Dec 24 , 2013

The Word of Mouth Trap And How To Avoid It

Word of Mouth Trap

You’ve probably heard that word of mouth is the best way to get new customers and grow your business.  In fact, you’ve probably heard handymen or other contractor’s claim that they’ve built their business on word of mouth (WOM) alone.

I have no doubt that is true….for a select few.

Unfortunately, these stories leave new handymen with the idea that if they simply “do good work” and treat the customer right, their business will explode with new referrals leaving them picking and choosing between highly profitable and enjoyable jobs.

From my experience that is just not the case and I have a feeling I’m not alone.

Here’s the deal.

Relying on word of mouth alone will significantly limit your business success.  It may even cause you to fail.

Here’s why.

Word of mouth can show false demand

I’ve heard way to many of my subscribers tell me that they’ve started their handyman businesses and within a short period of time are booked with more jobs than they can handle, despite not advertising.

But, all of the sudden things shut off and now they’re at a loss for where they can get more customers.

Here is what I see happening.

Let’s say you just started offering home services and kick things off by telling all of your friends, family, and acquaintances about it.  Suddenly, all of these people conveniently have somebody to take care of their to-do list – something they just haven’t got around to hiring for yet.

So, they all hire the new handyman (you) and life is good.  Some customers will even recommend you to others.  After all, everyone likes to support the underdog that just started his or her business.

But soon, all of the work in this limited network is completed and suddenly there’s no more business coming in.  After all, this network of people can only be so big.  The excitement of a new business has worn off.  Since there was no source of new customers after the initial burst of jobs, you’re left wondering how you’re going to fill your schedule.

More Difficulty Increasing Price

When your clientele is a tightly integrated group of people, all of whom recommended you to each other, it can be extremely difficult  to increase your prices and still stay in demand.

Every time I’ve increased my prices (I started from $25/hr and now charge at least $60) I’ve lost some customers.  That’s just how it works.

When you increase the cost of a product, it’s just not worth it for certain people to continue buying that product, whether they like the product or not.   A handyman service is no different.

As a new handyman, it’s a common evolution to start out charging a relatively low hourly rate and increasing that rate significantly over time.  Not something I necessarily recommend, but it’s how I started and it’s how most others seem to get started as well.

The truth is, pricing is one of the toughest parts of this business and almost everyone gets it wrong at first.  If you don’t have a source for new clients to fill in the gaps of the business you lose upon raising your prices, raising your prices may put you out of business.  Especially if you were being recommended primarily because of your price.

It takes forever.

Unless you are out there pounding the pavement each and every day or you already know the right people, word of mouth is going to take a long time before it can sustain a full-time handyman.

For example:  Despite the fact that 56% of my revenue comes from existing customers (which I take as a sign that I provide a quality service), only a lousy 6.4% comes from referrals.  That 6.4% is nice, but it ends up only being a few thousand dollars, far from enough to sustain my business.

You could network with real estate agents and other tradesmen to help spread the word faster, but you’ll still need to build a relationship with these strategic partners before they start referring you to quality clients.

Regardless of your method, building a sustainable business on word of mouth alone takes a long time.

Getting recommended for the wrong reasons.

Unfortunately, I think many handymen that get a ton of business through referrals are getting it for the wrong reason – they’re too cheap.

For example, when I first started my business one of my good friends hired a handyman off of a recommendation.  They also mentioned that he didn’t advertise for the last 20 years and has been able to stay busy the whole time.

I was impressed.  He must really know what he’s doing, I thought.  This actually scared me from getting started because I’d have to compete with him.

But guess how much he charged?  Thirty-five bucks an hour!

Now, looking back at that I can see pretty clearly why he was recommended so highly.  He did good work and pretty much gave his time away.  I can also see a very real reason why he would have a hard time justifying $60/hour at this point.

What I Recommend Instead

If you want to avoid these issues above, be highly profitable, and craft your business into something you truly enjoy, you’ve got to form a marketing strategy.  You’ve got to find a way that you can generate a somewhat consistent flow of new, quality customers.

For me, this was accomplished with a website and an online marketing strategy.  For some, direct mail flyers are extremely effective.  For others, it could be placing signs up in your neighborhood.

Regardless of the method, It’s imperative you develop marketing strategy that will work for your business.  Not only will you gain more customers, be able to charge more for your time, and have more flexibility with your business, you’ll learn a skill that is more valuable than fixing homes – marketing.

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