TL; DR
- Global home service business projected to grow at an CAGR of ~30%, from $347B in 2020 to $2.25T by 2028
- 75% of new customers for home service businesses comes from word-of-mouth
- Less than half of green industry (lawn care, landscaping, tree services) have a formal referral program
- Home service businesses spend money and effort on tactics that don’t perform as well as word-of-mouth
- Formalizing word-of-mouth is an easy way to create a referral program
30% CAGR, $2.25 Trillion by 2028
The global home service business is predicted to grow exponentially, ~30% annually to get to $2.25 trillion by 2028. That translates into both high demand and new revenue for home services. Home services can capture new revenue by acquiring net new customers as well as additional revenue from existing customers.
All in, there’s a lot of potential for home service business to grow their revenue. But for that revenue to become a reality there are two factors at play:
- the cost of getting that new business and
- the competition for that new business.
In this post we’ll only tackle the cost of getting new business. And we’re specifically honing in on word-of-mouth (WOM), aka referrals. We’re looking at referrals because they’re the lowest and most effective way of getting new customers. And we’ll layout how to scale WOM so that it can meet current and future demand for home services.
WOM Crushes it, 75% of your new business comes from it
The reason WOM is the best means to land new business is because:
Referred leads close faster and at a better rate, eg 75-85% close rate vs 10%
The cost to acquire referral business is the lowest, which means booked jobs produce more profits for you
You can focus on certain customer types when getting your referrals
Right now, 75% of new customers for home services come from word-of-mouth. And if you consider that home service businesses use other marketing tactics, eg Google ads, reviews, etc. or that a fraction of their marketing budget and resources spend time on getting referrals:
There’s huge untapped potential in getting more referrals
Money and effort is spent on tactics that don’t yield customers, or at least not at the same rate as WOM.
Or said differently, what yields the most customers is buried by tactics that cost more and produce less.
No Referral Program? You’re Missing Out on New Business
And most home service businesses don’t have a formalized WOM, aka a referral program. In fact, less than half of the green industry (lawn care, landscaping, tree services) have a formal referral program. So even without a formalized referral program new business gets referred, and at a much larger rate than new business coming in through other means.
“We don’t have a referral program because there’s no way to automate it, but now LoyalAs has figured out how to make it as seamless as possible.” Royce Ord, Owner, My Amazing Maid
Imagine if you didn’t just prioritize referrals to grow your home service business but created a referral program? You could scale your referrals. You could keep up with market demand, AND see bigger profits by acquiring customers cost-effectively.
5 Step Checklist to Setting up a Referral Program
By formalizing what happens organically through WOM, you can create a referral program. Follow these 5 steps to get your referral program setup:
What kinds of new customers do you want? You’ll want to think about location (eg zip code, HOA regulations, etc.) property type (eg size, special requirements, time to service) and frequency (e.g. is it a weekly, bi-weekly monthly or other frequency).
Who would be your best sources of those types of referrals? You may have already identified customers or ‘friendlies’ that are sending you the most referrals or prefer to first test out your referral program across all customers to see how different customer types perform over time with a system.
How will you ask your ‘sources’ for the referrals? You’ll want to think about the medium you use to ask for the referral (e.g. phone or email) and timing (e.g. when you send an invoice, book a job, etc.)
How will you track referrals? You’ll want specific codes for each customer providing the referral so you can easily track which referrals came from which customers. Plus, over time you’ll be able to identify which types of customers provide you with the most and/or best referrals.
What’s the value of a new customer? This will help you determine the rewards for both the customer providing the referral and the referred customer. And help you calculate how much to spend on setting up the program. Eg if a new customer is worth $2,500 revenue a year, how much will you spend on setting up the system to capture the new business?
PRO TIP: Can you automate the process in any way?
You want a set-it and forget it approach and one that is workflow agnostic. This will be especially important at scale.
LoyalAs is referral software that gets and tracks referrals automatically. You can signup at loyalas.com, 7-day trial and you don't have to put in your credit card.