As a young real estate agent, I would work with anyone who could fog a mirror and showed an interest in buying or selling a home. I quickly discovered the Pareto Principle, named after the Italian economist Vilfredo Pareto who observed that 20 percent of the people in Italy owned 80 percent of the country’s wealth. Pareto’s so-called “80-20 rule” came to be applied to business, creating such accepted maxims as, 80 percent of sales are generated by 20 percent of clients.
As you may have guessed, the Pareto principle applies to real estate as well. In my career as a real estate coach, I’ve found that roughly 20 percent of the people in my client’s databases generate 80 percent all referrals. Of course, this isn’t a hard-and-fast rule, but it illustrates the importance of ranking the names in your database so you are spending your precious lead nurturing resources where the payoff is the greatest.
The process is simple. All you need to do is grade the contacts in your database on a scale of A+-D, with the A+ contacts being your best advocates who have already given you referrals, and D being people who are simply not worth the investment of energy, time, or resources.
Buffini & Company research has found that 40 percent of agents’ and lenders’ referrals come from A+ clients. Maintaining relationships with your A+ list is not only good for business, it’s also fun to spend time around people who recognize your value!
It’s Nothing Personal…
Take enough time to really think about the people in your database before you assign them a letter. Remember, you are not grading people on how much you like or dislike them. You are just determining who will best be able to generate the referrals that will make your business grow.
Here’s how to grade the relationships in your database and plan your outreach efforts to leverage the Pareto principle to get more referrals:
The People Who Have Already Sent You Multiple Referrals: A+
These folks are your ravin’ advocates. They love you and think they are doing people a favor by referring them to you. Most A+ names will be past or present clients who have experienced your exemplary service and skill firsthand.
As you may have already guessed, the Pareto principle applies to your lead nurturing efforts as well. Unless you’re a rock star agent, the percentage of people in your database giving you multiple referrals will be very small–10% if you’re lucky. However, since these people are so valuable to your business, you should be spending the bulk of your lead nurturing efforts maintaining and growing relationships with your A+ relationships.
For most agents, this will mean regular and frequent outreach via drip campaigns, or even better, personal phone calls. For holidays and birthdays, a handwritten card and small token of appreciation will be a worthwhile investment. Remember, your A+ clients enjoy feeling appreciated as much as you do.
People Most Likely to Give You A Referral in the Future: A
Past clients with whom you have a good relationship belong in the “A” category. They haven’t made multiple referrals to you yet, but it’s just a matter of time before they do and move up to an “A+” rank. Family members and good friends also belong here.
Again, unless you’re a rock star agent, you will only have a relatively small number of people who are most likely to give you a referral down the road. However, since referrals are so valuable to your future success, setting up a structured lead nurturing plan for people likely to give you a referral will have a great ROI.
Quick calls or pop bys are a great way to help build your relationships in your A category to get more referrals. Even better, you never know when one of those future referrals will turn into an A+ contact.
People Who Would Refer to You if Asked & Shown How: B
Neighbors or acquaintances with whom you share a common interest—your children and their children are classmates, they are members of your church, you see them at your garden club meetings— should be ranked with a “B.”
Since you probably know most of the people in your B category socially, a structured lead nurturing campaign would be overkill here. Instead, keep your relationship social by sending holiday cards or congratulations for landing a new job, but make sure to subtly remind them that your business thrives on referrals.
The most important thing to remember when reaching out to people in your B category, is to focus on offering to help solve a problem they might have in the future rather than getting more leads. Since most people genuinely want to help their friends and colleagues, chances are these people will come across someone who needs help or advice with a real estate issue. If you stay top of mind, they will pass on your name as someone whose guidance they trust.
People Who Might Refer to You in the Future: C
“C” people are in the infancy stage of a relationship with you. You feel that you click with them and are hoping to get to know them better.
You might want to set up a drip campaign or even schedule impromptu calls with people in your C category. Remember though that building trust and accountability takes time and effort. Pushing too hard, too early for a referral might push them into the next category:
People to Be Deleted from Your Database: D
These are people who are demanding and difficult. It takes energy to be around them and when you see their names on caller ID, you don’t pick up the phone.
Deleting these names from your database is empowering—even if you’re desperate for business. As crazy as it sounds, go ahead and do it. No matter how much time and energy you spend with these people, they aren’t going to close deals or send you referrals. So with their names gone from your database, you’ve gained more freedom to focus on people who will be beneficial to your business and help you prosper.
If you’re a newer agent without much experience generating leads, you might even find that the bulk of your contacts fall into this category. No matter how badly you need a deal, don’t waste time with people in your D folder. Instead, focus on the 20% who will generate 80% of your business in the coming years.
A Great CRM is Essential to Building Referrals
Let’s face it. The key to nurturing and growing any relationship is planning and consistency. If you want to leverage the Pareto principle to get more referrals from your contacts, a purpose built real estate CRM like Referral Maker is essential.
The Bottom Line
The Pareto principle tells us that a relatively small percentage of your contacts will give you the majority of your referrals. Make sure to keep this principle in mind when grading your contacts and planning your outreach strategy.