How To Develop A Neighborhood (Neighboring Business) Referral Program

In 2006 I met one of the smartest marketers that I have ever had the good fortune to cross paths with. And he wasn't a "guru" of any sort. He was a plain, "everyday" independent contractor. I was building out a home theater in our basement and hired a local company to do the job. I admit that it had taken me a couple of years to make this decision, not because I didn't have the cash flow, but because I wanted it to be just right and I didn't want to hire just anyone to do the work.

So I shopped around, talked to my neighbors, looked on the web and searched through the yellow pages. Thanks to one recommendation from my neighbor, I settled on a guy named Louis who my neighbor had used to upgrade his kitchen a couple of years earlier.

Louis did a great job for me as well. He did the job on time, his crew was clean and courteous, the price was reasonable and there was minimal disruption to my home. All in all, I'd hire Louis again. At the close of the job, while I was admiring his work, Louis asked for a testimonial that he could take to my neighbors on my street and in the surrounding area. I gladly agreed and he interviewed me for about 5 minutes. Later that day, I received an email from Louis with my interview in a testimonial format. He asked if he had adequately captured the essence of my testimonial and I wrote him back with just a minor change.

A month later I bumped into one of my neighbors while taking our dogs for a walk. He eagerly shared that he was getting some work done by Louis (a new recreation room, I recall) and that my testimonial in that letter helped him make his decision.

As I finished my walk, it dawned on me that Louis had literally doubled his business with a simple letter that he had sent out to maybe 75 homes in my neighborhood at a cost of about $75. Since the rec room must have cost my neighbor at least $50,000, he probably made an additional $10,000 or more from just that one mailing. Smart stuff! And easy too.

A neighborhood referral program is based on the concept that people are more likely to buy your products or services when a neighbor has already bought and gives you their personal endorsement. Psychologists refer to this phenomenon as social proof.

And here's the good news: we know that we live in a transient society where people are constantly moving. For this system to work it's not even necessary for neighbors to know each other—they only have to live near each other.

A neighborhood referral program allows you the opportunity to leverage a current client to affect their entire community and generate new business. The testimonial and social proof is a key element that is built into the system. And this doesn't just apply to businesses that sell to consumers either. It works just as well for business to business transactions.

In this case, the "neighborhood" may be the strip mall the business is located in, or it could be the entire community, town or city. This strategy works for businesses and consumers simply because prospect's equate familiarity with trust. "If Bob is using them, they MUST be good!"

Work with Current Client

If you work hard to satisfy your clients, this strategy is easy. Repeat: You must do a great job—that's the foundation! Without that, your strategy will backfire on you. Second, always ask your clients to provide testimonials and referrals. This gives you the materials you need to showcase your skills.

Follow a Step-By-Step Process:

Step One: Plant in the client's mind that you'll be asking for a testimonial once the job is complete and they're thrilled with your work. This prepares them mentally to provide it to you as soon as the job is finished.

Step Two: Do a great job! Go above and beyond whenever possible.

Step Three: Ask for the testimonial. One of the best ways to do this is to interview the client and offer to write the testimonial for them. If you let them write it, they often forget, make it too general or simply have no idea what to say. You also want to make sure you get their testimonial as close to the purchase or job date as possible. This ensures their experience with you is fresh in their mind and helps them give a more detailed testimonial. Also, it's imperative that they focus on results, not generalities.

"I really like John, he did a super job" is NOT the type of testimonial you want. "John started every day at 8am sharp without fail, the job was completed on May 8th as promised and came in $300 below budget. His lifetime warranty is the best in the industry and can't compare to any other contractor I talked with" is much more compelling.

A couple of ways to get a great testimonial is to interview your client by asking them specific questions that produces specific results. These questions should include:

You can also simplify the process by handing them a check off or survey sheet to be completed and handed back to you. This is best done when the project is completed and while the crew is cleaning up. A check off sheet is quick and simple for the customer, and you can immediately take this information and format it into a compelling testimonial (use the Compelling Message Template to help you craft a compelling testimonial).

If they insist on writing the testimonial themselves, provide them with a sheet that has your 3-5 questions on it for their guidance. This typically guides them to stay on track in these specific areas and just remind them to list specific results.

Step Four: Put together a compelling offer. You need a compelling offer to get new clients to buy into your services. This needs to be included in the referral letter you send out along with the testimonial you received from the neighbor. A good way to do this is by offering a neighborhood ONLY deal.

You need a deal with a high perceived value but a low cost to your business. Many businesses automatically jump to the idea of a discount for the job or the services being provided, but there are others ways that are much more beneficial to you and your new client.

Instead of offering a discount which comes directly out of your profit, offer something like installing a free home security system. A home security system is going to cost you less than $150 and the installation will be performed while your crew is there doing the basement remodel. This is a huge perceived value to your clients and instead of decreasing your profit, it actually adds to it.

Step Five: Send the letter by first class mail. Hand address the envelope or have someone do it for you. If the client agrees, place their name and address in the return address area on the envelope so it's immediately recognized as coming from their neighbor.

Step Six: Follow up with a phone call. There may be a few prospects that call for quotes after receiving the very first letter you send, but a majority of people will set it aside with the intention to call and then forget (or it ends up buried under a paper pile).

You need to follow up after your initial letter is sent or delivered. You should do this in a timely manner by phone. The best thing to do is set up a task reminder system and assign this task to one staff member with a script. This ensures it will get done and with consistency. If someone declines the offer, simply thank them and add them to your database. Then they begin to receive future communication from you when you're offering other deals.

Step Seven: Test and measure your responses. Always keep track of the letters that are working and the ones that aren't. Also keep track of what letter or compelling offer is working in which neighborhoods. When something doesn't work, change it. You can set up an easy tracking system by tracking the number of referral letters that went out and the number of converts you experienced from that letter.

Here is a sample letter that you can adapt to your own unique business situation.

Dear Mr. Smith,

We just finished an amazing basement remodel for Laurie Smith over on 519 Peachtree Lane and she enthusiastically agreed that we should offer you a free quote and FREE home security system with installation to take care of the remodel you've been dreaming of. We can afford to make this available to all the neighbors in this area since this saves us on advertising and marketing expenses. We're delighted to pass these savings onto you and your family.

We're simply the best at what we do and Laurie knows that. When her family saw the finished home theater room they've always dreamed of she convinced me to tell her neighbors all about our services and extend to them the same low pricing and the free home security system they received.

We offer this free home security system with install because we know how important your home and family are to you. We have the same security systems in our own homes and wouldn't trust our family's safety to anything else.

Our pricing averages 20% lower than our nearest competitor and we provide a guaranteed completion date for our work. We never leave the job site each day without a full clean-up so you never have to tolerate a messy situation while your project is under construction. We understand the need to get the job done and get your house back in order quickly.

Not only do we respect your home, but we never charge you for the typical expenses our competitors charge their clients for when doing similar work, such as the portable bathroom rental and specialized remodeling equipment.

Since we're a family-owned and operated business, we love working with our clients' family and neighbors and would rather fill our books with their names than any others. So, we asked Laurie for the names of several high quality people in the neighborhood and she immediately thought of you.

Enclosed is a certificate for a "Free Basement Remodel Quote & Installed Home Security System." Mention it when you call to set up your quote and simply hand it to the contractor when they visit.

We believe that once you work with us, you'll never want to do business with another contractor again. We offer our clients a wide variety of experience, services, and projects… not just basement remodels, so you can call us for any job big or small.

To take advantage of our free quote and installed home security system, simply call us at 555-1212 to schedule your appointment.

We look forward to meeting you soon.

With Warm Regards,

Hyland Construction

PS If you already have a contractor you love working with, pass this certificate on to a friend, neighbor or family member you feel would appreciate the gift.