All that, plus I figure my guys will take care of me. For instance, even if they are busy, they will fit me in because I get them a lot of work. My plumber does work at my house for cost because I get him so much work.

There is a guy locally that does this sort of thing. I'll admit I get work from him, and have paid small referrals. Those days are over now though. Anyway, this guy and me both use the same plumber. One day, he called the plumber to look at a job and got his voicemail. I called immediately after for another job and he picked up. Point is, take care of your guys and they take care of you.
 

·
Registered
Joined
·
551 Posts
Not for a fee. We just throw work back and forth. We would have a familiar face get the work if we are unable. The gesture usually gets returned.
 

·
Registered
Joined
·
3 Posts
Discussion Starter · #11 ·
Thank you for your replies. This was my first post here and the quality of your responses is great.

Yes, I don't want to take on customer service by being the middle man. I don't want to get calls when the other guy stops returning messages.

If I am very explicit that I am not guaranteeing or supporting the other guy's work - would that work?

Tracking is another issue. I'm too busy to follow up with these leads, see who closed and who owes me money. I have a computer guy who says he can automate that, so all I have to do is email the lead to my list of preferred contractors and the program takes care of follow up and tracking.

I have a handful of "preferred contractors" that I trust. Will some "forget" to pay me? I suppose, but if I use this program it will remind them.

The way I look at it - the lead is dead. I paid money for it and if I can turn around and get $500, why not? If I manage to make an extra $5,000 a year off dead leads by shooting an email, before deleting a lead, maybe it is worth it?

Yes, I've seen some slime-balls offer me a commission for recommending them - guys I don't know from Adam. I would never pass them on to a buyer - I have to know the guy, like his work and trust him. I don't want to screw the home owners for any amount.

Anyway, thanks for the feedback - it made me rethink this.
 

·
Registered
Joined
·
11,556 Posts
One thing I forgot to mention. The guys I used were pleasant, "honest" guys, it would appear. (And I consider myself a straight-shooter, fair, nice guy, too.) There's just something about owing $$ and beholden afterward that makes folks get weird for some reason. I think it's the short-sighted "I did the work, so why..."

One of my paint crews is getting a little funny nowadays, too. We were doing great, I thought. I would get some jobs, accommodate everyone's schedule, deal with the front-end hassle of paint colors, yet now he's giving me grief if I'm a gallon short or some such nonsense - even if I'm using his gallon totals or whatever. Geez, then can you go to Sherwin and just get it? He's not giving me any discount either, so wth? If/when I use him again, I'm telling him that he can do it all himself. We'll see how that goes. Personal pride issues, I think.
 

·
The Ultimate Wire Hider
Joined
·
4,455 Posts
The way I figure is that there is plenty of work for everyone. I'd rather make a friend than to make a few extra bucks. Also being able to call in a favor is more valuable than anything.

Last year my client had a break-in. I arrived on site right when the police were leaving. It felt good to be able to pick up the phone on a Sunday afternoon and have his house secure with new locks within a couple of hours. The client paid him for his work but the fact that he would come at a moment's notice was priceless.
 

·
Professional Contractor
Joined
·
58 Posts
All the reputable contractors around here CONSTANTLY give referrals for each other. No money, no favors, just common business courtesy. My best friends are also my competition and have been for over 30 years. Many times we have gotten each other out of a jam when one of us gets too busy and can't get to a customer when promised. In fact all 12 of us on our deer lease are competition for each other. great Guys and Great Fun.
 

·
GC/carpenter
Joined
·
43,915 Posts
Not in Cali, You can't pay another contractor for a referral, it's illegal.

More on Referral Fees

The Winter-Spring 2011 edition of the*California Licensed Contractor*newsletter included a reminder article that referral fees are violations of state contracting laws. Whereas the article was accurate, CLC editorial staff wants to point out thatthis law pertains to contractors paying any type of inducement to other contractors.*This law does not include people who are not contractors. Below is an abbreviated reprint of the article:


No matter what you call it—a referral fee, incentive, inducement, or kick-back, any time a fee is requested or required for referring contracting work, a state law is being violated and you risk having disciplinary action taken against your license.

CSLB is aware that referral fees in the disaster response industry are prevalent and are becoming more of a concern during the difficult economic times. There is evidence that such referral fees result in the artificial inflation of charges to homeowners and to the insurance companies called upon to reimburse homeowners for the costs. Contractors who abide by the law and refuse to pay these referral fees are losing out on business and are victims of an uneven playing field.

California Business and Professions Code Section 7157(d) Prohibited Inducement, says referral fees are considered to be illegal inducements, a violation of Contractors State License Law. If, after investigation, a license is found to be in violation of the law, CSLB may take a formal administrative disciplinary action and/or refer the matter to the local authorities for criminal prosecution.

Penalties for Home Improvement Inducements

The first offense could result in a citation with civil penalties ranging from $100 to $1,000. Subsequent violations will prompt an accusation that could result in further penalties, up to revocation of your contractor license.
 

·
Registered
Joined
·
11,556 Posts
Not in Cali, You can't pay another contractor for a referral, it's illegal.

More on Referral Fees

The Winter-Spring 2011 edition of the*California Licensed Contractor*newsletter included a reminder article that referral fees are violations of state contracting laws. Whereas the article was accurate, CLC editorial staff wants to point out thatthis law pertains to contractors paying any type of inducement to other contractors.*This law does not include people who are not contractors. Below is an abbreviated reprint of the article:


No matter what you call it—a referral fee, incentive, inducement, or kick-back, any time a fee is requested or required for referring contracting work, a state law is being violated and you risk having disciplinary action taken against your license.

CSLB is aware that referral fees in the disaster response industry are prevalent and are becoming more of a concern during the difficult economic times. There is evidence that such referral fees result in the artificial inflation of charges to homeowners and to the insurance companies called upon to reimburse homeowners for the costs. Contractors who abide by the law and refuse to pay these referral fees are losing out on business and are victims of an uneven playing field.

California Business and Professions Code Section 7157(d) Prohibited Inducement, says referral fees are considered to be illegal inducements, a violation of Contractors State License Law. If, after investigation, a license is found to be in violation of the law, CSLB may take a formal administrative disciplinary action and/or refer the matter to the local authorities for criminal prosecution.

Penalties for Home Improvement Inducements

The first offense could result in a citation with civil penalties ranging from $100 to $1,000. Subsequent violations will prompt an accusation that could result in further penalties, up to revocation of your contractor license.
The healthcare business grapples with this issue all the time. They try to get around the ethics by finding creative ways to reimburse key influential doctors for part-time "professional services" of some sort, calling it consultation, lecturing, marketing, professional education......bottom line is that it's a means to provide compensation for referring their line of product.
 

·
I'm a Mac
Joined
·
5,487 Posts
I'm a contractor, not a lead generating service.

You need a referral, I always suggest 2 of the same trade I know, just for liability. I've heard stories of being held responsible for referring someone, they do poor work and your responsible since you provided the recommendation. Is it going to happen in my area...highly doubt it, but stranger things have happened.
 

·
Registered
Joined
·
3 Posts
Discussion Starter · #19 ·
That's a great way to handle it ... give 2 or more referrals and let the "buyer beware." It helps the buyer filter through options, it protects you as a contractor ... and it builds goodwill with 2x as many professionals. Thanks.
 

·
GC/carpenter
Joined
·
43,915 Posts
The healthcare business grapples with this issue all the time. They try to get around the ethics by finding creative ways to reimburse key influential doctors for part-time "professional services" of some sort, calling it consultation, lecturing, marketing, professional education......bottom line is that it's a means to provide compensation for referring their line of product.
One thing about the board here. They're not gong to simply let you call it something else. You can pay another contractor they just need to be a registered salesman for your company.
 
1 - 20 of 45 Posts
Top