Posted 13th June 2009.
We all know that referrals can be the most powerful and profitable source of new clients. Yet most of us find that we’re simply not generating enough referrals of a high enough quality to reach our practice growth objectives.
What's the problem here? Are we mistaken in our assumption that referrals are such an effective business development method? Or is it an execution issue – we're simply not going about it in the right way?
For most professionals it's a bit of both.
While all the evidence highlights that our clients rely on referrals as their most trusted source of information on new suppliers; we've got to remember that not all referrals are created equal.
Unfortunately, some referrals can be little better than random cold calls. You get the name and number of someone who may or may not need our services, may or may not be able to afford them, and may or may not see the referrer as a credible and trusted source.
So it's our ability as professionals to work with our clients and partners to deliver the quality – not just the quantity – of referrals that will make all the difference to our success with them.
Do Referrals Work?
“Referrals from Colleagues” and “Referrals from Other Service Providers” were identified as the #1 and #2 method used by buyers of professional services to identify and learn more about providers in the 2009 RainToday.com Benchmarking Study “How Clients Buy”.
Because of the complex and intangible nature of professional services, buyers look for help to assess two critical criteria for selection:
- “Can the provider do the job?”, and
- “Can I work with them?”
They take clues from their personal interactions with the providers (at seminars, presentations and sales meetings) and from the experiences of people they know and trust.
And despite the increasing prevalence of online “relationships”, the people they turn to for recommendations are their colleagues and other service providers they have worked closely with. In other words: people whose judgement they respect.
For infrequent or “distress” purchases which are bought because of an immediate or unexpected need (for example, many legal and consulting services) the reliance on trusted third parties is even bigger.
Buyers won't invest in building a relationship up front with a provider of services they don't know they'll ever need. So instead, they rely heavily on the opinions of those they trust with experience themselves.
So do referrals work? The answer is a resounding “Yes” – if done correctly.
You've Got to Have a System
In his classic work Creating Rainmakers, Ford Harding highlights that although successful business developers are very diverse in terms of background, personality, style and approach – they all share one common factor: <u>they all have a “system” for generating business</u>.
That system may be hugely different between Rainmakers, with one relying on networking, another on cold calling, another on writing and speaking.
But all of the successful Rainmakers had developed a method which <u>worked for them</u> which they could employ repeatedly and effectively without having to think from scratch of what to do.
When needed, they were able to “switch on” their system and carry out the steps which would bring them more business.
In contrast, less effective business developers either tried to “wing it”, or had to spend so much time reinventing a system – gathering contact details, developing a script, identifying networking meetings, or writing an article – that the opportunity was lost.
It's the same with referrals. Although we all know how powerful referrals can be, how many of us take a systematic approach to generating them?
Not many in my experience.
Professional firms wouldn't dream of investing marketing budgets and non-billable time into advertising, speaking campaigns, seminars, website development or thought leadership without a thorough analysis and plan for how that investment would pay off.
Good marketing plans identify target clients for each approach, refine the firm's positioning and specify the messaging to be used.
They identify clear objectives for each area and the sequence of activities and critical success factors necessary to achieve those objectives. They carefully allocate non-billable hours and budget to each activity to try to maximise the overall returns.
Yet when it comes to referrals – potentially the most powerful approach of all – most firms simply leave it to chance.
At best, they encourage and remind partners to “ask for referrals”. But no thought is put into which clients to ask, how to ask, what to ask for, how to “earn” a referral, etc. At worst referrals are simply not mentioned at all.
These firms are hoping that their good work will result in positive word of mouth and spontaneous referrals. Sadly, research by TARP in the US has highlighted that referrals simply don't happen spontaneously.
When it comes to dissatisfaction:
- An unhappy customer will share their bad experience with an average of 12 other people (in my case, when it comes to bad customer service at John Lewis, I share it with thousands via this blog)
- Each of those 12 people will in turn mention it to 6 others.
Unfortunately, when it comes to a satisfied customer:
- A happy customer will share their experience with just a few friends;
- Those friends will not remember much and will not share that information with anyone at all.
Essentially, without further proactive work from the service provider, positive “word of mouth” ends with a few friends and colleagues of the satisfied customer.
So professionals and their firms who want to get more from referrals need to get serious in their approach.
They need to develop and implement a plan to proactively address all the key elements which influence both the number and the quality of referrals received.