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Where do referrals come from? Simple question with a simple answer: Referral Sources. Unfortunately though, referral sources don’t magically appear or grow on trees. To receive referrals consistently, you need a dedicated group of referral sources that you nurture consistently.
Your referral sources form the base of a healthy referral generating plan.
Referrals are just one type of lead generation for new clients and most would agree that they happen to be the best way to generate new clients. Prospects who are referred to you are easier to close meaning they arrive at the decision to work with you faster. This is because they trust you before meeting you, are less price sensitive and already value what you do.
Why?
Because someone they trust told them that you can help them.
Most business owners – at some point – will need more referral sources. This is particularly true in the first few years of starting a business.
So, what do you do when you need more referral sources? In this article we will dive in to understanding the basics about referral sources, overcome the common misconceptions about referral sources and then go through the four steps you need to start increasing your referral sources.
SECTION 1: The Basics of Referral Sources
SECTION 2: Overcoming Common Misconceptions
SECTION 3: Four Steps to Increase Your Referral Sources
SECTION 4: Determining the Number of Referral Sources You Really Need
To receive referrals – the holy grail of new client generation – we need to make sure we have a way to consistently receive referrals and that means referral sources.
Which means we need to cultivate a group of referral sources. Let’s start with a look at the basics of referral sources.
SECTION 1: Referral Sources Basics
Referrals only come from referral sources so we need to make sure we understand all about referral sources.
What is a Referral Source?
First, let’s define a referral source – a referral source is someone who sends you referrals.
A referral source is always a human. It is always a person who sends you referrals. If the new potential client doesn’t come from another human, it’s not a referral source. It’s just another type of source sending clients (like an advertisement, cold call or networking event).
Four Types of Referral Sources
There are four (4) types of referral sources: Clients, Centers of Influence (COIs), Friends & Family and Strangers. Do you know which your referral source are? It’s important to determine which of the four types will be your best type of referral sources and it may a combo of more than one type.
Type One: Clients
This one is pretty self-explanatory. The first type of referral sources is clients. They could be clients you are working with now, or clients that have worked with you in the past. It is important to note, not all clients will become referral sources, but some will.
Type Two: Centers of Influence (COIs)
The second type of referral sources is called centers of influence (COIs). A COI is not to be confused with your entire network. Let’s just say your network, for sake of argument, is a couple thousand people. But a COI is a defined as a much smaller subset of those people who are in your network.
The COI subset has three defining qualities:
- They know what you do.
- They don’t do what you do, so there is no competitive overlap.
- They come across your ideal client with some regularity.
Your COIs are not everybody in your network, even if your network is small. Meaning even if everybody in your network knows what you do, and doesn’t do what you do… it still doesn’t mean they come across your ideal client with some regularity. The regularity piece is key.
A great way to think about this is from a perspective of a mortgage loan officer. Let’s use that as our example.
For a mortgage broker, a great COI is a realtor. They don’t do the same thing, but obviously a realtor understands what a mortgage broker does, and realtors come across people – their clients – who are going to need financing to be able to buy a house, hence they’re going to need a mortgage broker or a loan officer.
Type Three: Friends & Family
Now you may never have a friend or family member refer you, and if that’s the case it’s more than likely based on what you do (if they even understand it). But many people will have friends and family refer them, especially in their first or second year when there is heightened awareness around you starting a new business.
Type Four: Strangers
Now I recognize it may seem odd for a stranger to refer you since referrals are based on relationships and trust, but it is possible for people you don’t know to have a very favorable impression of you (know someone who knows someone who loved working with you, read about in an article, etc.) and that be enough to recommend you to someone they know. Usually if you have a stranger refer you, it’ll only happen only once in a while.
Which Type(s) of Referral Sources Do We Focus On?
When working to develop new referral sources, we focus on type 1 and type 2 – our clients (current and previous) and our COIs. While it is awesome to receive referrals from friends and family, they usually drop off after the newness of your business wears off. And if your spouse or cousin refer you, they probably don’t need any extra cultivation to continue referring you – they’ll do it because they love you.
And we don’t focus on trying to find strangers to refer us because that is like searching for a needle in a haystack. You don’t know a stranger has it in them to refer you until they do.
Finding Your Mix of Referral Sources
The next piece you need to determine is your mix of referral sources. There are three possible mixes of referral sources.
- Clients only
- COIs only
- Hybrid of both clients and COIs
For some of you, you’re only ever going to receive referrals from your clients meaning you have a client-only mix of referral sources.
For others you’re only going to receive referrals from your centers of influence and not clients, meaning you have a COI-only mix of referral sources.
But most of you are going to fall into the hybrid category, which means you’re going to receive referrals from both your clients and your COIs. The hybrid mix of referral sources is actually the most common and most people will receive referrals from clients and COIs.
Let me give you a couple of examples, so you can put this into perspective for your own business.
Referral Source Mix Examples
Meet business owner Stan (*not his real name) who is a fractional CFO. He helps businesses overcome major financial issues in their companies. Some are on the brink of collapse and others are just struggling to right the ship. They bring in Stan to help them get back on positive footing and in the process have to share embarrassing details of what went wrong and what (or who) caused the issues.
For this reason, Stan has decided to focus on COIs as his primary referral source because he believes his clients will hesitate to mention to other business owners that they had to hire Stan. So, Stan has a COI – only referral source mix.
But Michelle is completely different from Stan.
Meet business owner Michelle who is an insurance agent and agency owner. Michelle’s firm provides insurance for two types of clients – personal insurance lines like home/auto and commercial lines for insuring businesses. Michelle has a hybrid model for her referral sources, which is most common.
Michelle is definitely receiving referrals from her clients but also receives referrals from COIs who come across people who need her services, like a real estate agent who refers home owners needing insurance to purchase a home.
She is going to focus on both clients and COIs as referral sources which means she has a hybrid model.
Before we move on to the misconceptions, it is important for you to figure out which is your mix of referral sources.
Are you client-only?
Are you COI-only?
Or are you more of the hybrid model?
Before we move on, take a moment to decide what is your mix.
SECTION 2: Overcoming Common Misconceptions About Referral Sources
Now that we are clear on the definition of a referral source, the four types of referral sources, why we only focus on clients and COIs as referral sources and you know your referral source mix, I want to discuss some common misconceptions people believe about referral sources.
Misconception #1: All Clients and COIs will refer
Unfortunately, not all of your clients and COIs will refer you. I know, it’s a bummer, but it’s true. It could be because they are not built to refer you (or anyone) or they already know someone like you who they already refer people to.
If they are not built to refer it is because they just don’t think in a “referring way.” Now, of course, everyone can refer, it just doesn’t come naturally to everyone.
So, it is important to focus on who will refer. What I have found with the hundreds of students who have been through my programs and through my research, about 30% will refer. That gives us a good baseline to build from and helps us manage our expectations.
Which is why it is important to first identify who refers you and then you can focus on identifying those who have the potential to refer you. Yes, it is possible to increase the number of your referral sources – your clients and COIs who refer you – but just don’t go thinking you’re going to turn every single client, or every single COI into a referral source, ok?
It is also important to keep in mind that your referral sources will refer at different rates too – some will refer a lot and some just a few. Just remember your referral sources are not all carbon copies of each other.
But this is good news and should come as a big relief. Because to be honest if you’re trying to grow your business based on referrals, whether that is 75%, 50% or even 30% of your new clients coming through referrals…knowing not all will refer, or refer at the same rate, provides us with a smaller task to tackle. And I’d rather you start with some baby steps and make some great progress, then really try to eat the whole elephant in one bite.
Misconception #2: Referral Sources are Easily Identifiable
I know, another bummer. Our referral sources are not easily identifiable. Most people always ask me, “Well, how do I know who my referral sources will be?” And my answer is always the same, “Well, if I knew the answer to that, I would be a gazillionaire.” (Yes, that’s a real number.)
Now keep in mind, identifying your current referral sources is really easy because they are currently referring you. But we are talking about those we want to become referral sources which makes the identification process harder.
When I say it is not easy to know who will be your referral sources, what I mean is – you can’t tell by just looking at them (which is okay because that would be judgmental and we don’t want to be judgy people!).
When trying to identify your referral sources, you can’t tell by their personality, or the energy level they have. You can’t tell by the position they’re in, or the job they have, or even by who they know. It’s not easy to identify the type of person who will be in that 30% who are more likely to refer. Coming up in Section 3 there is a process I will teach you to make this easier but there is no magic bullet to easily identify who will refer you.
Unfortunately no one wears a sign attached to their chest that says, “I’m an A+ referral source,” or “I’m a D- referral source.”
It just doesn’t exist. You can’t make judgments, and you can’t assume who will be the perfect referral sources. But you can the odds in your favor with my identification process.
Misconception #3: Once a Referral Source, Always a Referral Source
Your list of referral sources is a changing, ever-fluid list and you need to understand and accept it. Referral sources change because people move away, change jobs, sell their companies, or change the direction of their business so they’re no longer coming across your ideal client.
You have to keep in mind – client or COI referral sources – once they become a referral source it is your job to do everything you can to keep them as a referral source. But you have to understand that it’s fluid, and your referral sources will come and go.
Sometimes you may decide to remove a referral source from the list and it’s because you have decided you no longer want to cultivate referrals from them. Bottom line, just because a referral source is on the list today, doesn’t mean they’ll stay on there forever.
SECTION 3: Four Steps to Increase Your Referral Sources
Okay, let’s get into the nitty-gritty of how to turn clients and COIs into referral sources. This section is broken down into the four steps you need to follow to get started with increasing your referral sources.
Step 1: Considerations of Current Referral Sources
If you have received referrals, then with this first step, I want you to think about a few people who have referred you. They could be clients, COIs, family, friends. For the purpose of this exercise, jot down a few name on the first section of the workbook.
Then next to that, in the right column, I want you to think about what those folks who have referred you have in common. We are looking to see if there are any patterns when considering who else is likely to refer. Because potential referral sources aren’t easily identifiable, we need to start looking for patterns.
The reason we identify patterns in our current referral sources is to help us determine what to consider with other potential referral sources. If you don’t have anyone who’s ever referred you – that’s ok. You can skip this step.
When thinking about people who have referred you in the past, you can also write down the names of those who have made introductions for you. They may not have referred you to someone who needed to hire you, but they’re definitely the type of person who makes introductions, helps you grow your network, meet new people, connect with others.
As you jot down their names – no matter if you have many or just a few – take a moment to write down commonalities. What do they have in common? Industries they work in, heavily connected, big networkers, specialized in their field, etc. Just take a moment and brainstorm, use the mini-workbook to help you.
And remember, not having this step won’t make or break the rest of the process, but it might make it easier as we move on.
Step 2: Adding Clients as Referral Sources
Now that you have assessed any commonalities with your previous or current referral sources, we can now move on to help you increase your overall number of referral sources.
And again, if you have didn’t have many – or any – people on the previous list, that’s okay. The next step will help you solve that problem.
This steps focuses on adding more clients as referral sources.
This is your opportunity to consider clients who haven’t referred you but you would like them to.
Start by writing down their names in the workbook. Now keep in mind you won’t actually know if the clients you wrote down will become great referral sources. This is going to take some trial and error and that’s normal.
To consider your options of clients as referral sources, you’ll need to target past clients, not just current clients. You may even need to pull a list of your clients to jog your memory. Like that client who worked with you three years ago that just adored working with you, but you haven’t really kept in touch with them and you are certainly not top of mind with them anymore.
Again, not everyone you write down will end up referring you. But, you do need to start identifying who *may* become a good referral source.
Make sure you show a little discernment. You know there are some people that didn’t have the best client experience with you. Maybe they became a client at a point in your business where you were growing faster than you could handle and your processes broke down. Or maybe, they didn’t do what they were supposed to so their results were less than stellar.
It is important to note, you are NOT creating a list of all of the clients you have ever worked with. Again, show a little discernment as to those who may become good referral sources.
But this then begs the question, what if you are new in business?
What if You Are a New(er) Business Owner?
What if you have been in business for less than 2 years? What if you’ve only worked with a dozen or so clients? Since your client list is small enough I would suggest you put all of your clients on the list but please not, this is the only circumstance I recommend this. As you go through the process of turning these clients into referral sources, you will figure out who will stay on the list and who will not.
Now take a minute to write down the name of the clients you think will make a good potential referral sources.
Step 3: Adding COIs as Referral Sources
For our COIs, the process will be similar but will start more broad. Remember our COIs are those who know what we do, don’t do what we do and come across our ideal clients with some regularity. In the workbook, jot down the specific names of COIs who you would like to refer you. This might include people you know well or don’t know well – from your general network – with your goal to have them become COI referral sources.
That’s right – to develop a list of potential COI referral sources we need to start a little more broad and then narrow it down.
Here are some helpful tips to help you create a robust list of potential COIs.
- Review your calendar of those you’ve met with for coffee or a meeting over the last six months or longer.
- Pull up LinkedIn and start scrolling through your 1st degree connections and then your 2nd degree connections.
- And possibly pull out that stack of business cards you have and go through them. (Yes, they still exist!)
Now word of caution, use your judgement of who you add to your possible COI list. If you haven’t talked to someone in three years, they may not be worth adding to your list.
Now take a minute to write down the name of COIs you think will make a good potential referral sources.
Step 4: Create Ideal COI Profile
After you have your list of potential COI referral sources, we need to move on to the second part for our COI cultivation. We need to create our ideal COI profile. In the workbook you’ll see this part as Step 4.
You might wonder why this step comes after writing down names of COIs as potential referral sources. The reason for this is because as you think through specific people you start to develop parameters for which your COIs will fall into. We use those initial thoughts to make it easier to create the ideal COI profile.
The truth is – no matter how perfect a COI would be to refer you, doesn’t mean they will. But having an ideal COI profile will help when we need to identify new potential COIs in the foreseeable future.
If you’ve never considered who would make the “ideal” COI for you, it is similar to the process you may have gone through when you were considering who your ideal client is. As a business owner, it is important to know who is your ideal client…those clients who come to you and they need exactly what you have to offer. They have the money to be able to afford you. Maybe they’re in the right geographical location or in the right age demographic. Maybe they’re at a certain stage or level with their business.
We want to take that same process and apply it to our COIs which will help us create an ideal COI profile.
As you complete this section of the workbook – your goal is to list out the characteristics you think will make an ideal COI. This step is all about profiling for now. We’re not coming up with names of those we know, that was the section above. Right now, we’re just trying to figure out, what are the identifiers or characteristics that would make a great COI referral source?
Here are some ideas to consider:
- Types of industries
- Specific job roles
- Specific organizations or associations they belong to
- Who their clients are
Here is an example…let’s say you only work with women. Sorry guys, nothing personal, just an example. Think about the business owners and professionals who may cater to women as clients, but go a little further and consider organizations and associations that work with women. Specifically the organizations and associations that serve the type of women you want to work with.
Using my previous business as an example, my target ideal COIs were financial advisors, CPAs, and business consultants who worked with small business owners. They weren’t my only COIs, but having these three targets gave me a place to start to identify who else I wanted to get to know to cultivate them as a COI referral sources.
We want to make sure we understand who would make the best type of COI referral source. There isn’t just one. So, list out options, industries, roles, organizations, vendor types who are already serving your clients. List out that information so you have a firm idea of your ideal COI profile, a target profile so to speak.
How the Ideal COI Target Profile Helps
At some point, you may need to cultivate more referral sources who are COIs. Having an ideal target profile is very helpful. When you exhaust your list of potential referral sources you listed by name through this process, it’ll be helpful to have an idea of who to consider as additional COI referral sources.
The profile will help you identify and refine who you should focus on meeting and getting to know.
Section 4: Determining the Number of Referral Sources You Really Need
After completing the steps in this process, your next step is to create your action plan to form relationships with your identified potential referral sources and cultivate them into referral relationships. We offer additional resources on how to do that (plus what to say) in our How to Turn Clients & Contacts into Referring Machines program.
Now you have your list of potential referral sources (clients and COIs), but how will you know when you’ve cultivated enough referring relationships.
1. Get Clear on the Annual Number of New Clients You Need
The easiest way to gain control of this process is to put it in context of the number of new clients you actually need to bring in this year. If you only need 50 new clients – then two dozen referral sources who give you 1 to 2 referrals gets you very close to your goal of 50. That is not saying you will close every referral you receive, but if half of your new clients come through referral, how much easier does that make your new client acquisition process this year?
2. Determine How Many Referral Sources You Need
Once you are clear on the number of referrals you actually need on a yearly basis – based on the number of new clients you need per year – you’ll see that you don’t need hundreds of referral sources. But, less than five referral sources probably won’t work for you either. I tell my clients to aim for a dozen to two dozen referral sources to start and grow from there, but only if you need it.
If you are a business owner who only needs 25 new clients in a year then you need about about one to two dozen referral sources sending you one to two referrals a year. The number of new clients you need every year is typically what indicates the number of referral sources you need, based on how well those referral sources produce results.
And of course, you won’t close every referral you receive. But receiving a referred new potential client is the easiest way to get to the number of new clients you need per year. To get there you do need a dedicated list of referral sources who do refer you.
Consider What Your Referral Source Needs to Refer You
Remember no one refers someone they don’t trust and people typically trust people they know and have a relationship with. So now that you’ve identified who you want to start referring you, now your next step is to start building relationships with them. Which I know is easier said than done but the next step in this process can be easy if you allow it. There is work involved, but if you have a process to manage your relationship-building, then you will be able to make it a part of your workflow so it actually happens.
A Resource to Eliminate the Stress of Getting Started
You may be one of those people who knows instantly what to do to start developing relationships with people you know and with strangers. If that’s you – then it’s time to get to work!
But if you are like most people – having a road map to follow gives you the confidence you need to get started. I offer an online program – How to Turn Clients & Contacts into Referring Machines – that teaches you exactly how to take your lists of potential referral sources through a process to nurture them to become referral sources. None of it is rocket science, but if you like step-by-step processes to hold you accountable and show you how to do so you don’t waste time on mistakes, then check out this training program.
And remember, I do all of this without ever teaching you to ask for referrals, to offer compensation for referrals or to act like someone you are not.
Final Thoughts
As we wrap up, here’s what I need you to understand.
Increasing your referral sources really comes down to developing relationships with the people who have potential to become referral sources.
They will not become referral sources overnight.
They will not become referral sources just because you had one meeting with them to get to know them.
You are going to have to establish a relationship with them where trust is established and nurtured.
And this is more of a long-term game than a short-term fix. We’re not looking for a band-aid approach that will stop working in a few months.
We’re looking to systematically grow our business in the best and easiest way possible. Which means we have to do a little bit of work to develop more referral sources so that our business is sustained by referrals, and we aren’t worrying or stressing out about where the next client is coming from.
My goal is to help you leave behind the entrepreneurial roller coaster and those feast or famine months.
Your job is to meet me halfway and be willing to do a little work to receive the rewards you deserve – in this case – the referrals your deserve.