Referrals prove the 80/20 rule

Why not spend marketing effort on further improving what is already working — instead of trying to get a return in areas which are not?

I know it sounds a novel and dangerously logical approach, but it is one which an increasing number of business owners are putting into practice.

Many operators in the business-to-business sector are coming to recognise most of their new business is generated by strategies they don't spend much time or money on.

Conversely, those strategies which are allocated significant budget, don't contribute in proportion to the dollars spent.

The 80/20 rule of business says 80% of the revenue comes from 20% of clients and customers.
Marketing's 80/20 rule says 80% of the results are generated by 20% of the activity. Some say it is more like 95/5.

Whatever the actual proportions, the real question is: Instead of spending more effort and money to improve low-performing marketing because we believe it has potential, why not give priority to those things we already know work well?

Service business owners and partners in professional services firms already know that word-of-mouth, especially referrals, is responsible for the majority of their new business — up to 80% in some cases.

Each referral is almost certain business, converting from inquiry to engagement at the rate of 80 to 90% for many.

Even those businesses which convert referrals at rates as low as 30% are doing much better than those using other marketing strategies (try website banner advertising with click-through rates of less than 2%).

Problems in converting referrals are sometimes caused by the way they are handled, but more commonly it is the quality of the referral itself.

In many cases the referral is not a referral at all but a sales lead, a suggestion of a potential client or customer to approach, plus contact details.

For service businesses, the number one marketing priority should be to improve both the quality and quantity of referrals.

This is a significant challenge, but one in which there is enormous potential.

Many professional and service businesses are sitting on an iceberg of opportunity, only the tip of which is being exploited, and usually only at the initiative of referrers rather than the business itself.

In most cases, there is some marketing activity — mostly networking — but minimal supporting marketing communications or processes.

In some businesses there is no planned marketing activity related to this area, yet referrals are still received which lead to business. The fact the process works on its own without attention is a pointer to what is possible when it is supported by pro-active strategies, activity and material.

Ironically, the fact referrals come in without any effort on the part of the business is what leads many to assume no effort is required, or worse — that it is an area which would not pay dividends.

Instead, they continue to spend a large part of their marketing budget on activities which contribute only a small proportion of their new business revenue.

Check out the 'Ramping Up Referrals' marketing workshop series.