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Why Clients Are Not the Referral Source to Count On

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Why Clients Are Not the Referral Source to Count On

Professional services firms depend on referrals for continued growth. And many firms stridently cling to the belief that clients—both current and past—are their primary source for those much-needed referrals. After a closer look, we found this faith in clients as a referral source to be wrong.

According to a survey of 500 professional services companies, people who have never worked with your firm—strangers—are likely your top referral source.

As I asked in a recent CNBC post, why would complete strangers be a good referral source for a firm?

When we asked those making the referrals, the majority said it was because of the company’s reputation or visible expertise. In fact, the visibility of a firm’s expertise is the single most important factor in someone making a referral.

Many referrers first become aware of a company’s capabilities when they hear one of their experts speak at a conference or read a blog posts or article that demonstrated the firm’s knowledge. In other words, the firm had made their expertise visible to the outside world.

In earlier research, we noted that perceived expertise is the most important criterion when selecting a new professional services provider. We now know that certain activities drive that perception. As you can see from Figure 2, some types of visible expertise are more important than others. Especially if someone has never worked with the firm before.

Of course, strangers who hear you speak at a conference or read a compelling blog post are not your only source for referrals. You cannot discount the value of professional relationships and reciprocity when cultivating possible referral sources.

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Relationships Still Matter

Social and professional relationships are important. In fact, they account for nearly 18% of referral sources. Not surprisingly, referrals often result when a social and professional relationship intersect. Of course, our research also demonstrated that social relationships in the absence of any direct knowledge of your expertise will do you little good.

Cultivating friends at noncompeting firms is another way to develop a referral source. These complementary contacts are often more than happy to send business to a reputable firm they know. For instance, an accountant who works on a specific kind of financial transaction is often happy to refer a client to a knowledgeable attorney who also has expertise in such deals.

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Reciprocity Really Works

Making referrals can pay dividends, too. In fact, the more referrals a firm makes, the more it is likely to receive. The reality is givers gain—and the numbers back it up.

When we asked people to tell us how many referrals they had given and received in the previous 6 months, we found some interesting correlations. On average, people had given an average of 7.2 referrals and received 7.0. The top 20% of those acting as a referral source had given an average of 17.9 referrals and received 21.8.

Clients Still Need the Love

Existing customers are still a good source of referrals for professional services firms, with about 80% of clients willing to refer their current service provider to others.

When word-of-mouth marketing from satisfied customers is the main way a firm spreads the word, however, the number of referrals it can receive is limited by the number of clients it has. This means firms with better known, more visible brands have a larger pool of potential referrals.

Give Up the Tried and True

Some firms still try to raise the visibility of their firms, not by exhibiting their expertise, but by sponsoring tables at industry conferences and sending employees to networking events. In light of our research, this is a poor allocation of precious BD money. Sponsorships result in less than 1% of referrals. And networking does little more, representing just 3.4% of referral sources.

Closing Thought

Unfortunately, no matter how hard you make your expertise known not all referrals you receive will lead to new business. Nearly 52% of referred prospects rule out a referred service provider without even talking with them. And there are a wide variety of factors that could tip the scale against a firm.

Perhaps the referred prospect Googled the firm and couldn’t find any information about its experts. Or maybe a customer was unimpressed with or frustrated by the firm’s website.

Fortunately, such deficiencies in visibility and perceived expertise are easily addressed. It all goes back to building up your firm’s visible expertise. You’ll win a lot more referrals by showcasing your best work, knowledge, and past performance.

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