Salespeople love referrals. They’re the sincerest form of compliment and a remarkably cost-effective route to new business.
The idea of attracting referrals is so popular that sales trainers who bill themselves as referral gurus make fortunes promoting magical systems that supposedly deliver more referrals than an agent can handle, all in return for tuition at a three-day seminar. What they talk about for three days is a mystery to me. Referrals are really pretty simple stuff. A lot of it you can only acquire through perfect practice of your scripts, over and over, of referral-generating and referral-cultivation tactics.
Before you turn even a moment of effort away from prospecting activities and before you put all your hopes into winning business through a full-tilt referral-generation program, be aware that in addition to all the benefits that come with referrals, a 100% referral-based business has some downsides. Proceed with awareness of these ironclad truths:
- Truth #1: Especially for newer agents, over-reliance on referrals results in slow-growth simply because early in an agent’s career there isn’t a large enough database of existing clients and contacts to draw upon.
- Truth #2: Relying entirely on referrals for client development is a narrow, exclusive, unbalanced approach. For one thing, if incoming referrals decline you won’t have other prospecting systems in place to bail your business out of trouble. What’s more, when referrals do come in, most will be for buyer prospects rather than seller prospects. What the referral gurus never say is that their approach develops buyers’ agents – when sellers’ agents are the ones who experience greatest success and build the strongest long-term real estate sales businesses.
A referral-based business is a business that generates most of its leads as a result of contacts provided by friends, family, clients, colleagues, and other associates. Sounds great, doesn’t it? It is great, if – and here’s a big if – you have a large sphere of influence and enough patience to wait out a lag time of at least 90 days, and most of the time longer, between when you begin to cultivate referrals and when referrals begin to generate revenue for your business.
Building a referral-based clientele is a long-term strategy rather than a quick-fix tactic. If you’re looking for near-term results (and what newer agent isn’t?) you’re better off developing clients through a traditional lead-development program that involves prospecting, conversion of expired and FSBO listings, and open houses.
Relying exclusively on referrals, especially when you’re a new and undercapitalized agent, is a quick form of business suicide that will move you out of the real estate industry within a year, guaranteed. Instead, consider referrals a second-stage strategy – one that follows your initial round of business development and contributes to the long-term growth and health of your business.