Why referrals can’t be the only answer

When I meet a business owner or leader, I love learning about their organization and how they attract new clients. Once they find out I own an agency, the talk almost always turns to marketing and sales. Inevitably they will say something along the lines of “most of our business comes from referrals” and for them, I believe this actually translates to:

“We don’t have to do much marketing because our customers are happy enough with us that they send us their friends.”

There is no more powerful marketing than a referral. It’s inexpensive, effective and odds are, the sale is usually a slam-dunk. Today, thanks to all of the rating and review sites out there, our referral reach is greater than ever before.

But it’s not enough. All referrals are not equal. I’m guessing you are serving a client right now that you aren’t making a dime on and in fact, you are probably paying for the privilege of working with them. Why? Because one of your good clients made the referral, so you feel obligated. Let’s call this referral customer Bargain City.

I’m also guessing you are serving customers today who need things that are not quite in your wheelhouse but you have gerry rigged your process or system to accommodate them. Sure, it’s more expensive and labor-intensive to do, but it’s how you make them happy. For the sake of the conversation, let’s call this client Custom.

Let’s look at this pattern and see where it goes. Referrals are wonderful and satisfying. There’s nothing better than having a customer love you and your work enough that they introduce you to someone who is important to them and ask us to take good care of them. While they are wonderful endorsements from clients we greatly value, they are also an obligation. We feel compelled to serve them because we don’t want to disappoint the referral source. This is not really an issue if most of your referrals come from an anonymous online source. But for most of us, the lion’s share of the referrals are coming from within our own customer base and often times, from the clients we value the most.

So when they send someone our way, we do feel a sense of obligation. Which is how we find ourselves serving Bargain City and Custom. Having one or two of these types of new customers isn’t an issue. We can probably afford to take on one or two less profitable clients. And our systems can tolerate one or two aberrations from our carefully created processes that allow us to deliver incredible results efficiently. It’s not ideal but we’ll survive both.

But if we rely on referrals as our sole or biggest source of new opportunities, then over time, those anomalies become not the exception, but the rule. Now we have a problem. Now, we are losing money over price and process. And someone else is defining our business for us.

The truth is, the more referrals you get, the more and better your marketing needs to be. You need to clearly define for the marketplace (including your current clients) that you best serve, the specific products, services and outcomes you deliver. Your marketing and outbound sales efforts need to create boundaries and thresholds, so both your existing customers and their referrals can clearly see how you do business. And you need to attract and win enough “right fit” customers that you can afford to take on a few Bargain City and Custom clients to honor your existing relationships.

This was originally published in the Des Moines Business Record, as one of Drew’s weekly columns.

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