Contractor referral companies connect independent handymen and home improvement contractors with homeowners and companies in need of their assistance. Whether the referral business is local, multi-state, or national in scope, they all carry out the same objective — matching professional candidates with those who need their services.

Indeed, starting a successful contractors’ referral business is a very viable entrepreneurial opportunity as long as you can do it right. This sort of business can be started on a part-time or full-time basis, and they don’t require enormous start-up capital or overhead.

Also, note that a good percentage of your business can be generated through networking and word of mouth. You can also reach property owners through the use of reliable advertising sources.

Steps on How to Start a Contractor Referral Business

  1. Conduct Market Research

Truth be told, any business or financial plan is only as viable as the information it is built on. Therefore, before you start your contractor referral business, it is necessary you carry out extensive research of your area and also create a system for evaluating the business.

Take your time to pick a selection of businesses or industries to specialize in. Plan your day-to-day operations and also remember to check if there is already an established contractor referral business for the particular area that you are interested in. If there already is, go ahead and find out if there is room for a second service or if your business would just end up spinning its’ wheels without gaining any ground.

a. Who is the Target Market?

This will often depend on the sort of contractors you plan to refer to homeowners and companies who require their services, however, note that your potential customers in this line of business will be both the independent contractors on your list and consumers who call in to get referrals.

b. Is Contractor Referral Business a Profitable Business?

Yes. A contractor referral business is a very profitable venture, however, how much you can make depends on your niche, how valuable your information and your referral are, and how many people will care about what you recommend.

c. Are There Existing Niches in the Industry?

Yes. Howbeit, your niche will more or less be the types of contractors you plan to refer. Top options to consider include;

  • Gutter cleaning and replacement
  • Home remodeling
  • Building additions
  • Fencing
  • Lawn maintenance and many others.
d. Who are the Major Competitors?
  • HomeAdvisor
  • Angie’s List.
  • Houzz
  • Porch
  • Thumbtack
  • Amazon Home Services.
  • HomeStars
  • HomeServe
e. Are There County or State Regulations or Zoning Laws for Contractor Referral Business?

Yes. Owing to that, once you have a very clear idea of the types of contractors your referral service business will refer; ensure you reach out to your local, county, and state government offices. Find out requirements for licensing, bonding, business registry, and insurance for each type of contractor.

Have in mind that this is the first step to building your list. Any contractor that does not meet government regulations should never be on your referral list. Note that by understanding these requirements and using them, your contractor referral business will gain credibility with your clients.

f. Is There a Franchise for Contractor Referral Business?

No. However, instead of building from the scratch, consider a contractor’s referral business acquisition as it can be an effective route for new entrants in this business. A business acquisition will genuinely deliver an established brand. In this line of business, the right acquisition can be utilized to catapult your business into a market leadership position, even if you lack industry credentials.

g. What Do You Need to Start a Contractor Referral Business?
  • Business Plan
  • Website
  • EIN (Employer Identification Number)/Federal Tax ID Number.
  • A Corporate Bank Account
  • Referral List
  • Computer and Database Software
  1. Choose a Memorable Business Name

When looking to start a business, before you can begin to file the necessary documents with the constituted authorities or start your website, it is necessary that you come up with a name that you will be recognized with. It is essential that the name you come up with can easily be pronounced, is unique and easily memorable.

Some of the catchy business name ideas suitable for a contractor referral business are;

Creative Contractor Referral Business Name ideas
  • Trusted Allies
  • Easy Contractors
  • Formidable Contacts
  • Verified Workers
  • Expert’s Connect
  • Community Workers
  • Check and Connect
  • Contractor’s World
  • Prime and Sure
  • Everyday Contractors
  • Neighborhood Workers
  • Easy to Reach
  • Favorite Handymen
  • Home Connect
  • Contract Advisors
  • Global Knights
  • Model Source
  • Connected to Work
  • Contractor’s Mart
  • Hometown Experts
  1. Register your Business

a. What Type of Business Structure is Best for Contractor Referral Business?

When choosing the ideal business structure for your contractor referral business, you should consider the level of liability exposure you want and what your objectives are for the business. If you’re just starting and selling to family and friends, you can settle for a sole proprietorship.

However, if you’re looking for more protection or to grow the business, a corporate organization or LLC may be preferable. Howbeit, regardless of the type of business structure you choose for your contractor referral business, ensure to register it with the state where you’ll be doing business. Note that this will ensure you have the legal protections you need to operate your business.

b. Steps to Form an LLC
  • Choose a Name for Your LLC.
  • File Articles of Organization.
  • Choose a registered agent.
  • Decide on member vs. manager management.
  • Create an LLC operating agreement.
  • Comply with other tax and regulatory requirements.
  • File annual reports.
c. What Type of License is Needed to Open a Contractor Referral Business?

Note that the licenses and permits you need to open a contractor referral business will vary based on the type of contractor referral business you are starting and where it will be located. Owing to that, ensure you reach out to your local business licensing office or chamber of commerce to note the requirements for starting your business. Nonetheless, basic licenses to consider include;

  • General Business License or Permit
  • Entity Formation
  • Business Name Registration
  • Sales Tax Permit or Business Number
  • Federal Employer Identification Number
d. What Type of Certification is Needed to Open a Contractor Referral Business?

Note that you don’t need any type of certification to start and run a contractor referral business in the United States, however, you should consider some human resource certifications to show your clients how knowledgeable you are in the industry. Top options to consider include;

  • SHRM Certified Professional (SHRM®–CP)
  • Professional in Human Resources® (PHR®)
  • Associate Professional in Human Resources™ (APHR™)
  • Certified Professional – Human Resource (IPMA-CP)
e. What Documents are Needed to Open a Contractor Referral Business?
  • Certificate of Incorporation
  • Insurance Policy
  • Operating Agreement
  • Client Terms and Conditions
  • Employment Agreement and Staff Handbook
  • Contractor’s Agreement
  • Website Terms of Use
  • Privacy Policy and Manual
f. Do You Need a Trademark, Copyright, or Patent?

No, there won’t be any need to apply for a patent to run your contractor referral business as you may not have any cause to challenge anybody in court for illegally making use of your company’s intellectual properties.

4. Do your Cost Analysis and Budgeting

a. How Much Does It Cost to Start a Contractor Referral Business?

According to experts, you can start this business from home with as little as $2,000. You only need to set up your home office with information database management software, a comfortable chair, a headset, and a reliable telephone.

b. What are the Costs Involved?
  • A business license: $300
  • Business registration: $500
  • Business cards: $50
  • Promotional materials: $100
  • Service agreement forms: $25
  • Space to work from – can be a home office or a rented facility: $500 per month rent
  • A telephone: $50 per month
  • A computer: $500
  • Software (cloud services): $50 to $100 per month
  • An Internet connection: $50 per month
  • A business banking account (free)
c. What Factors Determine the Cost of Opening a Contractor Referral Business?
  • Business location
  • Business Size
  • The Cost for Insurance Policy Covers
  • The Cost of Hiring and Paying a Website Developer
  • Cost of Developing Your Referral List
  • Marketing and Advertising
d. Do You Need to Build a Facility?

No. Have in mind that this business can easily be started and managed from home. However, if you do not have space to operate your business from home, you can choose to rent a small office.

e. What are the Ongoing Expenses for Running a Contractor Referral Business?
  • Fees for background and driving record checks: Varies from state to state
  • Insurance: $250
  • Internet/telephone costs: $150
  • Advertising and website maintenance: $250
  • Payment/merchant fees: $200
f. What is the Average Salary of your Staff?
  • Chief Executive Officer (Owner): $54,600/ Year
  • Human Resources and Admin Manager: $48,930/Year
  • Information Technologists: $46,800/Year
  • Accountant: $38,710/Year
  • Call Center Agent: $23,490/Year
g. How Do You Get Funding to Start a Contractor Referral Business?

Here are top funding options to consider for your contractor referral business;

  • Raising money from friends and family
  • Bootstrapping by tapping into your own savings account
  • Sourcing investment from outside investors
  • Obtaining a bank loan
  • Getting money from a hard money lender.
  1. Write a Business Plan

a. Executive Summary

Our primary objective at Trusted Allies is to continually match experienced and skilled home improvement contractors with clients who require their services, saving our clients time and money, while ensuring that the contractors benefit from our honesty and honor.

We at Trusted Allies believe that the services we intend to offer in the city of San Diego require a high level of communication, and entail that we ask open-ended questions and listen attentively to understand the needs of our clients. It also warrants that we understand our local market so that Trusted Allies can really serve each client and contractor, not just “offer” them our services.

b. Products and Service

At Trusted Allies, we will connect homeowners with home service professionals who can help with home improvement projects such as carpentry, electrical work, foundation crack repair, vinyl siding installation, or plumbing repairs, as well as other general home-related projects like house cleaning, tree trimming, and lawn care.

c. Mission Statement

Our mission at Trusted Allies is to link prospective customers (i.e. homeowners) with service providers. We exist to attract and maintain reliable contractors. When we adhere to this maxim, everything else will fall into place. Our services will exceed the expectations of our customers.

Vision Statement

Our vision is to start opening more offices throughout San Diego and the State of California by our third year in business. We thoroughly understand the challenge in this vision, not in the growth itself, but in finding reliable contractors who will treat each client and their tasks with the same care and with the same level of communication.

d. Goals and Objectives
  • Maintain positive, steady growth.
  • Increase the number of repeat customers or referrals by 7% a quarter.
  • Decrease customer acquisition costs by 8% a year.
  • Profitability by the end of year one.
  • Increase the number of contractors by at least 10 per year.
  • Decrease operating margins by 2% a year.
e. Organizational Structure
  • Chief Executive Officer (Owner)
  • Human Resources and Admin Manager
  • Information Technologists
  • Accountant
  • Call Center Agent

Marketing Plan

a. SWOT Analysis
  • Concrete networking web within the community.
  • Well-detailed, predictive screening mechanisms.
  • Industry insight based on pragmatic experience.
  • Unreliable initial cash flow.
  • The lack of brand equity is a function of a start-up organization.
  • The inability to scale as quickly as we want.
  • Participation in a viable industry.
  • Low overhead.
  • The ability to reduce fixed costs per sale as business picks up.
  • Economic and industry downturn.
  • The attractiveness of the industry will encourage new entrants and competition
e. How Do Contractor Referral Businesses Make Money?

These businesses make money in one of three ways:

  • They charge a fee from the business that wants to be a member
  • They charge a fee from the consumer for getting their list of recommended businesses
  • They provide both services for free and rely on advertising to pay the bills (especially if they are on the Internet).

Note that some of these businesses try to combine all three too!

f. Payment Options
  • Payment via bank transfer
  • Payment with cash
  • Payment via credit cards
  • Payment via online bank transfer
  • Payment via check
  • Payment via mobile money transfer
g. Sales & Advertising Strategies
  • Reach out to local newspapers about your launch
  • Identify social media influencers your customers follow
  • Host a business launch event at your office, storefront
  • Run a business launch sale to attract first-time customers
  • Run a few ads online to attract customers
  • Get your friends and family to share your products on social media
  • Partner up with other local businesses in the area to share your business

Financial Projection

a. How Much Should You Charge for your Service?

Just as was noted above, these businesses make money in one of three ways:

  • They charge a fee from the business that wants to be a member: around $200-$500
  • They charge a fee from the consumer for getting their list of recommended businesses: $10-$50
  • They provide both services for free and rely on advertising to pay the bills (especially if they are on the Internet).
b. How Much Profit Do Contractor Referral Business Owners Make a Year?

Note that the standard referral fee percentage could be around 10% for closed jobs. It could start at 2 – 5% for an email introduction with the client and go up to 15 – 20% for projects where the referrer deals alone with the client. You could also work with flat referral fees. For instance, a $100 referral payment for $1000 – $3000 projects, a $300 payment for $3000 to $5000 projects, and $500 for projects up to $5000.

c. What Factors Determine the Amount of Profit to Be Made?
  • Business location
  • Class of clients
  • Number of contractors
  • Additional services offered
  • Business management
  • Network and connection
  • Advertising and marketing strategies
d. What is the Profit Margin of a Contractor Referral Business Product/Service?

According to experts, your minimum profits objective should be around 8%. 10% is average, and 15% is ideal.

e. What is the Sales Forecast?

Have in mind that this sales forecast is made with the idea that it will take at least six months to one year before the business will start picking up. Here are sales forecasts to expect from a well managed Contractor Referral Business;

  • First Fiscal Year (FY1): $121,000
  • Second Fiscal Year (FY2): $349,000
  • Third Fiscal Year (FY3): $680,000
  1. Set Up your Office

a. How Do You Choose a Perfect Location for Contractor Referral Business

Just as it was noted above, this business can be effectively started from the comfort of your home to keep costs low, but as you expand you might want to look into renting a facility. When selecting a commercial space for your contractor referral business, you should follow these rules of thumb:

  • Well-positioned location accessible via public transport
  • Ventilated and spacious, with adequate natural light
  • A flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
b. What State and City are Best to Open a Contractor Referral Business?
  • Greenville, South Carolina
  • New Haven, Connecticut
  • Albany, New York
  • Tampa, Florida
  • Port St.
  • Asheville, North Carolina
  • Colorado Springs, Colorado
  • Cincinnati, Ohio
c. What Equipment is Needed to Operate?

You’ll need the following items to get started, regardless of where you decide to set up shop:

  • Computer
  • Website
  • Telephone line
  • Marketing materials
  • Standard office supplies
  1. Hire Employees

After attaining success with initial matching and earning enough commissions, you might have to consider expanding staff to increase your business reach and activities. Note that each new staff member can concentrate on expanding the opportunities in a particular sector or working with a certain type of professional. Have in mind that using this strategy can guarantee a good reputation for your business.

  1. Launch the Business Proper

Indeed, after you must have registered your business and done everything necessary to start your contractor referral business, it’s time to get your contractor referral business name out there and start generating customers. There are so many factors to consider, from the logo design to the colors you use. However, to ensure you get your name out there, consider the following;

  • Define your contractor referral company’s purpose and values.
  • Create consistent branding across all channels
  • Develop a unique logo that represents your contractor referral brand.
  • Choose a color scheme that reflects your company’s personality.
a. What Makes a Contractor Referral Business Successful?

To ensure that your contract referral business attains success, take your marketing and advertising online, in newspapers, and local phone directories. Consider acquiring a mailing list of homeowners in the area you will serve and use it to send direct-mail advertisements.

Also note that posting fliers in grocery stores, community centers, and libraries will ensure you reach your target audience. Consider radio ads because they offer a viable platform to attract clients and contractors who would like to contract with you.

b. What Happens During a Typical Day at a Contractor Referral Business?

In this line of business, you will most definitely take a hands-on approach to your work. Howbeit, there are several activities that will keep you busy day in and day out, and they will most often include;

  • Conduct interviews with clients to understand what their needs are
  • Check contractor’s professional and personal references, passing that information on to the client
  • Verify contractor’s background history, including identity, education, and business history, perform state and county criminal searches
  • Conduct personal interviews with contractors
  • Identify which contractor would be a good fit for each job
  • Perform periodic screening updates to ensure nothing has changed
  • Market your business
  • Research to ensure your business is current with contractor referral business best practices
c. What Skills and Experience Do You Need to Build a Contractor Referral Business?
  • Previous industry experience
  • Geographic knowledge of the area
  • Organization skills
  • Attention to detail
  • Customer service skills
  • Troubleshooting skills
  • Determination
  • Resourcefulness
  • Adaptability Skills
  • Accounting Skills
  • Creativity Skills
  • Strategy Skills