Therapists, consultants, coaches, trainers, and other providers of professional services have long used referrals to get clients. Word-of-mouth testimony allows your clients or others familiar with your work to do prospecting, marketing, and sales on your behalf, often in a far more credible and effective way than most providers could do on their own. As an added bonus, referrals tend to be a much lower-cost channel - often cost-free - to acquire new clients than traditional advertising or marketing.
Even if you pay for referrals - an issue we’ll address toward the end of this piece - this channel usually ends up being significantly more cost-effective than alternatives. It’s only a slight exaggeration to say that many professional service providers wouldn’t do any marketing at all if they could fill their schedule (or more than fill their schedule) from referrals.
This article will focus on three things: a more in-depth look into the benefits of referrals; proven strategies for obtaining them; and a strategic look at whether and how to pay for them.
Why Use Referrals?
As noted above, there are two key benefits from referrals. First, they are generally free or cheap, both in terms of financial cost and in terms of your time. Your clients, former clients, and/or people familiar with you and your business are essentially doing your prospecting, marketing, and qualification for you.
The benefits from prospecting and marketing are obvious: more clients coming through the door without much incremental investment on your side. The benefits from qualification can also be significant. Someone who makes a referral, knowing you and the person they are referring, often has reason to feel that the relationship would be productive for both sides, i.e., that the potential client is a good fit.
Business consultant and coach Angela Rice of Centered CEOs covers all of these points. She explains that “if we are attracting our ideal clients, and they are referring us to other ideal clients, then we will be significantly better positioned for growth and sustainability. The cost of the acquisition is also substantially reduced, and we are likely able to save on marketing, advertising, and networking expenses and efforts.”
Attorney Jacob Sapochick emphasizes the often-overlooked point that referrals are part - not separate from - a provider’s advertising strategy, highlighting that “referrals are the most trusted and influential form of advertising; they attract more clients. As a business owner, delivering on my clients’ expectations leads to attracting new clients since satisfied existing customers can recommend new prospects, thus, building relationships that fosters engagement and loyalty.”
In sum, professional service providers can benefit from referrals that help them obtain qualified leads and clients with little or no investment in time and money.
How To Obtain Referrals
It’s clear from the above that to get referrals to potential new clients, it’s necessary to delight existing ones: in other words, to be excellent at what you do. Content Marketer of Payment Depo Francesca Nicasio explains her strategy:
If you want to get loads of referrals, the best thing you can do is provide a service that’s so good that you leave your customers amazed and singing your praises to everyone they know. Word of mouth is a powerful way to generate referrals, but it relies on loyalty, which means you have to earn it. Delight your customers. Go above and beyond what they expect, and they’ll be talking about you for years and creating new customers for you without you having to ask for anything.
In other words, to maximize referrals, it is sometimes necessary to go exceed expectations. Naturally, there are often tradeoffs and diminishing returns from exceeding your standard scope for a client. As CEO of Techloris Shayne Sherman advises, providers should, within reason, aim “to deliver the outstanding service everyone wants. When you give the customer what they want, they see that you're doing exactly as they wish and understand their needs, therefore knowing you’ll do the same for their recommended clientele.”
While impressing current clients is necessary to earn significant referrals to your business, it is not always sufficient on its own. As founder and owner of Z Grills Australia Michael Humphreys notes, providers are most successful when they proactively “create strategies that make a current client refer you to other prospective clients.” One of the best strategies to get customers to refer you is simply to ask them. However, Co-Founder and CEO of GR0 Kevin Miller warns providers to do so “in a very strategic way. It’s best to typically wait until after the first two to three months of results. Yes, direct referrals are the highest converting channel by far as there is no better endorsement than a current happy customer, but you have to get there [creating that happy customer] first.”
On a related note, endorsements from happy clients need not only live in conversations they happen to have within their own networks when they think of mentioning you. Michael Eckstein of Eckstein Advisory highlights the importance of having multiple confirmatory endorsements and testimonials available to potential clients. He suggests that providers “gather client testimonials for their website because the first thing any referred potential client will do is scope it out, looking for reviews. A slew of good testimonials will add more weight to the initial referrer's recommendations.” Naturally, such testimonials and reviews will also help generate leads out of “cold” traffic that your marketing efforts bring to your website as well as referred leads.
Another crucial point to keep in mind is that clients need not be your only source of referrals; complementary businesses and networking groups who have had the opportunity to interact with you can be important sources of new clients. Lou Gimbutis of Property Solutions advises “joining a networking group that caters to the industry most likely to refer clients to your business. Groups like B.N.I. (Business Network International), Rotary Club, and your local Chamber of Commerce are excellent venues for developing these relationships.” The same approach can be applied to relevant Facebook and LinkedIn groups.
For business-to-business referrals, it’s important to be a value-giver as well as a taker. Founder of Aureum Hospitality Advisers Marlieke Kemp-Janssen describes her strategy as “partnering with complementary businesses and often sending referrals to partners who offer services that I do not provide.”
The Question of Money; Should You Pay for Referrals?
Many providers wonder whether they should pay clients and related businesses to refer them. This can be very tricky ground, and the best answer is that the answer depends on circumstances.
On the one hand, paying for referrals, especially from existing clients, can be both an unnecessary cost (if people like your work, they will want to refer you anyway) and can even decrease your credibility; current clients may wonder if the endorsement that they relied on in starting to work with you was based on the genuine appreciation for your work or for monetary reward.
Without thoughtful communication around your referral program, you might risk damaging existing relationships, as whoever referred a current client to you may not have disclosed that they earned a reward for doing so. As such, management psychologist Shelli Greenslade suggests complete transparency because “paying for referrals can be viewed as pay to play, which may diminish reputation and/or credibility if not done with integrity.”
On the other hand, co-founder of The Word Counter Gerald Lombardo recommends incentivizing referrals because “most people get too bogged down with their day-to-day that they simply forget to follow through. And most would like to see a mutual benefit for referrals.”
While every situation is different, some broad rules apply. First, it’s often understood that a referral from a complimentary business will come with an incentive - more so than might be the case with a referral from an existing client. However, incentivized client referrals are not inherently problematic.
Second, an incentive need not be a cash payment that you advertise up-front. It can be a thoughtful gift, bonus session, or other reward applied after-the-fact, which can carry a different feel to it than telling your clients that you will pay them a such-and-such amount for referrals.
Third, there may be regulatory issues involved, of which you should be aware. As business Growth Strategist Dan Lu explains, ”the industry you’re in will determine any rules and regulations that you have to be mindful of.”
Overall, referrals are a proven marketing strategy for growing your client list and reducing your marketing costs. Obtaining referrals is best done by creating happy customers and, secondly, by developing relationships with complementary businesses. Reward and incentive programs can also be used but must be set up thoughtfully and in compliance with your industry’s regulations. This will ensure you develop the most efficient and effective referral program that fits your business needs.