Are Referrals Really Your Best Source of Business?

Often, when we ask clients what their current marketing efforts are, they say, “we get all of our business from referrals”. On the surface, that sounds great.
Referrals over a few beers

After all, a referral means someone is so happy with your service or product that they’ve told someone else that you’re the best option and choosing you is the right thing to do. But, when you stop to think about it, you’ll realise that, actually, referrals aren’t always the best thing for your business.

Firstly, let’s consider the fact that if referrals are your only strategy for growing your business, you’re limiting your potential. You can’t scale referrals. You can only get to a certain number of people before you get to the edges of your referral base. That’s great if you’re at the level you want to be and don’t want to take your business any further. But we also need to look at the fact that referred clients aren’t always the right kind of client.

Take a recent referral I received, for example. This company was a start-up. They didn’t have great funding and they wanted to talk about a whole bunch of stuff I didn’t want to get involved in just yet. They weren’t clear on who their customer base was or who they wanted to target. I walked away from the call thinking, “I don’t know if this is my perfect customer”.

So who is the perfect customer and how do you spot one? Start by considering whether they’re an A, B or C Class customer.

A list clients - Are Referrals Really Your Best Source of Business?

A-Class customers

These clients are your absolute perfect business. These types of customers fall right within your area of expertise. This means you’ll be able to deliver your best work. And they’ll receive much more value from the relationship than you charge. So that’s a good relationship right there! The customer is super happy, they pay on time and are generally good people to work with.

B-Class customers

This refers to clients who are beneficial. These clients get a good result from you and they’ll pay a good amount. They’re beneficial to your business, but they’re not an absolutely perfect fit.

C-Class customers

Are what we call customers of convenience. They’re the kind of customers who take up a lot of time, energy and effort. They put in a lot of support tickets, call you at weird hours, don’t pay on time and generally just mess you around. While there might be a lot more of them than A and B Class clients, they’re not always going to be your perfect client. However, the issue with referrals is that you often feel obliged to go work with them because they’ve been referred. In the end, this can devalue your offering, and can put an unreasonable burden on your backend and support system.

It also means you’ll be diverting your attention away from what you’re really good at. If you’re a business that only goes after manufacturing clients and you get a referral to a logistics company, you’re going to have to do a lot of work to get your offering for that logistics company as good as your manufacturing. You could end up dropping the ball on both. Like Confucious said, the man who chases two rabbits catches neither.

Avoiding C-Class customers means working out who you want to target, and not trying to be everything to everybody. Our business, for example, only looks to work with companies in the software and technology world who are funded and have a good product market fit. If I was to say to these clients: “who is your best customer?”, they would have a good answer to that. They wouldn’t say, “we can do everything for everybody” because that is not a good answer. The customer I was referred to recently believed they could be everything to everybody. This meant, when it came to talking about marketing, they wanted to target everybody.

But to target everybody, you need everybody type of money.

Telstra, for instance, is a company for everybody and they have an everybody budget to match. They have stores, run television ads, sponsor sporting teams and they’re in front of people constantly. They spend millions of dollars each year, and that’s the kind of budget you need if you want to target everybody.

If you don’t have an everybody budget, you need a somebody budget and you need to come up with who that somebody is. The narrower you are when deciding who this company is, the more targeted you can be and the less money you need to spend. You can finely hone your marketing and sales activity, client acquisition activity, your software and technology, and delivery mechanism. ‘

You can shape your entire business around creating an amazing result for this one group of people. By doing that you’ll save money and actually be more profitable. By being an expert in that one particular area, you’ll stand out and away from the ‘everybody people’ and by standing out and away, you can charge more.

b2b product launch strategy - Are Referrals Really Your Best Source of Business?

So, are referrals really your best source of business?

If you sell screen doors, absolutely. Referrals are a good source of business if you sell screen doors because screen doors are screen doors. Maybe if someone came along wanting screen doors for a factory you’d be out of your depths. But, for the most part, your referrals are going to be people wanting screen doors for their houses and that’s great for your business.

Whereas if you’re in the technology world, finding high quality, A-Class customers is going to require a bit of thought and effort. You’ve got to think about what problems your target customer has. What keeps them awake at night, how do you solve those problems, what their alternatives are, what the downfalls of those alternatives are, and how you can solve those problems without any drawbacks.

While this all sounds like a lot more work than simply taking the call of a client’s friend or second cousin, your business will be much better off.

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