Schutt Media

Why Referrals Are Not The Best Source Of New Business

“There’s nothing more powerful than word of mouth”

A lot of people say that referrals are the best source of new business – and don’t get me wrong, they do have a point. Word of mouth is, of course, powerful.

You’ve probably heard the phrase “we buy from those we know like and trust.” Well, referrals are great because they come from a relationship where those 3 elements already exist.

Take this scenario for example… Friend 1 refers a plumber to friend 2 who has a plumbing issue. If friend 2 trusts friend 1 (which is likely), then friend 2 will naturally have more trust in the plumber.

That’s a great benefit of referral business, without a doubt. But, like any other idea, some people take it to the extreme and demonize any opposing ideology.

I’ve heard some people go so far as to say that they don’t believe in marketing at all – that they want to grow their business “the natural way,” by referral only.

The problem with referrals

All that trust transferring sounds wonderful, but it doesn’t tell the full story.

Look, I’m not going to sugarcoat it…

If you want to really grow your business (as in growing by 50%, 100%, 200%), then referrals just aren’t going to cut it.

People are fooling themselves if they think they don’t need marketing.

Growing your business naturally with ONLY word of mouth referrals and no marketing would be like saying you’re going to get strong enough to bench 225 pounds naturally – without going to the gym.

You’re just going to get stronger naturally, you say. But the only way that could possibly happen is if you’re just hitting the ripe age of puberty. Or, you’re juicin’ up.

Similarly, if you’re just starting out in business, you’ll experience some natural growth at first, especially if you’re doing it right.

But that isn’t what’s going to fuel you to really grow to that next level.

The Marshall Goldsmith saying rings true here…

“What got you here, won’t get you there.”

Relying on natural strength building isn’t going to get you to bench 225 pounds, and it’s certainly not what’s going to get you to double your business.

In order to achieve such a goal, you’d need to be in the gym regularly, putting in the repetitions. Just as you need to advertise to put in the repetitions with your target market via advertising.

Putting your money where your mouth is

Think about this…

If referrals really were the best source of new business, then why would anyone invest in marketing?

If that were really the case, then surely, companies would be spending all their extra dollars on customer rewards programs and other kinds of incentives to shmooze their customers – so they would attract even more referral business.

But companies don’t do that… Well, why not?

Spending money on rewards programs does help (hence why companies do it) but these referral inducing programs don’t receive nearly the funding that marketing and advertising does.

The US alone spent 223 billion dollars in 2018 on advertising.

Sadly, I wasn’t able to find any stats on how much companies spent on referral programs to compare the data.

(something tells me if I wasn’t able to find it, it’s likely a negligible amount compared to advertising spend anyway)

The reality of referrals

So why don’t companies spend more on referral programs?

Well… the same reason not every 17-year-old boy can naturally bench 225 pounds without stepping foot in a gym.

Like I mentioned, referrals are great – they’re often quick, easy wins due to a high degree of trust from an existing relationship.

However, the problem is that these referral opportunities are insufficient for fueling substantial growth of a business for a couple of different reasons.

For one, referrals are simply not scalable –  there just aren’t enough referral opportunities available to substantially grow a business.

If you want to grow your business by 10% year over year, then putting an emphasis on acquiring referrals might get you there.

But if you’re aiming any higher than that, you’re just setting yourself up for disappointment.

And secondly, referrals are ultimately just inconsistent and out of your control.

Even with the best possible referral program in place with the most enticing incentives, you simply don’t know when you’re going to actually get business.

You might get 10 referrals one month, and then none the next.

Those kinds of unpredictable highs and lows aren’t ideal for business. They leave business owners helpless, just crossing their fingers and hoping they get referred enough business to stay afloat.

That’s incredibly stressful, and just not a good way to go about life.

Instead of referrals

So now you might be wondering… if referrals aren’t the best way to acquire new business leads, what is?

I’m glad you asked!

If we can learn anything from the billionaires running the largest companies in the world, it’d be that marketing is freaking important.

There’s a reason why the US alone spent $223 billion last year in marketing and advertising…

…it works!

And that shouldn’t come as a surprise – especially if you take into account that leading marketing researchers estimate we make 95% of our purchasing decisions subconsciously.

But you don’t have to be spending millions of dollars to create an effective marketing campaign.

We’re not trying to create a household name brand here, we’re just trying to grow a local business.

However, what you DO need to do is track your marketing efforts to ensure you’re actually getting a return on your investment.

(no, properly done marketing is not an expense. It’s an investment)

That’s exactly the approach we took with one of our clients who generated over $80,000 worth of new business leads in a single month.

Want to learn how this can be applied in your business?

Click here to check out the case study.