Referrals provide, what in the marketing world is called social proof…
which means that others are have used your service and since they are referring you, the referrer must be happy with your services. For you, it’s a warm lead and a warm lead is definitely easier to approach than let’s say a cold prospect.
And let’s be honest, one of the main reasons why we tend to focus on referrals is that we feel uncomfortable approaching new clients.
Referrals are great until they’re not.
While all this is wonderful, focusing solely on referrals as a business development strategy has disadvantages that in our opinion far outweigh the advantages. Here are a few reasons why you shouldn’t rely on referrals as the only way to generate business.
Times have changed.
You don’t have to be a Fortune 500 executive to understand that mobile, social media, Google, smartphones and apps have changed the way that people communicate with friends, associates and vendors, research solutions, receive recommendations, and learn about your business (and your competitors).
So while referrals may have worked in the past, the reality is that digital technology has connected more people together giving them many more options than ever.
A highly competitive landscape
The interconnectedness of today’s marketplace has perhaps been a boon for your audience but it’s a double edge sword for your business. Today, you have hungry competitors both from the traditional sources as well as new competitors who act different, provide more complete solutions and who are savvy at marketing, and who employ more strategies than just referral marketing.
They are using social media to connect with new clients and customers. They are using content marketing to share their expertise, which assists potential clients and customers in researching various solutions. They use marketing automation to follow up and nurture clients and customers. This may seem overwhelming but it’s not. These same tools are available to all businesses.
Be prepared for ups & downs
This last and most important reason for not relying solely on referrals to generate business is that it’s just bad business. While working your existing clients and network to refer you new business feels great when times are good, it also puts an inordinate amount of control over to someone else for your lead generation. So, what happens in bad economic times? What happens when your network has no referrals to send you? What happens in months when referrals are just low or non-existent?
Now don’t get us wrong, there are people out there who are exceptions to the rule when it comes to how many referrals they receive each month, but more often than not, the ugly truth is that slow growth and inconsistent cash flow are the most common problems we hear from people who rely solely on referrals. Unfortunately, by the time people realize that this sole focus in a bad business idea, it is usually too late.
Conclusion
As business development method, having a referral strategy as part of your marketing mix is a sound tactic. However, putting all your marketing eggs in one strategy, whether its referrals or something else is just asking for trouble. Do yourself a favor and avoid the pitfalls mentioned above and remember, referrals are great, until they are not.