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Service Philosophy – Reversing Risk for Buyers

By Alan Carson, Carson, Dunlop and Associates LTD.

Have you ever watched late-night television and seen a commercial for a product such as a set of steak knives or a piece of exercise equipment? Who buys that stuff after seeing it on television? How can they tell if the product is any good? To know its worth, you need to be able to touch it, to see how the parts are put together, then to try it out and so on. So why would a buyer take that kind of risk?

Professional services are much the same. Your prospect can’t evaluate your service with any accuracy, especially over the phone. Not only does your prospect have no idea what they will get from your service, but the prospect does not even know what you look like. The bottom line is that the prospect or client assumes all of the risk in the transaction. They take a leap of faith when they say, “Okay, I will hire you.” Because there is risk involved, they may choose to call a few other home inspection companies until they get a good feeling from someone.

Remove Risk
How do you overcome this problem? The same way that late-night television people do it. Do anything you can do to remove or reduce the risk. The television people tell you to order it and enjoy it for a week. If you are not happy, send it back for a full refund. You can do the same thing with your prospects. If they are hesitating, just tell them to book the inspection. If they are not happy at the end of the inspection, they don’t have to pay. That is risk reversal.

Now the risk is all yours. You risk doing an inspection for a client who might not pay you at the end. Makes you feel a bit uncomfortable, doesn’t it? Now you know how your prospects feel. But the risk to you is not as great as it seems. The fact is, almost every client is pleased with the inspection. Few people, if any, will tell you they are unhappy in order to get a free inspection. We have never had a problem with people taking advantage of this kind of offer. It’s unlikely that you will, either. The upside far outweighs the risk that you may get cheated the odd time.

Risk Reversal
Risk reversal is a tool you should use in just about everything you do, not just when you are booking an inspection. Here are some steps you can take:

Step 1: For each transaction involving your business, identify the risk involved for the prospect.

Step 2: List as many ways as possible to reduce or remove the risk.

Step 3: For each fo your ideas in Step 2, identify what the risk is to you.

Step 4: Select a strategy that has the best balance.

Here is an example:
Step 1: You’ve developed a strategy to get more real estate agents to refer business to you. You have decided that you will take one agent out for lunch per week. At the end of the lunch, you plan to ask the agent if he or she will refer their next inspection to you. What is the risk to the agent? The risk is substantial. The agent may already have a home inspector to whom they refer business. And the agent’s home inspector is especially good because he or she doesn’t alarm the clients unnecessarily. If the agent refers you instead, he or she risks that you will not be as levelheaded as the agent’s current, preferred home inspector. You may kill the sale and cost the agent a big commission.

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Step 2: How can you eliminate the risk for the agent? You could offer to pay the agent the commission if you end up killing the deal. Or, you could tell the agent that if the client is not happy with the inspection, the client doesn’t have to pay. The second offer presents a more reasonable risk for you and leaves no risk for the client, but it still leaves risk for the agent.

Step 3: What are the risks to you? Offering to pay agents their lost commissions if you kill the deal is too big a risk for you, not to mention that this offer has ethical implications. Offering to absorb the cost of the inspection reduces the client’s risk, has little risk for you, but does not really reverse the risk for the agent.

Step 4: Strike a balance everyone can live with. Our strategy is a combination of reducing the risk for the client and quantifying the actual risk for the agent. For instance, when you meet with the agent, explain how good you are with clients and how you put problems in proper perspective so that the client doesn’t walk away from the deal over small issues. Let the agent know that you understand the state of mind of someone buying a home, and that it helps no one if a client overreacts to a common, minor problem, and walks away from a good home.

You may tell the agent that your role is to advise and help your client not to impress them. You feel no pressure to find problems to help justify your fee. Then extend the offer so that if the client is unhappy for any reason, they will not be required to pay. You are not reversing the risk for the agent at all, but because you have explained your client-friendly approach, the agent may feel that your strategy does, in fact, reduce the risk of the client walking away from the deal.

You can make another point to the agent. If their client does not buy the home based on the results of the inspection, they will still buy a home. While the agent will have to spend more time with the client to find them another home and earn the commission, the agent/client relationship will be stronger because the client appreciates that the agent saved them from making a mistake by introducing them to you.

What we have done here is outline the concept of reversing risk, provided simple steps for you to employ this in your business as part of your service philosophy. In future articles, we will discuss other topics for service philosophy such as using the “under-promise and over-deliver” approach, and winning customers by fixing mistakes fast. Stay tuned!

Reprinted from the ASHI Reporter, January 2015 edition