Referral Business


A service encounter happens any time that a consumer interacts with a servicing organization. Every Website hit or incoming ad or sign call is a service encounter. When a prospect talks to you, your staff, your company Receptionist, your Closing Coordinator, or your Broker, Owner, Lender, Escrow or Title Attorney, or anyone on your service team, that person is having a service encounter.

 If one person in the long chain of people who help you get your job done says or does anything negative, it affects the impression of the nature of the service you provide. There’s no way to separate yourself from your colleagues if they mess up. It’s even possible for your service to be tainted by those outside your service team. For example, say that a Buyer uses a Lender other than the one you recommend. If the transaction closes late and with a higher interest rate than originally quoted, that client will leave with a bad impression about the whole transaction and everyone involved in it. Your future business and referral opportunities will be affected by the actions of someone entirely outside your influence.

To direct your service toward superb outcomes, follow these steps:

    • Do what is necessary to right the wrong.


    • Find out from the client what it would take to turn the unsatisfactory situation into a satisfactory outcome. Ask what would it take for them to be delighted. Be cautious here. I don’t really believe that forgoing a fee or a reducing a cost ever creates a more satisfied client. The service and the cost are not linked at this stage of customer satisfaction.


    • Avoid the blame game. If you point out that it was the client’s decision to use the service provider who caused the problem, you only make the situation worse. Conveying that “I told you so” is never a way to soothe feelings.


    • Follow up. Eventually sore feelings will wane, but the only way to replace the negative impression is to make a better one through continuous and professional contact. In the early stages after the sale mishap you may not see many referrals, but when they start to come through you’ll know that your service recovery plan was a success.


    • If you can’t turn the situation around, don’t concede your profit. Some clients will only feel placated if they get into your pocketbook and win cash compensation. If you did something that caused them to be hurt financially, you might have to buck up. Most of the time, though, that won’t be the case. I caution you, before you ever give up your hard-earned money ask yourself three questions.


A. Will doing offering cash really turn this client into a raving fan?

B. Is there another way to turn this client into a raving fan?

C. Is there a reasonable chance that I will win future business and referrals from this person?

If your answers don’t cause you to feel confident that giving up money will net a future return at a low risk, keep the cash in your pocket.

 I am an ardent supporter of Hyatt Hotels and a good part of the reason is because years ago they took a bad situation and turned it around. I’d flown to Tampa, Florida from Bend, Oregon, which entailed leaving at six in the morning and arriving in Tampa sometime after 7:00 at night. I was tired, hungry, and faced a full schedule the next day. From the airport, I called for the shuttle van three times before it showed 45 minutes later. My last call had gotten through to the manager on duty. She was sympathetic to my weary travel story, but I expected only an ear.

When I arrived at the hotel, which was less than ten minutes from the airport, the manager greeted me as I stepped off the bus. She told me she had already personally checked me in. She walked me to a wonderful room where wine, cheese, and fruit were waiting. While walking to the room, she took a genuine interest in my day and travel trials. She later sent up a tray of desserts. She knew how to create a raving fan out of what could have been a lost situation. She had a great plan for service recovery.

Create your own service recovery plan today so you will be well prepared! Not many Agents are – you will be well ahead of the game in client retention.

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There should be a well-defined and developed strategy for each segment of your business. If referrals is an area you currently generate a lot of business from or hope to generate a lot of business from, you must spend the time to create and implement your strategy.

Most agents rely too heavily on the mailing strategy: mailers such as calendars, recipe cards, football schedules, and other so called “items of value.” This marketing for referrals, through what I call the “trash and trinket strategy”, is marginally effective. It falls far short of the personal phone calls or personal visits that allow you to make a personal request for referrals. When creating your referral strategy, you must realize that people send referrals for a number of reasons that are personal to them. There are two reasons that are usually high up on most people’s lists of reasons.

Trust and Friendship: Most people are willing to help people that they trust and like. If you have done a wonderful job for them, if you ask, they will send you future business. Share your goals and vision for your business with these people, and they will help you even more. If they can catch your passion and enthusiasm and see how they can help you with your dreams, you will create a valuable referral source. You can elevate them to a level where they feel a vested interest in helping you achieve more success.

People want to be Champions for others: When we deliver world class service and the outcome or the result meets or exceeds the expectations of the client, our benefit beyond the commission we earn is that we create clients who are willing to champion or promote our business.   These people know the quality of your performance and service first hand. They know the service quality their family and friends will receive is very high. They become heroes to those people for connecting the parties together.

Another strategy that many agents are trying to achieve is a 100% referral-based business. That strategy seems to be very popular. We profess to be “by referral only”, as if that is some elite statement, and our worth or value in the marketplace is enhanced because of this objective. Let me be honest, that stance comes from the sales trainers who teach referrals as a marketing strategy in order to sell more tickets at their seminars. If that is a primary focus of your business strategy, there is danger lurking.

Relying entirely on referrals for new client creation is a very narrow, exclusive, and un-balance approach to business. You leave yourself, your business, and your revenue extremely vulnerable to the changes in the marketplace. When real estate is appreciating at a rapid rate and everyone’s equity is growing in their home, it’s easy to generate a lot of referrals. The awareness of the market is very high and very positive. In those marketplaces, real estate sales and investments in real estate are topics at every cocktail party, reception, and dinner table in America. When the newspaper and the media are reporting the positive trends of the real estate market, the motivation to move and invest in real estate increases. Referrals are at an all time high in these markets.

However, when markets are at normal levels or below level, referral volume drops dramatically because everyone in the world isn’t a potential buyer or seller anymore. This same phenomenon happened in the late ‘90s with the stocks. Everyone was talking about how much they were making on Internet stocks; everyone had a piece of explosion. Then the bottom fell out, and everyone moved back to the blue chip stocks. The exuberance was so high about the dot.coms, we were buying stocks in companies that had not or wouldn’t turn a profit in years. Referrals reduce when the reason people want to sell and buy is more than for the frenzy of investment purposes, whether they live in the home or not.

It’s a poor business decision to put all your eggs in one basket. Solid businesses have multiple lead generation areas and multiple customer types they sell their products and services to. If you don’t have some level of diversity, something bad can (and probably will) happen. Look at Delphi Industries in 2005. Delphi’s a large multi-billion-dollar company that manufactures automotive parts. Their primary client is General Motors. General Motors accounts for over 70% of their gross sales receipts. When GM fell on hard times, Delphi had to declare bankruptcy because their biggest source of business revenue dropped significantly. The parallel between Delphi and the 100% Referral Agent is startling.

If your referrals decline, you won’t have other prospecting or marketing systems in place to dig yourself out of trouble. The trouble you will experience will come fast. The referral gurus don’t bother to reveal these truths because it would be bad for their business. Your strategy must be balanced.

Lastly, your strategy must focus on sellers. The 100% referral strategy without a seller focus as well will tip your business to the buyer side. You will end up with more transactions from buyers than sellers.   You will generate more buyer leads and buyer transactions through referral sources. Most consumers view agents as people who place people in their car and drive them around to sell a house. They don’t view us as salespeople who represent their interests in the sale, marketing, exposure, and market evaluation to maximize equity to our clients.

I have analyzed hundreds of agents’ businesses and tracked their numbers. When you evaluate the referral segment of the business, it produces more buyers than sellers by at least two to one with some approaching four or five to one. To become a Champion Agent with the earnings and quality of life you want, you can’t be four or five buyers to one seller or even two to one. The referral pillar of your business should be the strongest and should create the best quality leads and the most transactions of all other sources. It just can’t be the only source, as many agents are trying to make it.


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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.

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Implementing a strategy to upgrade your referrals can really explode your referral business. Most salespeople get the name and contact information and try to get off the phone immediately to call the prospect. That is a significant mistake.   Follow these steps to increase the odds of your success.

1. You must immediately thank the referral source. Assure them of the quality service their referral will receive. You are giving them your personal guarantee. Before close of business, today, write out a handwritten thank you note at a minimum. You can use gifts or other inducements as well, but the handwritten note doesn’t necessarily need them.

2. Determine the quality or level of the referral.

We are trying to increase the probability of the referral for us. The first step is to secure more information before we make the first call. The first call is the point at which you will win these people over or not. Determine which of these four categories their referral will be.

C Level – This referral is the coldest variety. The conversion rate is at the lowest level. Your referral source has only given the name and phone number of a potential prospect. They have not allowed you to use their name to create an opening or connection.

B Level – I would describe this referral as lukewarm. The odds are improving, but still probably less than 50/50 conversion. The referral has given you the prospect’s name and phone number. They have given you one thing the C level did not, permission to use their name as the referral source to open the door. That certainly helps the connection on the first call.

A Level – We are getting warmer with this referral. Again, you have the prospect’s name and number, but you have also been granted permission to use the name of your referral source to open the dialogue door. The best part is the source has given you time to ask questions. They are willing to give you five or ten minutes to explore the referred individual to probe and help increase the odds of connecting with the prospect.

AA Level – This should be the level we all shoot for. It’s the Cadillac of referrals. It’s all that the A level has with one huge difference. You have all the information that you have with an A, but the referral source is willing to open the door for you himself. They are willing to make an introduction call personally for you. This call doesn’t replace your call. It only makes it easier to call and raise the chance of a positive result quicker. You might find that a really effective referral source can set up lunch or breakfast meeting with everyone involved.

To increase your conversion odds of connecting with the referred individual invest the time with the referral source, explore these questions. This will only take you five to ten minutes but will be well worth the time.

  • How would you describe your relationship?
  • How do you know this person?
  • Is there anything that you can see that we have in common?
  • What type of a personality will I encounter?
  • What organizations does this person belong to?
  • What are a few of this person’s personal interests?


3. Thank your referral source again.

Once you have secured as much information as possible, again, offer your assurance that you’ll provide the same level of quality service that your referral source has received from you in the past.

Don’t make referrals complicated. Success is simple, it’s not complicated. Referrals aren’t a complex system or strategy. Success in referrals is achieved through consistency of the fundamental process of client connection and client service. You may already know some of the things I have shared with you here. The truth about success is that sometimes it’s better to hear something you have heard before but are not doing than to hear something new. Make the commitment to execute the fundamentals in your referral section of your business. That objective will create the growth you desire.

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