Success in homebuilding tends to vary by market area in today’s industry. In weak markets, success may be the ability to reposition for market uncertainty. In areas of mediocre market activity, builders that are maintaining or gaining market share may be the models of success. In robust markets, success may mean keeping pace without suffering customer experience chaos. Regardless of market conditions, all homebuilders can accelerate success by focusing on highly qualified prospects.
The No-Cost Conversion Increase
Advertising and marketing are crucial for attracting new customers, however, there is a way to significantly increase the conversion rate of prospects into actual homebuyers and it doesn’t involve a single advertising dollar. The secret is “maximizing referrals” and as obvious as that sounds, it requires innovative systems and processes.
Many homebuilders have sales teams trained to ask prospects how they heard about the builder. Typically, this information is used to determine the effectiveness of various marketing channels, such as social media, print media and other advertising. When prospects mention that they were referred by a friend or family member, that fact may be noted but it often dies there. However, this information is some of the most valuable information for a sales team to leverage.
The reality is that not every prospect has the same likelihood of buying. A marketed prospect who has done minimal research before visiting a sales center is at the earliest point in the buying cycle. Comparatively, a prospect who has researched a builder’s marketing, website, online reviews and more, is likely to be further along in the buying cycle. But the prospects who are most likely to buy are those who have been referred by family or friends. Referrals are “third party endorsements” that create the most cost-efficient, profitable and loyal sources of new business. Referral business delivers the highest return on investment by reducing sales expenses and shortening sales cycles. Based on research conducted by Avid Ratings, referral prospects are twice as likely to make a purchase within six months versus marketed prospects. One particular builder even found the conversion rate of referred prospects to be three times higher than marketed prospects.
The closing ratio for non-qualified leads is 10 percent, versus 60 percent with referred leads, according to sales trainer and author Tom Hopkins. This reinforces the argument that investing resources into identifying and servicing referred prospects will provide big returns. Top-performing builders in customer satisfaction are best positioned to focus on referred prospects and reap the higher conversions that result and this comes down to three simple steps.
Step One – Identification
The first step is to utilize a detailed tracking system for referrals. Not only tracking which prospects were referred but also who referred them, when the referral took place and other key details. The power of today’s CRM software products make this task rudimentary, yet it is surprising how many builders fail to collect, compile and leverage this critical information.
Step Two – Sales Strategy
Even the most thorough information still needs to be acted on and timeliness is critical. Hundreds of thousands of dollars may be sitting unrealized in CRM data unless a sales team is acting quickly and executing a sound strategy. It takes a specific plan to deal with high-priority referred prospects. This plan is different than one used for other prospects because referred prospects typically have heightened knowledge and trust. Referred prospects come in the door because someone close sent them. Personalizing communications can occur more quickly and mentioning the “referrer” in conversations will help to strengthen the relationship. Not all referred prospects will generate immediate business but they all have higher potential.
Step Three – Increasing Referral Traffic
After ensuring that a sound system and strategy is in place for referred prospects, the goal is to increase the amount of referrals coming in the door. Having tools that can identify which past customers are “promoter” customers is indispensable. From there, specific strategies can be developed such as incentive programs to referrers or those referred. There may also be opportunities to create “events” that provide venues for happy homeowners to connect with prospects. Many homeowners want to recommend their builder and creating opportunities for that to occur pays big dividends.
Referred prospects are a significant source of business for leading builders and “being referable” is vital. That means building quality homes, providing exceptional customer service and creating outstanding homeownership experiences long after the possession date. With those building blocks in place, maximizing referrals becomes the game-changer in any market conditions.
Tim Bailey is Division President of Avid Ratings Canada, a leading provider of customer loyalty research and consulting to the homebuilding industry. Through the Avid system, industry-leading clients improve referrals, reduce warranty costs, and strengthen their brand. He can be reached at firstname.lastname@example.org.