I come across many lawyers and accountants who tell me “most of their business comes from referrals”.
It’s said almost as confirmation that they must be doing something right, and I wouldn’t necessarily disagree with that.
But it’s my experience that I usually hear it from the people who are using it to justify not having to market further, and of course not to invest in marketing.
While I course I find this completely abhorrent and disastrous for my livelihood! – speaking wholly objectively, I strongly advocate from experience that a consistent influx of new enquiries is a better indication of a sustainable business.
The other types of referrals
When you think of referral business, most people think of recommendations from clients based on a job well done. This is what I call ‘experience-based referrals‘.
They are so common because of the high search costs and high-stakes involved in finding a professional adviser. Which means people still have a tendency to turn to word of mouth. Asking family, friends or other business contacts for recommendations.
These are referrals that many professional service firms are accustomed to receiving. It’s an important referral type, but it’s not the only one.
In fact, there are other types of referrals:
- Reputation-based referrals
Referrals made by organisations that don’t know a firm by direct experience but can speak to their knowledge and abilities by reputation in the marketplace.
- Expertise-based referrals
These referrals are based on a firm’s specialised expertise, recommending a provider based on its ability to tackle a specific challenge — even if the referrer lacks extensive knowledge of the firm’s reputation.
- Experience-based referrals
As noted above, these are referrals that many firms are accustomed to enjoying — recommendations based on direct experience working with a given firm.
My observation is that too many firms focus solely on generating experience-based referrals, and miss out on the opportunities afforded by the other two types.
The experiential referral problem
I’ve read a thousand and ten publications and journals that tell me that referred clients are more profitable and loyal, they they have a higher contribution margin and retention rate, and are more valuable from the short right through to the long term.
Now, nobody has ever paid me to research or identify the profitability of their ‘referral network’ and I’ve never heard of any professional service firm in this country that actively monitors the performance and productivity of its referral network to the point they can make those kinds of conclusions.
So while I can accept these assertions make common sense, it’s not one of my naturally-adopted stances as a marketer of professional services that referred clients are any ‘better’ – more profitable, more valuable, more durable – than those who come free of an existing relationship.
What I’m saying is that focusing too heavily on experiential referrals creates a comfort zone and a complacency the overlooks the potential for other, equally lucrative sources of business.
An example
I’ll tell you a story. An accountant I know set up on his own about ten years ago. He opened up on the high street. He never marketed his services. He never felt the need for a website.
He’s got electricians, plumbers and window cleaners on his books. The type of client who racks up and drops all their receipts on his desk and expects him to “work his magic”.
Over the years he’s built up a team of ten. He bought a website for £100, never spent a penny on marketing (*he smiles*) and has a book of business just south of £700k per year, though he doesn’t go into the profitably levels (;-P).
He tells me he is struggling to break to the next level. He wants the larger FOB/OMB/small corporates (£3m-£5m) and he doesn’t know what he’s doing wrong.
My take on the situation? The book of business he has now is synonymous with the clients he took on in the early days. Sparks, plumbers, joiners, builders. And guess what? Yes, they have all from direct experience ‘referred’ their trade friends to him.
There are a few issues with this kind of business:
- It’s hugely price sensitive (for sole trader clients, he is seen as a pure utility, the cost of which needs to be as low as possible).
- It’s resource-intensive (again, sole traders, receipt dumping).
I’ve seen this time and time again. His exposure is limited to his referral network to the point he has become imprisoned. No one would criticise his resulting Stockholm syndrome. After all – clients are clients and they provide the income. But as he admitted himself, it’s not enough anymore.
The challenge he has is twofold. His exposure is limited to his referral network. Due to low profitability he doesn’t have the funds to invest to aggressively market 10 years worth of catch-up.
His brand is portrayed with a £100 website and a logo designed by a friend. He has zero exposure across any of the digital realms, apart from a Facebook page which he tried for 2 months, but didn’t get any clients so he gave up.
There’s probably no better phrase than ‘reaping what you didn’t sow’.
Why be a best kept secret?
I don’t disagree that experiential referrals have a value and a role to play, but because the accountant neither believed in nor invested in marketing, his firm isn’t benefitting from:
- Reputation-based referrals – this type of referral is made by individuals or organisations that don’t know you from direct experience of being their accountant but can speak to the knowledge and abilities of your ‘reputation’ in the marketplace. Corporate reputation as we know is supported by a programme of marketing (more here on corporate reputation).
- Expertise-based referrals – this type of referral is based on a firm’s specialist expertise, recommending a provider based on its ability to tackle a specific challenge—even if the referrer lacks extensive knowledge of the firm’s reputation or of course direct experience. Again – supported by a programme of marketing.
To stress again – I don’t disagree with the concept of ‘experiential referrals’ – I just don’t believe they are strong enough as a strategy not to market the firm.
Professional services brands generally recognise that an effective marketing strategy consists of many different moving parts that work together to achieve the ultimate aims of heightened visibility, new business, and growth. All marketing initiatives, including increasing referrals, mutually support one another.
Personally, I like fresh enquiries unattached from experiential referrers. They’re a better indication of marketing efforts.
I also believe that clients shouldn’t have to go on a treasure hunt to find good lawyers or accountants or any other professional adviser. If you believe you can help people, why hide under the proverbial referral network rock?
