Avoid the Catch-​22 of Business Referrals

BY Tim Londergan
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Catch-​22: a frustrating situation in which one is trapped by contradictory regulations or conditions. [Source: dictionary​.com]

Ninety-​two percent of consumers around the world say they trust word-​of-​mouth or recommendations from friends and family above all other forms of advertising. That’s according to research from Nielsen, which reports that people are four times more likely to buy when referred by a friend to a particular business. Then, too, consider, “referred customers are also more loyal and have a 16% higher lifetime value – meaning they spend more long-​term,” according to Marcia Layton Taylor, citing research from Wharton and Goethe University. Irrefutably, referrals are powerful and worth pursuing! However, the Catch-​22 of business referrals is that they often run contrary to our sales goals and create distractions.

Self-​informed customers intensify the catch-​22 of business referrals

Let’s face it, business referrals are often confounding. For example, they’re proven to be a passport to sales success, yet they are exceedingly difficult to manage. Especially when you consider that the salesperson is no longer in control of the customer experience. Increasingly, sellers are outgunned by self-​informed customers in the “wild west” of available information. More and more, customers savor their independent views and take satisfaction in doing their own research. Consequently, this only makes it more difficult to get the initial appointment to plead your case. Likewise, in today’s selling environment, cold calls and pitch letters are out, while relationship building, collaborative selling and digital interactions are in. Hence, the catch-​22 of business referrals.

Factors contributing to the paradox of business referrals

Much of the push-​pull and resultant effectiveness of referrals is dependent on your industry, your type of business, your product and its profit margin, and the opportunity for you to earn repeat business. Simply stated: referrals are not suited for every business. Unfortunately, dependence on referrals gives control of your lead generation to another external party. In addition, referrals are an inconsistent, short-​term tactic that may prevent you from adopting a more effective sales strategy. These factors contribute to the catch-​22 of business referrals.

Incentivized referral programs may fail

Formal, incentivized referral programs can sometimes backfire, according to Meghan McEnry, writing for referralrock​.com. McEnry skillfully details the pros and cons of these schemes. She notes that double referral programs, covering both the referrer and the person being referred, can be expensive and hard to control. Meanwhile, one-​way incentives can be devalued if prospective customers know the referrer is being paid and not authentic in their recommendation. Ultimately, non-​incentivized programs produce the most genuine recommendations, but most of your customers will lack the motivation to refer your business to the people they know. So even formalized programs fall victim to the catch-​22 of business referrals.

Solution: Establish an intentional, clear strategy for business referrals

This seemingly no-​win-​situation can be mitigated if you are proactive and take ownership of the efforts to fill the top of your funnel. In a five-​minute read, Scott Edinger, writing for the Harvard Business Review, details “What an Effective Client-​Referral Strategy Looks Like”. Touting the advantages of referred customers, such as speed of processing, easier negotiations and healthier margins, Edinger cautions his clients to avoid passive engagement. In fact, he urges sales organizations to adopt this three-​step process to accelerate revenue through referrals. His steps include making referrals a standard part of how you do business, set up a process for who and how you ask for referrals, and stay focused on this detail. In particular, Edinger sets out the elements of a successful referral-​acquisition process:

  •             Choose referring clients with care
  •             Assure your client of your best intentions to help, and not pressure their referral
  •             Provide your client with a sample email to ease the introduction
  •             Be persistent in your request. Play the long game
  •             Show appreciation and recognize the trust they have shown in you

Develop lead generation and enhance your overall selling skills with this FREE E‑Book: The 7 C’s of Pre-​Call Intelligence.

Photo by 愚木混株 cdd20 on Unsplash