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Too Many Referrals?

Can there be such a thing as too many referrals? After all, referral business is the mother’s milk of professional services business development. Referral leads close faster and more easily than leads from any other source. And referral business usually means you have satisfied clients. So referral business is good and non-referral business is … not so good?

This seems to be the prevailing wisdom. I’ve seen many professional services websites and pitch decks that tout their firms' high rates of referral business. Well there is another side to the story.

While referral business should be an important component of any well balanced marketing plan, there are some downsides to a referrals-only diet.

  1. You are probably leaving anywhere from 40-60% of potential new business on the table. Yes, it’s true. The fastest growing companies get between 50-60% of their business from referrals, according to two recent research studies. If you are relying exclusively on referrals, you are limiting your new business opportunities.
  2. Referrals are often “off target” — outside your prime target market. Over time this will dilute your strategy and erode margins. You can target more strategic clients with well-run campaigns, allowing you to be more choosy about your referrals.
  3. Too high a percentage of referrals can mean that you have a marketing campaign that simply isn't producing results. Any strategy worth its salt should generate new business. If it's not, why are you doing it?
  4. If you rely exclusively on referrals, you are not in control of your destiny. By their nature, referrals are reactive. And you can’t control their timing or nature.

 
Does this mean you should swear off referrals? Hardly. But if you believe an all-referral strategy is ideal, you may want to think again.

 

Author: Lee Frederiksen, Ph.D. Who wears the boots in our office? That would be Lee, our managing partner, who suits up in a pair of cowboy boots every day and drives strategy and research for our clients. With a Ph.D. in behavioral psychology, Lee is a former researcher and tenured professor at Virginia Tech, where he became a national authority on organizational behavior management and marketing. He left academia to start up and run three high-growth companies, including an $80 million runaway success story.

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