Referrals are among your highest quality lead sources, but they can be hard to scale. In this article, I’ll share a process to create a scalable referral system for your agency.
Can referrals be scalable?
When you think of ‘word of mouth’, you usually think of high-quality but unpredictable leads. Maybe a client will refer you to his friends. Maybe not. There’s very little you can do except ask and hope.
But a hope and a prayer isn’t really a sustainable business strategy. You might land a few leads, but you can’t expect to scale your agency with word of mouth alone.
The solution is to turn these passive word of mouth into an active referral system. With the right processes, you can get referrals in a scalable, predictable fashion.
I’ll show you how below.
Understand the Referral System
The success of any referral system is based on two things:
- The incentive for referring a contact.
- The action required to send a referral.
The incentive has to be tied to something the referrer actually wants. It should be clear, trackable, and, if possible, tied to the service that you’re offering (though a cash incentive works great as well).
The action should be as frictionless as possible. The more effort the referrer has to put in to send a lead your way, the less likely he will be to take action.
Take one of the most successful referral programs in technology - Dropbox’s referral system - as an example. Though it’s a software service, not an agency, you can clearly see the two building blocks at play.
Dropbox clearly identifies the incentive - extra storage space - and the action steps necessary to unlock it. The incentive is something users want and the action is frictionless.
Dropbox even makes it possible to track your progress.
(Image credit: Nick Larson)
Of course, incentives and action motivations work differently for agencies. Your clients’ motivations aren’t always material. Some may refer you to friends because they like your work. Others may do it because they want their friends to benefit from your services. And some others might do it for cash incentives - should you offer them.
What’s important is to vocalize these incentives. Clients are often happy to send referrals your way, but they need a why - a “because” to push them to action. If you can give them a reason and the tools to send referrals quickly, you’ll have a much more scalable system than passive word of mouth.
Find Your Best Leads
Not all your clients will be as thrilled to recommend your services. Some might be too busy. Others might just not be happy with your work.
When building a referral system, your goal should be to:
- Filter out clients unwilling or unlikely to refer you to their contacts.
- Target your top 20% clients who love your work and will champion you to their friends.
A small agency will already have a good idea who its top clients are.
For larger agencies, however, identifying top leads can be difficult. You can look at repeated billings and lifetime earnings for each client, but it’s a faulty metric. A small client might have deep industry connections, while a large client might be reluctant to share.
A much better alternative is to use the Net Promoter System (NPS).
Using NPS to find your best lead
NPS or Net Promoter System is a system developed by Bain & Company to measure customer loyalty. It works by asking all customers a simple question:
“How likely is it that you would recommend our company/product/service to a friend or colleague?”
Customers are then asked to score their response on a scale of 1-10. Based on the score, customers are classified as:
- Promoters, for 9-10 scores.
- Passives, for 7-8 scores.
- Detractors, for scores between 0-6.
Optionally, you might ask a follow-up question to give a reason for your score.
If you subtract the percentage of detractors from the percentage of promoters, you get your NPS score on a 100 scale.
This system works because it requires very little effort on the part of your clients. People balk at the idea of filling out long feedback surveys, but selecting a score on a 10-point scale requires just one click.
For you, the value is that it gives you an objective measure of your best leads. You don’t have to guess which clients are likely to champion your agency. Anyone who scores you a 9 or a 10 would be happy to send a referral your way.
Use the NPS score to zero-in on your top leads. Once you find them, ask them for referrals. For even better results, use incentives and templates (see below).
Here are some resources for using NPS:
Target Influencers and Fans
Not all your clients are the same. Some will invariably have more influence and public following in their industry.
By finding and targeting these clients for leads, you can maximize your referrals. A public endorsement from an industry leader can also boost your visibility.
To find these influencers, create a fresh Gmail account and import all your client contacts. Now create a new Twitter account with this Gmail address. Let Twitter import all your Gmail contacts to this new account.
Next, create an account at FollowerWonk. After signing-up, head to the ‘Analyze’ tab and enter the handle of your newly-minted Twitter account.
Hit ‘View all’ next to ‘Sample size’:
Click the download icon on the screen that pops up to get social metrics for all the users you follow.
Accounts with the highest social authority will be your ‘influencers’. Asking them for referrals can land you a lot of leads.
Develop an Incentive Program
Incentives are the carrots that lead the referral horse. You can get referrals without offering them, but when there is a tangible reward, people are more likely to take action.
For instance, a few weeks ago, we asked 39 agency leaders about their favorite marketing tactics to land new clients. Incentivized referrals found more than a few prominent mentions.
Here’s PBJ’s Phillip Reinhardt:
“My sales side never turns ‘off’. When "work" topics come up in conversation, I naturally let everyone know that I give commissions to anyone who brings me a new business referral.”
As an agency, you realistically have only three options of incentivizing referrals:
- Offer a free or discounted service
- Offer a cash bonus
- Offer a free gift, such as tickets to a top industry conference
With the first option, you risk cheapening your services. If you give away your time for free, clients might think it isn’t worth all that much.
Offering a free gift can work but you’ll have to find a gift that a) appeals to the client, and b) has a readily understood monetary value. Else, you won’t be able to motivate them enough to take action.
This leaves us with cash. You might be uncomfortable offering cash incentives, but clients appreciate it. It shows that you attach a real-world value to their leads. It also makes their referral value easier to track.
I’ll show you a process to create a cash incentive program below.
Creating a cash incentive program
Using cash incentives can be tricky. You want the incentive to be substantial enough to drive action. But you don’t want it to be so big that it eats into your profit margin.
There are two ways you can approach this problem:
- Offer a fixed cash bonus for referrals that go to sales
- Offer a percentage of the referral’s first month billings
The first option is best if you don’t have much visibility into your sales pipeline. For example, if it takes $2,500 to acquire 100 leads via PPC, and 10% of these leads go from MQL to SQL, you’re looking at a per-lead cost of $250.
Thus, you can reasonably offer $200-$250 as cash bonus for sending a sales qualified lead into your pipeline..
The problem with this approach is that the cash bonus might not seem large enough to inspire action. Few clients are going to be motivated by a low three-figure incentive.
The alternative is to use a percentage of the referrals’ gross billings as the cash incentive. This can be quite substantial for large clients.
To use this approach, you need to know your agency’s financial metrics inside out such as:
- Average gross billings
- Average contract length
- Average profitability and profit margin for each client
Switch your incentive system around based on these metrics. If clients stay with you for years on average, offer an incentive on their first year billings alone. If your profit margins are low, keep incentive percentage low as well.
Refer to this article to get better insight into your financial metrics.
Once you’ve zeroed-in on your cash incentives, you can start asking clients for referrals.
Create a Friction-Free Referral System
Your clients are busy people. Even with substantial incentives, they will hesitate to take action. Your goal should be to make it as effortless as possible to send a referral your way.
For a truly frictionless referral experience, your clients should know:
- Who to ask for referrals, and
- What to say in referral messages.
I’ll cover these two aspects in more detail below.
Make specific referral requests
Referrals are essentially a form of social capital. When a client’s referral sees great results from your services, it helps the client as much as it helps you (and the referred party, of course).
This is why clients often hesitate when asked to refer you to their “friends and colleagues”. Not only is this request too vague, it also makes them do all the hard work. They have to dig through their contact list and find people who might actually be a good fit for your services.
You can remove a lot of friction by doing this work for them. Instead of a generic “friends and colleagues” referral request, ask them for referrals from specific people and companies.
Here’s how: log into your LinkedIn account and find your target client’s profile. Look at their:
- Mutual connections
- Public activity
Ask: do they know someone who you would like to work with? Do you have any mutual connections at the target company?
If yes, reach out to them and ask for a specific referrals to these companies.
This is a targeted, high-effort approach, but it will yield some great results.
A simpler alternative is to frame the request to sound more targeted. Instead of asking for “friends and colleagues”, ask something like:
“Who are two of your best businesses that might benefit from our services?”
This reduces some of the vagueness from the request. Jump in with suggestions (“ABC and XYZ, who follow you on Twitter, might be good options”), for even better referrals.
Create a referral message template
How exactly should a client introduce you to a contact? What kind of language should they used in the message? Should they highlight the results you’ve achieved for them?
Clients don’t want to spend time answering these questions. Most likely, they’ll shoot off a two-sentence introduction email that won’t do much to promote your agency.
The solution is to create ready-to-use templates that clients can use when sending referral emails. They don’t have to create anything from scratch; they can simply edit the template as they see fit (or not use it at all).
Using templates for referral messages has three benefits:
- You reduce the friction in sending a referral message
- You get better control of the message content, and thus, can pitch your agency better
- You can add custom links and tracking codes
Make sure to mention the exact results you achieved for the client. It will add much need heft to the request.
Other Referral Tips
Finding your best leads, creating an incentive program, and reducing the friction in sending referrals form the foundation of a scalable referral system. But there are a few more tactics you can use to get high-quality referrals.
I’ll cover a few of these below.
Develop Referral Partnerships
With this approach, instead of asking clients for referrals, you develop partnerships with other agencies and tech companies. You refer your clients to these partners, and vice-versa.
If you sell design services, you’ll have clients who need SEO services. Thus, you can partner with SEO agencies and tool providers. When your clients need SEO help, you can refer them to your partners. And when your partners’ clients need design work, they’ll be sent your way in return.
For example, Moz, a SEO software provider, has a list of recommended SEO agencies.
Referral partnerships can send a high volume of leads your way. They also increase your visibility and perceived authority. A recommendation from a prestigious brand will improve your brand perception as well.
For this approach to work, you have to develop partnerships with companies that:
- Offer related but tangential services
- Are not in competition with you
- Have the same or better market authority and brand prestige
Look towards other agencies, software tools, and service providers that fit this criteria. Reach out to them and develop strategic partnerships. You can even undertake co-marketing such as content partnerships to promote each other.
Ask for Referrals at the Right Time
Although you can realistically ask for a referral any time, you’ll see better results if you pop the question when the relationship is “warm”.
Usually, this is right after you’ve had a positive or action-focused interaction with the client. Say, after a key deliverable was wrapped up on time. Since the client is already in a positive frame, you will have better results if you ask for a referral.
Try to ask for referrals after you’ve:
- Delivered strong results or finished a key deliverable on schedule
- Renewed a contract or inked a new one
- Gone above and beyond what’s expected of your agency
- Defused a crisis situation for the client
- Fulfilled a big ask on your behalf, such as complete a feedback survey or sent you a testimonial
This is of course assuming that you’ve had time for the relationship to mature. Don’t ask for a referral two months after the client signed up. Build up trust and deliver real results post the initial “honeymoon” phase before you pop the question.
Over to You
Referrals are often considered an unreliable source of leads, but when done right, it is possible to create a scalable referral system. By identifying your top leads, giving them clear incentives, and minimizing the friction in sending referrals, you can turn word of mouth from a passive to an active channel.
Do you have a referral system in your agency? Share how it works for you in the comments below!