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Refer madness: trolling for business online has never been so tempting--or so overwhelming.

Could it be any easier for homeowners to find home improvement contractors? Only if the online referral industry maintains its current torrid growth rate. Having emerged in the 1990s and then largely imploded in the dot-com bust, this industry is back and bigger than ever. Hundreds of services exist today, from national behemoths that "match" contractors and consumers automatically to one-person companies that know every client by name.

To homeowners, online referral services promise an antidote to the dangers of hiring unknown, unreliable, and possibly unlawful contractors. Most are free to consumers.

To contractors, they promise to deliver leads, customers, and growth. Sometimes they do: Several remodelers we interviewed credit the services with their success and longevity. Sometimes they don't: We also heard terms ranging from "inept" to "criminal" to describe a few services, and "crappy" to "dead"--quite literally--to describe the leads they deliver.

For better or worse, the online referral industry is here to stay, and it's evolving in ways that could benefit homeowners and remodelers alike. Here's a snapshot of four variations on the online referral model and of several remodelers that have used them successfully. To summarize their advice:

* Be selective. "Find one or two services that work well for you, and stick with them" says one remodeler. "If you get greedy and go with more, you're just asking for a disaster."

* Know what you're getting into, and how to get out of it if you're unsatisfied with the results.

* Manage your accounts aggressively. "It's not a passive situation for the contractor," says one industry insider. "You have to work it" to turn those leads into clients.

1 Online Lead Machines

Some modelers take pride in responding to prospects within 48 hours. Robert Pratt, who carries his BlackBerry everywhere, often e-mails them back "before they're off the computer. I get them while they're hot." For that and a few other reasons, Pratt, of Invigorations Design and Remodel, Redmond, Wash., credits his company's success and virtually all of his "fresh business"--$800,000 worth in 2005--to

The 800-pound gorilla of online referral services, ServiceMagic blankets the Internet and other media with its promise to connect consumers with prescreened home improvement contractors, and vice versa. Launched in 1998 and expanded through acquisitions (including that of ImproveNet in 2005), ServiceMagic says it has 40,000 contractors in its nationwide network.

In 2005, it processed well over 100,000 consumer "requests" for additions and remodels alone, according to Elaine Schoch, public relations manager. (Hanley Wood, which publishes REMODELING has a business relationship with ServiceMagic.)

To enroll, you pay $99 and supply evidence that you're insured and licensed, if locally required. Select your specialties from a list of some 500 home improvement tasks, and indicate other preferences. As leads meeting your criteria roll in, ServiceMagic automatically sends them to you and up to three other contractors, charging you between $6 and $50 per lead, depending on project type. (You can get one-to-one matches from a slightly more expensive service called ExactMatch.)

You also get a ServiceMagic Web page that includes a company profile, customer ratings, and as many as 50 portfolio photos.

To submit a request, consumers simply answer a few automated questions about themselves and their project. That faceless, painless, risk-free process produces leads in abundance--but often those that are unqualified, clueless, or looking only for a bargain, according to several remodelers.

Scott Grafer of Curb Appeal Homes, Huntley, Ill., paid almost $2,600 for 70 leads over a few months in 2005. Not one panned out, largely because "they were completely out of touch with what this stuff might cost," he says.

One woman "almost fell off her chair" when Grafer said her job--a bigger kitchen, a new master suite with full bath and closet--could cost $100,000. "She said, 'I just had another guy here who could do the job for $30,000!'" he recounts. Quick, cheap, and/or disreputable: that's the kind of contractor meant for ServiceMagic, he and others contend.

But many professional, reputable remodelers disagree. Ted Sisley of SKMJ Development, Whitinsville, Mass., says he gets his share of tire-kickers from ServiceMagic, and many he can't even contact. "But you have to step back and look at it from the big picture," he says.

In 2005, his company (Sisley Construction until a recent merger) spent around $5,000 on leads and closed more than $1 million in sales. "There's no marketing thing in the world that will give you that kind of return" says Sisley.

Mike Beaudoin, ServiceMagic CEO, says the company has helped many contractors get jobs worth $1 million and up.

Pratt says ServiceMagic isn't perfect, but "I would never drop it. There's so much power--it's a killer Web site, with good graphics and strong tools," including a project estimator and other tools meant to educate consumers.

Most importantly, he knows how to make it work for him. Among Pratt's strategies are responding to leads within minutes, linking his ServiceMagic Web page to his primary Web site, "chatting" with leads to qualify them, and printing out his customer ratings for prospects.



Relatively low-cost way to get potentially high number of leads, establish a Web presence and portfolio, and track leads. You can control how much you spend on leads and can send automatic e-mail responses to schedule appointments. Site has project estimator and other consumer-education tools, along with a rating and review platform.


You pay for all leads. Discontinued model called "Lead Select" allowed contractors to accept or reject leads. This is not available to new members.

Leads may not be qualified or compatible with your services. Refunds are issued only for wrong contact information or if lead specifications don't match your profile.

2 The Word on the Web

A one-man company "with a Rolodex full of subcontractors," Gary Grabowski considers his marketing department, his Web-hosting company, and his word-of-mouth referral network rolled into one. "I don't have an aggressive outbound marketing strategy," explains the owner of Grabowski Home Services, Beverly Hills, Mich. "gives me a Web presence and positions me as a premium provider" so prospects contact him, rather than the other way around.

Launched in 1997, is a massive online directory of 1.1 million home improvement contractors in 420 trade categories. You can buy leads, and the company sent 300,000 leads to contractors in 2005, according to CEO Kurt Reuss. But the model is primarily consumer-driven.

Many consumers don't want their personal information sent to unknown contractors, Reuss explains. By visiting, they "can get pretty much all the information they need to select the contractor that they think would be right for them" he says. Key to that information are unedited customer reviews of the companies listed, along with educational resources, including a cost estimator and dozens of articles about home improvement.

To enroll, you supply proof of licensing and insurance and, under a new model launched in January, pay a fiat fee (rates vary by trade, but are $1,000 a year or $100 a month for remodelers). You get a profile, a Web page with project photos and more, and customer reviews, which you can rebut if you feel that they're unfair.

When homeowners visit the site and indicate their project type and ZIP code, they get a link to your profile and those of other listed companies. "It's not a leads program," says Reuss. "We're more like a Consumer Reports of contractors." Homeowners may also elect to have contractors contact them directly. For an additional fee, you can "enrich" your listing to receive these leads, which will include contact information and project description. "We visually review each lead we receive and call homeowners that we feel we need more information about," Reuss says. Grabowski sometimes purchases these leads, but "usually the customer contacts me directly." While not all are viable prospects, "people who are price-shopping generally don't come to me," an advantage he attributes to the profile and customer reviews.

He also links his page to the cost estimator tool, which is "very helpful in establishing a benchmark" he says. "If a person thinks they can remodel a bathroom for $5,000, we can get that myth out of their mind right away"

Remodelers with their own Web sites also use Charles Russell links his primary site for Masterpiece Remodelers, McLean, Va., to his listing on, and vice versa. He gets some "fantastic leads" along with some that he acknowledges "aren't so wonderful." But he says most people who call him have educated themselves about his company.

"It all boils down to credibility," Russell says, referring to the customer review section. "Every referral that comes in, they have someone check back on it to make sure it's legitimate. They don't just take good referrals." Russell also hosts a show on radio.

Bob Patch, of RM Patch Construction, Durham, N.C., gets only two or three calls a month through, but closes on about 80% of them. He follows the company's advice to, among other things, respond to calls right away and create a detail-oriented Web site.




Relatively affordable way to establish Web presence and portfolio, and attract prospects who don't want to put their information on the Internet.

Flat pricing structure limits costs. Site has project estimating tool and other homeowner resources.


You pay fiat fee regardless of results. Lead quality can be mixed. You can never remove negative customer reviews (though you can rebut them).

3 Neighborhood Networks

"Nothing's good as word of mouth," says Noah Blumberg, president of Ark Contracting, Chevy Chase, Md. For his money, the best way to get in front of qualified homeowners is a local "homeowner referral network" (HRN) run by people who know their market, their contractors, and their homeowners. The company Blumberg uses, Urban Referrals of Washington, D.C., has landed him projects as big as $250,000. "They've been mostly good-size jobs" he notes, "but also the people have been really good, just nice people who are easy to work with."

HRNs are to the national services what microbrews are to Budweiser: locally owned, carefully cultivated, sometimes quirky, and relatively expensive. Serving areas as small as a neighborhood to as large as a few states, they typically have no upfront fees and charge contractors only for jobs they actually produce, using a commission model. More than 400 operate in the U.S. and elsewhere, says Debra Cohen, who created the model, sells the business plans, and runs her own HRN on New York's Long Island.

What's the advantage of the HRN model? "It's a personal relationship" Cohen says. As With the national referral services, contractors must meet basic screening criteria. Unlike the big companies, HRN owners typically interview contractors in person, getting to know "their quirks and strengths, and the same thing for homeowners," Cohen explains. Both parties benefit, for instance, if the homeowner is forewarned that the remodeler looks a little rough around the edges. Similarly helpful is telling the remodeler that the homeowner has certain concerns or characteristics.

Most importantly, Cohen asserts, the leads are qualified. "You're not going to just get someone who's surfing the Internet and says, 'Hmm, six months from now I might want to remodel my kitchen.'"

Marla Selko, who owns Urban Referrals, says she asks homeowners about their homes, budgets, remodeling experiences, and expectations, and then digs deeper as needed. She asks them to e-mall her photos to get a better sense of their space. When they don't have a budget, she gives them a sense of what projects like theirs typically run. And when they seem difficult or noncommittal, she discretely brushes them off. "Marla is good at flushing out the tire-kickers," Blumberg says. He adds that she's also good at following up on leads and keeping open the lines of communications between homeowners and contractors. HRN owners range from retired remodelers to stay-at-home moms, and, since HRNs aren't franchises, they vary widely. Some have members as varied as high-end design/build firms and housecleaners.

Others specialize. Rich and Laura Storey run Handy Firemen and Co. in Mayfield Village, Ohio. Half of their 50 members are firefighters 90 days of the year and home improvement contractors the other 275 or so.

Above all, HRNs focus on making good matches. "That's the genius of this model," says Debbie Farson, who owns Home Solutions Connection in Alexandria, Va. "Not only are we screening the contractors for homeowners, but vice versa. We try to have a conversation, and sometimes it's obvious they're just not right" she says. "I tell my contractors, 'I'm not making a penny unless you do.'"



Locally operated. Prescreened, personally qualified local leads. No job, no fee. HRN staff facilitate communication with homeowners before, during, and after job.


Fewer leads than automated services deliver. Commissions are generally higher than flat lead fees. Network owners we spoke to charge between 2% and 15% of project price, depending on their market and the project size.

4 The Central Office

Virginia is a big state and a largely rural one, and Tim Edith can easily "shoot the day" driving around on visits to four or five clients in two or three counties. Yet even without an office staff, he manages to nurture new business for his 15-year-old company, First Class Maintenance, of Charlottesville, thanks in part to the help of

Launched in 2004, 45Fix is notable as an emerging model because it combines the technological sophistication of national online referral services with the local market knowledge of HRNs. It's tiny, for now, operating only in Charlottesville and Richmond, Va., and Austin, Texas. Founder Phaedrus Acgtblu and president Geoff Hoekstra plan to expand to five more markets in 2006. "We'd like to have the biggest footprint in the end," Acgtblu says, "but not now."

To join, you pass a background check covering insurance, licenses, BBB complaints, legal judgments, and a face-to-face interview. Homeowners visit to briefly describe their needs; a 45Fix employee then calls to verify their information and ask more qualifying questions. Consumers dislike extensive online questionnaires, Hoekstra believes. "We get them comfortable" by talking with them personally, so they'll discuss budget and other matters they might not want to disclose on the Web. The company then forwards this information to two or more contractors in its local database.

45Fix charges contractors no upfront fees. Instead, as with HRNs, the company captures a flat percentage of each project that is sold and performed. Acgtblu says the company earns this by handling the "back-end" administrative functions that bog down many small contractors. For instance, 45Fix schedules meetings with homeowners, debriefs both parties throughout the project, and prepares and follows through on professionally prepared proposals, contracts, invoices, and change orders. "We standardize everything" Acgtblu says. "A lot of contractors who do great work aren't necessarily the best presenters." He also wants to avoid the "mad rush" mindset engendered by lead-selling services, where "contractors just throw their numbers out, and customers choose them for the wrong reason," he says. "We prefer to have our service providers spend as much time as possible to work up a proper estimate."

45Fix also cuts its contractors checks every pay period if they've done the work-even if the client hasn't paid.

Edith says the approach works well for him. He's closed every lead he's received from 45Fix, and he's now able to spend "more time on the business. The longer I'm on the phone or the computer, the more it cuts into my time," he says. "I could estimate all day, but it wouldn't make me any money."




Locally operated. Prescreened, personally qualified leads. Fees include back-end administrative functions and customer service. No job, no fees.


Limited availability. Higher fees and fewer leads than automated services. Service model is redundant for fully staffed companies.

Remodeling From the Bench

Growing numbers of remodelers are segueing into retirement by operating their own referral services, many of them franchises, licensees, or models of existing companies.

"Remodeling is a very local business" says Kurt Reuss, CEO of, which recently began selling franchises. Remodelers themselves, he and others note, are well-positioned to run referral services because they know the business, understand their local market, and have networks of contractors from whom to draw.

A few opportunities:

* Franchises cost $30,000-$50,000, depending on territory. Info: or 800.228.4990.

* 45Fix. Licenses cost $13,500 for every 200,000 owner-occupied housing units in the area served. Info: or 866.464.5349.

* Home Referral Networks. HRN business packages cost from $1,995 to $5,495. Info: www.homereferral or 516.374.8504.

The Local Buzz

Some leads no money can buy. Ask your clients if they're on a listserv--a community-based e-mail group--and if so, to use it to recommend your services to their neighbors and friends., a free online bulletin board with many categories of postings, can serve a similar function in the dozens of cities in which it operates.

Do your clients subscribe to Available in 26 cities, this word-of-mouth network compiles consumers' opinions about local service companies. A similar guide,, surveys homeowners in four metro areas.

New models are emerging as well. Consumers in four Virginia communities pay $65 a year to post messages and referrals on the Neighbors Network ( Founder and remodeler Sharon Rainey says there are "no negative posts," but no unsubstantiated referrals either: "We ask them to write a full paragraph. We don't want to be a Yellow Pages."
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Author:Thayer, Leah
Date:Feb 1, 2006
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