Debunked: Can you really rely on referrals to sustain or grow your practice?

May 17, 2022 | Lead generation, Referrals, Sole practitioners

Most established accountants running their own firms claim to get most of their new clients via referrals. I see at least three potential flaws with this perception.

Firstly, it’s rarely based on empirical evidence. Often it is simply an easy answer to the question: ‘Where do most of your new clients come from?’

It ignores the impact that websites and online profiles have and which, when they are not very good, could well be reducing the number of referrals that actually contact you.

Secondly, it doesn’t reflect whether those referred clients are actually the type of new clients that the accountant wants. For example, a majority of their newer clients will often be small start-ups who may only pay minimum fees. What the accountant really wants through are higher feeing paying clients and these are not currently coming through referrals.

Thirdly, whilst well established practices with loads of clients may get a fair few new clients referred to them, can a smaller practice with loads of capacity afford to adopt a passive approach, waiting and hoping to get new clients through client referrals?

I know plenty of sole practitioners who are working at or close to capacity. Occasionally clients die, sell up or retire. These losses are pretty much matched by new referrals each year. Not that there are many but there are generally enough, or have been to date anyway,

The following sentiment is typical of what I hear:

“I get all the new clients I want through recommendations and referrals. To be honest I don’t have the scope to take on lots of new clients. I’m happy with those I get simply by doing a good job for my clients.”

Surveys perpetuate this attitude to referrals. Ask 100 accountants the best source of new clients and ‘referrals’ is always way ahead of other marketing activities. Part of the reason for this is that well established accountants may not take on many new clients each year. They haven’t done much in the way of marketing and have an old fashioned underperforming website. So the most likely source of those new clients is recommendations and referrals. And they may well be right.

Given all of this, why do I say there are 3 reasons that you cannot rely on referrals if you want to grow your practice?

1 – It’s too random and uncontrolled

If you want to grow your practice you need to take a more active role in generating new prospects and clients.

2 – It’s too hit and miss

Few accountants I know planned to grow their practice by taking on more low fee simple tax return clients. If you don’t take active responsibility you are just as likely to get referrals to small as to big clients. Do you want to be sidetracked by people who don’t want to pay the fees you deserve to earn?

Whenever I am asked how an accountant can get more higher fee paying clients I ask what they are prepared to do differently. If you carry on doing the same as before (and relying on referrals as you have done to date), don’t be surprised that you are getting the same type of clients.

3 – It’s based on a misconception

The theory that you should focus on securing referrals is not borne of the experience of other accountants who are keen to grow their practice. No. Instead it comes from the experience of accountants who do NOT want to grow their practice significantly. Why should their experiences be relevant if you DO want to grow your client base?

Don’t misunderstand me. You can grow your practice via referrals. But not if you do the same things as other accountants who are not looking to grow their practices.

One of the clients I was mentoring recently told me that he wanted to win about 45 new clients paying good fees over the next year. My role was to add a touch of realism, to encourage, cajole and support his ambition.

During our conversation I encouraged him to then think about how many of those 45 will become new clients in the next 6m? He thinks 15. So I asked him “What will happen in the following 6 months that will enable you to double the rate of new clients to 30? That’s what you’ll need to reach your target of 45 in a year.”

My mentoring client appreciated the challenge. He said he hoped that the first 15 would each refer him on to at least one new client each.

I encouraged him to recognise that he will have to do more than rely on ‘hope’.

He will need to consider when he will ask new clients for appropriate referrals and how long it will take for those clients to identify realistic prospects.

We continued to refine his strategy in this regard. And, given his ambition to secure more high-value clients over the next year or so, he accepted that he needed a more focused strategy than simply hoping for the right type of referrals.

The bottom line here is that doing a good job and hoping for loads of referrals will rarely enable you to achieve your growth ambitions.

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