Since the beginning of time, we’ve heard that referrals are the best way to grow your business. But is it? Focusing on referrals can unearth diamonds, it’s true, but most often you’re just knee-deep in dirt and frustrated. Referrals are an inefficient way to grow your book of business, and don’t lead to better or longer-lasting client relationships.
You don’t know your ideal client, so the referrals you get are unqualifiable
Let’s face it, you don’t have time to create ideal customer personas. And if you did, who’d pay any attention to them? If you’re unable to invest the time to identify the things your best clients have in common, why you like working with them, the problems they have that you solve better than anyone else could, then you’re not going to be able to tell existing clients what you look for in prospective clients. Without proper guidance, the prospects your clients refer to you will be their ideal customer, not yours. [TWEET THIS] Or worse, they’ll refer people they like, not people they think you can solve problems for.
If you have a referral program for your employees, the referrals are unqualifiable
A referral program is a great idea on paper. It turns every single employee into ta salesperson for your organization, and who wouldn’t want that? You, that’s who. The best sales people are professionals who have learned through training and experience, how to spot the tell-tale signs that a person is just blowing smoke or making small talk and isn’t really interested. Sales amateurs don’t see these things, and so they bring you referrals. By which I mean: Every. Single. Person. In their address book. And now you have to call every one of those “leads” to disqualify them. And you will – almost every time – disqualify them.
It will redefine your relationship with the referring client
Your client, Jack, refers you to his friend, Jill. Now, Jack’s invested in this outcome, so in every client update meeting, networking event and comment on your LinkedIn posts, Jack is asking, “How are things going with Jill, did you ever get to talk with her?”
Why is this bad? Two reasons: first, your business relationship with Jack may now have to change because those conversations about “My friend Jill who’s having some marketing challenges” are now “My prospective client Jill, who I can’t talk about with you because I don’t talk about client needs to other clients.” And second, Jack’s perception of your performance on his account might now be influenced by conversations Jack and Jill have that you’re not part of.
The relationship between the referring client and the referred prospect isn’t as deep or strong as the client claims
Let’s stay with Jack and Jill. They’ve been LinkedIn connections for a couple of years and occasionally comment on each other’s updates. They’ve run into each other a couple of times at conferences. They aren’t friends. They aren’t colleagues. They’re just-barely online acquaintances. But Jack tells you about his “good friend,” Jill, who you should work with.
Since you don’t want to look like you don’t value Jack’s referral, you spend hours reaching out to Jill, who would characterize her relationship with Jack as “Who? I think I sort of know him.” And you don’t stop because every time you see Jack he asks how it’s going with Jill. That’s why you end up investing way more hours in this one prospect than you would invest on anyone else. And when you eventually end your attempts, Jack’s going to tell you, “Well, I didn’t really know her very well, but she seemed like she might be a good fit.”
The mutual friendship makes you more relaxed about details
When you have a mutually-trusted connection you want to make them look like a rock star. When you talk to the referred prospect you might be inclined to make things easy for everyone by not getting into too many details right away. After all, this should be an easy slam dunk for both of you and you can get into the weeds of how you can help them later. So you cut a couple of corners to make it happen and then…then they become the client from Hell because you didn’t do your due diligence.
Just because the prospect came through a trusted source doesn’t mean they’re automatically a good fit for your business. If you have a process (and you do have a process, right?!?) for vetting and qualifying prospects, apply it to every prospect, even – actually, especially – referrals.
You’re more likely to discount your price
After you onboard the new client, they realize that neither one of you dotted your Ts or crossed your Is, assumptions and errors were made, and what they thought they were getting looks almost nothing like what you’re delivering. It’s a bad situation. That’s when they come to you and ask for a concession on the price. You feel bad, so you figure out where you can make slimmer margins and cut their price a little. Or a lot.
Referrals can be great for your business, but they need to be managed and nurtured with the same rigor as any other prospect. They need to be lead-scored in the same way as any other prospect and broken up with the same as any other prospect. If you place unrealistic value on referrals, you’re likely to allow unproductive behaviors in selling to them, and you’re going to get unwanted results from your efforts.