For many years of my business career, I had only one answer to how I got new customers.
“All my new customers come from referrals.”
Now don’t get me wrong referrals are a way to get business.
Referrals are a sign that people are happy with my work.
I’m grateful for all the business I generated as a result of doing good work.
The biggest problem with referral business is I have no control over when or whether a person refers somebody to me.
Another problem with referral business comes from the person that refers new business to me.
If the person that refers new business to me is a problem client, then there is a good likelihood the new person will be a problem client.
In my experience, birds of a feather tend to flock together.
People that are miserable to work with tend to hang out with other people that are miserable to work with.
That way, they can all live together in a cesspool of miserableness.
On the flip side, my favorite clients often refer people that are like them.
Well, if my favorite clients are my best clients, and I want to get more clients like them, why don’t I focus on getting referrals from my ideal clients.
That certainly is a strategy. My question then becomes, “How are you going to encourage your best clients to refer you to their network of people?”
The simplest way is to ask for a referral.
This is a strategy that I’ve used with varying levels of success.
There are three types of people that refer business:
- Nonreferrer – The non-referrer is extremely uncomfortable referring anything to anyone. It is best never to ask this person for a referral.
- Neutral Referrer – This person is happy to recommend others if they have a good experience.
- Excited Referrer – This person loves to refer and recommend other people. It excites the person to help other people by being a center of influence.
How do you know what type of person you are dealing with?
The easiest way is to ask the person.
Here is a simple way to let the person self identify what type of person they are.
Hello Ms. Jones,
I want to thank you for being a valued customer of mine. You are the type of person I started my business to work with.
I love working with people like you. What I’ve found is my best customers come from people that I like working with.
I want to be respectful and recognize that people have different comfort levels to referring their friends and family to me.
On a scale of 1-10, how comfortable are you referring other people to me?
And let the person answer.
Once you get an answer, ask the person if you have their permission to ask for referrals.
Here are some other challenges I’ve faced in getting referral work.
For the first few years of business, I was in a phase where I was willing to take any work I could get.
I built a respectable tax business.
Finally, I reached a point where I filled my capacity to do tax preparation work.
I pursued different options to increase my capacity.
I invested in time-saving software.
I hired employees.
In the accounting world, most accounting firms generate more than 50% of their revenues from tax preparation.
All of the tax preparation work needs to get completed in an eight week period.
Systems must be optimized for ultimate efficiency and effectiveness.
There is a surge of lots of work, which leads to lots of revenue.
The biggest challenge is then managing that cash to last the remaining ten months of the year.
In the years where tax preparation was my largest source of revenue, there was a recovery period after tax season.
It usually took me six to eight weeks to decompress and return to feeling normal from the mad dash to make hay while the sun shined.
The only way to increase capacity during tax season is to hire season staff to work during tax season.
Some years I was able to hire competent staff, and other years, it ended up being more trouble than it was worth.
Each year I ended up with a compressed time to onboard the season staff before go time began.
Then the mad dash would begin, and it was all hands on deck time.
After repeating this process a few years, I determined the groundhog’s day of tax season wasn’t the right business model for me.
Ultimately I determined that I didn’t want to grow my tax preparation business.
At that point, anytime I received a referral, it was usually a referral for tax preparation.
I would politely explain to the person that I was no longer accepting tax clients, and they would need to find someone else.
I became known for tax preparation, and nobody knew the other work that I was doing.
Since nobody was aware of the new work I was doing, my growth stalled.
The lack of growth was acceptable for a while until I started to experience client attrition.
Every business experiences client attrition.
No matter what, a business will always lose customers every year.
A person will only buy from me if it makes sense to buy from me.
At some point, my solution will not be a good fit for that person.
Then the person will move on to another person.
If I’m not actively promoting my business to new people, client attrition will result in business problems.