Network and They Will Refer? Think Again

Referral Effectiveness

Are referrals important to the growth of your business? If so, do you network like crazy, believing that if you network, they will refer? Maybe they do. But if business is not pouring in, perhaps you should take a closer look at the nature of referrals and your referral process. And you should be thinking about referral effectiveness.

At its core, any business — no matter how small or how large — is a collection of systems and processes. Each of a company’s processes must function optimally, and must align with the business’ strategy, business model, and other processes.

To improve your company’s referral effectiveness, you need to understand the types of referrals, a referrers reasons for making a referral, and types of referral sources. And a few other things, including return on networking investment. So, let’s start.

Types of Referrals

Broadly speaking, there are three types of referrals: Responsive, pro-active, and problem solving.

Responsive Referral:

If you ask your CPA if he can recommend a lawyer to write a will for you, his referral would be responsive. It responds to your specific request.  

Proactive Referral:

Much different than the responsive referral is the proactive referral. The proactive referral requires a level of knowledge, effort, and risk for the referrer. Thus, proactive referrals are harder to receive than responsive referrals.

An example: Over lunch with his CPA, a client expresses dissatisfaction with his liability insurance broker. The client does not ask the CPA for a referral. She simply gripes. The CPA would need to exercise a level of proactivity to suggest a broker he believes might better serve his client.

Taking the example a step further, assume the client never complains about the insurance broker.  Instead, during the course of preparing his client’s tax return, the CPA happens to notice that the insurance rate his client is paying is higher than the rates paid by other clients. The CPA could be ultra-proactive, and recommend a broker he believes might charge his client less.

It is critically important that you understand the type of referral – responsive or proactive – that fits your business model. This depends upon the type of business you are in. Your target referral type will dictate your referral strategy, and define your process.

If your business serves a wide range of customers with an easily understood service, such as real estate brokers, electricians, or dentists, you likely depend upon responsive referrals. People ask those they know and trust to refer someone they have had good experiences with.

Niche or specialty businesses, or those that provide services or products not easily understood, likely depend upon proactive referrals.   

Assume, for example, your business provides contingency-fee cost saving services, such as energy cost audits, to companies with more than 100 employees. No business owner, CEO, or CFO is going wake up in the morning and decide he or she needs your help. You solve a problem your customers don’t know they have, until someone tells them. Thus, you are dependent upon proactive referrals. You need another service provider to take the initiative to recommend your service to their client.

Problem-solving referral:

The problem solving referral solves a problem for the party making the referral. It helps them with their problem, as well as their client’s. Example: A lawyer who’s client falls outside his expertise might make a referral to the appropriate expert. This solves both his client problem, as well as his own.

Reasons for Referrals – Referrer’s Motivations

Why would anyone make a referral to you or your business? Human nature is such that we often assume others would make referrals to us — when the opportunity presents itself — because they want to help us. That may be the case. But more likely and more often, people make referrals to help themselves. Not to help you.

What is your potential referrer’s need that can be fulfilled by making a referral to you? Although often difficult to do, you can become very effective at securing referrals if you become good at identifying and satisfying referral sources’ needs. To do this, you need to understand their motivation for making a referral to you.

Take our CPA-referrer in the responsive referral example above. When the CPA responds to his client by making a referral to a wills and trusts lawyer, he of course helps his client. But he also helps himself by bring value to his client, and by creating a “referral debt” from the lawyer he refers his client to.

It should be obvious that a referrer’s needs will be much deeper to make a proactive referral than to make a responsive one. For this reason, in developing qualified referral sources, focus on understanding how you can and bring value to them. This takes effort, time, and skill. Your goal is to make referral sources, especially proactive referral sources, feel that you are doing them a favor when they make a referral to you, and not the other way around. 

Referral Sources

In addition to understanding referral type and referrer needs, an effective referral process requires tailoring process to different referral sources.

For many business, by far the most valuable referral source is current or recent customers or clients. Yet often, this gold mine for referrals is overlooked. Your referral process should make it a high priority to turn your customer based into your sales force. There are a variety of techniques to do so.

Beyond your customer base, are employees and former employees, business that provide related but not competitive services, and even competitors. Part of your referral process should be understanding and then rating of all potential referral sources, with specific plans and goals for each.

Finally, it is important for you to weed out potential referral sources, that when examined, are “fools’ gold:” Sources that in reality have very low probability of providing you with referrals. As with anything else, you need to be mindful of your time budget for networking, and spend it wisely.

All the Rest

Beyond the foregoing, it is important to keep in mind that any referral is a function of four things:

  • Willingness to refer: Your source is open to make a referral. There are plenty of potential referral sources who are happy to eat the food you buy, and drink the drinks you supply, but are not willing, for reasons often not well understood, to make the effort to make a referral. When you find a good referral source, make a verbal commitment to make a reciprocal referral with the right opportunity, and obtain a verbal commitment.
  • Ability to refer: Mere willingness is not enough. Some people in some companies do not have the authority to make referrals on their own. Just as you need to qualify customer leads, you need to qualify referral sources.
  • Opportunity to refer: A willing and capable referral source needs the opportunity to refer, and depending on their business, position, and experience, may have many or few such opportunities. In rating referral sources, always consider the opportunity factor.
  • Referral visibility: If a long time has passed since you last had contact with a potential referral source, odds are good that despite willingness and ability to refer, you will be out of mind when the opportunity occurs. A constant drip of email newsletters, and an organized “stay in touch” campaign can help keep you top of mind to guard against referral invisibility.

Finally, you want to keep referral return on investment in mind. Does the return on the time you spend networking justify the investment? Are you searching for referrals that align with your business strategy? In other words, is your hunting likely to catch the kind of business you wish?

So, if you thought obtaining referrals was as simple as attending some networking events, perhaps you have a different view now. While you must offer exceptional customer service and quality products, it takes more to make your referral work. Develop your referral process with the same care you apply to customer and client service, and networking could pay dividends sooner than you think.

(c)  2017 ALL RIGHTS RESEREVED RKG Consulting Group, Inc.