A recent study found that 74% of companies concluded that leveraging referrals is their least expensive method of acquiring new customers. At the same time, roughly 44% of these companies claim that referrals are the best way to acquire new customers*.
And yet, over the last half-dozen years, the number of companies that have adopted structured referral programs has stalled at 30%. The obvious question that needs to be answered is: Why do most organizations miss out on embracing a sales method that produces positive topline and bottom line results?
To answer this question, in Part 1 of this series, we turned to companies across industries that truly value referred business, referral sources, and referral strategies. Specifically, we began to draw upon insights from Motorola Solutions, Ceridian, Trader, and Sandler Training to help us chip away at answering this question.
Here, we dispel six common myths about referrals that are contributing to why companies are slow to embrace structured referral programs. Once again, we draw upon the same organizations for their unique insights.
Myth about who referral sources are
If you believe that a referral source can only be a customer, you are far from being alone. However, a transaction should not define whether someone is a viable and effective referral source. Rather, the key dimension to focus on is trust. Specifically, a referral source must trust you, your offering, and/or your organization. At the same time, they must also be trusted by the organization, or type of organization, that you want to count among your customers.
Lesson for you to put into action: Consider expanding the types of potential referral sources well beyond your customers.
Myth about why referral sources do refer business to you
One of the most widely-held myths about referrals and referral programs concerns the reason why referral sources refer. The assumption is that it’s all about compensation. The reality is that there is a host of reasons why people actively refer. A referral program that relies solely on this single form of motivation is destined to fail. Rather, the motivations for referral sources to refer business to you is different for each person and those motivations continue to evolve over time. According to Ceridian’s VP, Corporate Marketing, Sarah Terrelonge, ‘Sometimes the reason why referral sources take action is completely out-of-sync with what you had originally thought. But, it’s always more complex than you think.’
Lesson for you to put into action: Make sure that your referral program clearly identifies, monitors, and adapts to the evolving motivations of your referral sources.
Myth about why referral sources don’t refer business to you
Just as referral sources are not driven to refer business solely because they’re receiving compensation, their lack of referral behaviour isn’t because they are simply ‘unmotivated’. In other words, to refer business to you, referral sources need to have more than their motivation clearly articulated and accounted for. They also must have the right opportunities to refer and the right combination of skills.
Motorola Solutions’ Ron Hutzul, suggests another reason that discourages referral behaviour: ‘Organizations can unintentionally, or deliberately, convey that they are uncomfortable receiving assistance from potential referral sources’.
Lesson for you to put into action: Make sure your referral program accommodates and builds on referral sources’ skills and opportunities to refer. Also, make sure that your program is ‘known’ to those who you would want to include.
Myth about why referral programs are successful
If you review the providers of referral marketing technologies it’s easy to think referral programs can be easily automated. However, according to Shannon Pinto, who manages strategic alliances at autoTrader.ca’s commercial and recreational verticals, ‘Being successful at leveraging referrals takes a disciplined approach. That means setting specific goals, creating processes, and making sure that the program is being managed by those with the right combination of skills’.
Lesson for you to put into action: Make sure your referral program includes time-specific targets, well-defined processes, and is overseen by someone with referral management skills.
Myth about when to engage your referral sources
The prevailing myth is that you should only ask your referral sources for referrals after you have successfully provided your product or service. Chris Kelly, owner of Sandler Training office in Toronto instructs his clients to structure their ‘asks’ for referrals at very specific times of their relationship – for example, when they are on-boarding a new customer. He also recommends reaching out and asking existing clients (and previous clients) for referrals on a regular basis. But, he emphasizes: 1) ‘Don’t ask for referrals when your sales funnel is empty’; and 2) ‘Manage expectations so that your referral sources know in advance that you’re expecting them to refer business to them’. That way, you don’t ask referral sources for referrals when they are either unable or unwilling to do so.
Lesson for you to put into action: Make sure that you identify those times in your relationship with referrals when they can make referrals and are most willing to do so.
Myth about the value of a referral
It’s easy to think that ‘a referral is a referral’. Particularly, if you haven’t implemented a program where referral activity is defined, measured, and optimized to bring you new business. But, the reality is that not all referral activity is equal nor does it provide equal value to you — not by a long shot. Just consider three different scenarios: a reference in an RFP response, a connection being made on LinkedIn, and a public endorsement. These three referral behaviours reveal a very different level of trust that a referral source has in you. At the same time, during each of these activities, your referral source is looked upon differently by those organizations that you are targeting. As a result, each of these referral activities provides a different value to you during the sales process.
Lesson for you to put into action: Make sure your referral program defines the kinds of referral activities that are important to you achieving your sales targets.
In the next article in the ‘Harnessing the Power of Referrals’ series, we’ll review what people truly love (and dislike) about managing referrals. We’ll continue to draw insights from Motorola Solutions, Ceridian, Sandler Training, and Trader.
Those interviewed for this series include:
*Study: The State of Referral Marketing in 2017 (Web Profits).
Andrew Brown is Founder and Chief Innovation Officer of Bridgemaker Referral Programs. He is the lead author of the ‘How to Grow Your Business Through Better Relationships’ series – which includes books on getting the most from referral sources, channel partners, and strategic alliances.