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How to use and analysis a referral program.

Posted by Linda Chambers on Tue, Dec 20, 2011 @ 10:34 AM

During this month of Business Planning in December, we will take a look again of how to use a customer referral program and how to analysis its progress or failure. I know this will be a long post, but please bear with me.

First of course is to all ready have a referral program in place. Next if you have been using more than one type of reward or style of gaining a referral these must be segmented out.

Next you must count the number and type of responses you got from these referrals and how much you monetarily gained from each type.

Once you have this data you will be able to make predictions for the coming year and institute changes that could improve your results.

Let us take the following results as an example to be able to follow how a referral evaluation might be done.

Say company ABC PowerWash serviced 250 customers during the past year.

Of those 250, 200 where residential and 50 commercial. And of the residential 75% where repeat customers from some time in the last three years 45% in the last 12 months.

And with the 50 commercial customers half are contract customers that you see on a monthly or at least on a quarterly basis with the rest being new or only the occasional once or twice a year customer.

Of the 200 residential customers only 20 (10%) participated in any kind of referral program the entire year: an average of 5 per quarter.

10 handed out your cards and got you 16 new customers from them, with you giving your old customers a $25 credit card gift card as a thank you. Total spent in gift cards $400. Say these 16 jobs brought you an average of $800 per job with a 20% profit that would have been $2,560.00. Thus it cost you 6.4% of your profit to get this work, 2560/400= 6.4. Or 2560-400=2160/16=$135 profit per job.

Now in the next few months (90 days) if you tested out a new incentive offering half of your customers a $50 card instead of the $25. If in this case you saw an increase in the number of booked referrals from the higher card offer you would be able to see if the amount of increased business was worth the expense.

For example you offer the next 20 customers (10 of each offer amount): 2 customers got you jobs at the old $25 rate but 5 customers (1/2 of those offered) got you jobs at the higher $50 per rate. Leaving the average job cost and profit the same let us look at the numbers.

2 x $800 = $1,600 x .20 = $320-$50= left you $270/2 or $135 per job for your profit.  The same 6.4% cost of return that you had this past year with this same offer. Now let us look at the referrals offered at the higher card amount.

5 x $800 = $4,000 x .20 = $800 / $250 card cost = or 3.2%. You might think that was better but look at the total profit per job, 800-250=550/5=$110 profit per job after paying out the cards. But did you lose in the long run? If you go with the set amount that only 2 out of every 10 customers will take the $25 card and give you a referral, that means you will miss the other 3 at the $110 profit for each.

You need to figure out if those potential three new customers a quarter that will cost you the extra $25 per job in profit at the initial job is worth it to you. Could be if you have lots of open time and you need that $330 cash flow for your family. Plus if they become a returning customer or better yet become a free word of mouth referer. So you increased the number of old customers that participated from 20% to 50% but did slightly reduced your profit per job from the year before for these initial jobs with the higher offer.

Now let us look at the other 10 residential referrals from last year that you had. 6 had given you names of a friend or family member that booked a job because you offered them a free service on their next years business (they had turned down the $25 card offer prior to your $100 offer), that was to say, you offered them what you would have normally charged a customer $100 for (but costs you $40 to provide) to be free at their next visit. 

Again let us use the same average price and profit for these jobs. So 6 jobs x $800 =  $4,800 x .20 = $960 / $240 (the actual cost to you) = 25% of the cost came out of your profit. This looks like a much larger cut out of your profit, but look at the profit per job, 960-240=720/6= $120 profit per job. It is actually better than the $50 gift card, since the out of pocket expense is $10 different, $40 vs. $50. While you might think giving away free services wouldn't be smart you can see it could be better on the bottom line by bringing you more work. But since they had already turned down your $25 card offer for the free service is this offer of free service something you want to keep? No real way to tell.

So as stated earlier for the next three months you offer half your customers the $25 card and the other half $50 gift card and don't make the $100 free service available at all and you still got the 5 new customers. Since you have no idea how many of these 5 (or more) you would have gotten if you had kept the $100 value offer you will just have to use the ROI of $110 per job as the result. Your next 3 month test may have to be the $50 card vs. the $100 free service offer.

Now to the last 4 referrals from the previous year. These where from customers that you had not given any incentive too (maybe you had already given them a great deal, or the job was very small and you did not want to invest any more of your profit into them) but because of your work they had referred new customers to you any way, six in fact. So the cost of a referral program was nothing, and profited you $960, but these customers consisted of less than 2% of your total client base, which is the national average of unsolicited word of mouth referrals.

Now to the commercial jobs. Of the 50 as stated above 25 are contract customers that get special pricing and you gained only two new customers as direct word of mouth referrals from them. Both were non incentive referrals since there was no incentive referral program in place for the commercial customers. So the profit you gained from these new customers was say $3,000 total for the year. Of the other 25, 12 where occasional customers which brought you no referrals and next 11 where new ones you had spent time finding, visiting and getting yourself at a cost of over 50 man hours during the year. The final two were the new referrals your contract customers brought you equaling your 50 total commercial customers for the year.

So let us say you are thinking about expanding your referral program in to your commercial side to see what could be the benefit. You also choose to try the $50 gift card as your incentive. In the next three months this was your result: of 12 customers offered, you got 2 new referrals, one being a new contract customer and the other will probably only be an occasional once or twice a year job. Already you have gained the same number of new referrals that you got in total the previous year. If the one contract customer will give you a profit of $200 per month and the occasional job bring you and estimated $550 of profit for the year you gained 12 x 200 =  $2,400 + $550 = $2,950 / $100 (gift cards) 2.9%, or 2950-100=2850/13 (jobs)= $219.23 average profit per job. And since the previous year you only got the two new contract customers by the free word of mouth method you can look at the $3,000 they brought vs. the estimated if the trend holds of 2 new customers a quarter to bring in around $6,600 over they year. 12 + 9 + 6 + 3= estimate of 30 jobs x $220 average profit = $6,600 estimate. This could be over twice the amount you received with no referral plan in place. It could be more or less depending on when they come on board and if they are monthly or only an occasional customer. And if you can handle the increase in your work load.

I hope these examples has you looking over your referral plan and running tests to see what profit increases and improved cash flow you can make this next year in your business. Happy New Year.


Tags: analysis, improve cash flow, added value service, referral program, business plan

Have professional videos made for your business.

Posted by Linda Chambers on Mon, Dec 06, 2010 @ 08:47 PM

Hopefully you have had a chance to view our newest video for our new graffiti remover Blast Off.

The company that made that video for us is iMotion. If you think that video was hard for us or expensive to make, think again. Learn what we did earlier this year by downloading this PDF and action guide that won't cost you a dime:

C  Users Linda Pictures iMotionlogo resized 600

iMotion Video wrote this short guide to tackle the biggest obstacle that they face every day..."How to make video commercials that sell" They produce hundreds (literally) of videos each month for businesses in all sorts of niches so they see their share of challenges for sure.

Make sure you get this action guide today because the form will also get you registered for their "Done For You" discount video productions, the same kind of program we are using.

This week, on Wednesday, they are going to have a 24 hour sale for their discount membership which is already a ridiculous deal.

We joined a few months ago and already are seeing the benefits. If you want to start promoting your business with video but don't know where to start or think you will have to spend a lot of money on equipment or time you don't have, the action guide will give you some good pointers to consider. If you're looking for a competent yet inexpensive video company to actually make your videos for you then you'll be as happy as we are.

Either way, make sure you get your action guide today before they take the page down:

The PDF and action guide are free so grab it while you can.

Tags: improve cash flow, Marketing videos, Business, marketing, Special offer

End of Summer, but hopefully not the end of your business

Posted by Linda Chambers on Fri, Aug 01, 2008 @ 12:16 PM

Hello, and welcome to the end of summer.

For many of you time is running out for you to make the main money of your season. But that does not have to be the case. I know this has been a very rough year so far. Every one's business is down whether due to drought, high fuel costs, higher costs of everything else or just regular business that is just not there this year due to your customers not being able to afford your services.

Unfortunately some of our customers have had to take on second jobs or new more stable primary jobs and put their pressure washing business on the back burner or on hold to make ends met.

Here are some ideas to help you think outside the box to keep your PW business going in these lean times.

One problem when the economy slows down is that your customers slow down payment to you as well, especially true if you are doing monthly contract work instead of pay as you wash jobs.

One way around this to keep a good cash flow is to look at your contract jobs and see how much profit you have built into each one and then decide if giving a customer a prepay discount would benefit you and your cash flow. Say you are making $350 profit on a fleet wash job that you usually give NET 30 to but lately that has been becoming NET45 or worse. Wouldn't it be worth say $50 for you to have the money in your hands sooner and for sure than worrying when you are going to get it, especially if you will have to spend extra time and money to get it later? So go to your customer and offer them a prepayment discount on their next job. Of course if they are already so behind in paying you on past work taking this money now may slow down the payment of the older money, but not always. This can also work with a split payment discounts. Say give them a certain amount or % off if they pay half up front and the rest stay NET 30, or give them a discount on the entire job for early payment such at 3% Net 10, or NET 15.

Also with so many small PW going out of business call on them to see if they would like to sell their contact list for a small fee or get a kick back from you for introductions to clients they are no longer going to service that turn into business for you. For instance if they have a customer that they were washing each month; they could introduce you to the customer, saving the customer the time and trouble to find a new and probably different PW then yourself, with the promise of when this customer uses you, you pay the old PW a one time set fee for the introduction. This one time cost will easily pay for itself in a few jobs with your new customer. I have seen this work with PW's that are having to retire or go out of business for other reasons in the past.

This is why it is always a good idea to be friendly with the other good PW's in your own area. Don't treat them as an enemy that are out to get you and your business but as someone that can help you and back you up when needed. Just be sure they are as ethical and do good work like you do for your mutual benefit.

Join websites with other local and national PW's. You can network sometimes to the point that if you need help on a job to get a bid they can even work with you like a subcontractor to get the job done. Or if one of you are too busy to do work for a customer that the other one can do the job, giving the other PW a referral fee. Some PW's have been in business for so long and know the others in their area so well that they can swap customers or give referrals to each other without hesitation of monetary reward because they know they will be paid back later with a new job from someone else. EX: Some PW's may specialize in commercial flat work and will hand off house washing to a friend knowing when the house washer gets has major flat work they will call on them or use them for that customers job.

As I mentioned in a previous session, even if you normally do private home jobs, go by local businesses that need washing or you have seen someone else clean in the past and leave your card. You never know if their old washer is one that just gave up the business and they will be needing someone new. Odds are they will at least call you for a quote if not the job and the more cards you have out there the greater your odds become. Also I will again mention that the bad housing market is a boon for a PW to create curb appeal. Visit Realtors and give them a stack of your cards as well. Even offer to wash their house for free for the referrals and thier testimonial.

I hope you all have a better last half or quarter of 2008.

Tags: improve cash flow, Business

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