Build Up Your Practice and Sales Via Referrals

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Why Is the Referral Process the Most Powerful Way to Sell?

Without question, selling through referrals is the most powerful way to build your practice; not to mention the most enjoyable. Producers who really love prospecting for business through cold calls are rare birds. My guess is that you're not one of them. In this age of voice mail, increased competition, and everyone being super busy, cold calling has become less effective.

Bob Kerrigan, one of the most successful agents alive, says, "The way of the world is to meet people through other people. And the referral is the warm way we get into their lives."

Think about this for a minute. When you've needed to find an attorney, an accountant, a car repair shop, a dentist, etc., do you go to the yellow pages? It's probably your last resort. Don't you usually ask a few friends first? Why? Because you'd rather be referred than buy cold.

Buyers are reluctant to buy cold because of the extra tension and greater risk. Cold calling can work, but it's a harder route to the people, and it can lead to early burn-out if that's your only prospecting strategy.

Chris Faicco, with Northwestern Mutual Life, conducted the only existing study that clearly demonstrates the power of referrals. Of 5,640 qualified suspects, 2,240 were turned into prospects by cold calls, and the remaining 3,400 were converted into prospects by referrals. Cold-call prospects yielded 56 sales, or an 11% closing ratio. The referral prospects yielded 452 sales, or a closing ratio of 40%. In this study, the chances of making the sale almost quadrupled when the prospecting was done from referrals.

Why Do Referrals Result in Sales-Easier & Faster?

When you prospect over the telephone via cold calls, you usually get a knee-jerk reaction. The prospects say things like, "Send information." "I'm already covered in that area." "We're happy with our current agent." These obstacles can be surmounted, but wouldn't it be easier, more powerful, and more fun to make a prospecting call with a lower chance of this reaction?

When you prospect over the telephone via referrals, you usually get a conversation. There are two elements present that make this so. First, commonality. The fact that your prospect and you know someone in common warms up the conversation from the very beginning. Usually, the better the relationship between your referral source and your new prospect, the warmer this first interaction will be.

The second factor present is endorsement-either implied or explicit. An implied endorsement comes when you use the name of your referral source immediately and mention that the referral was given because of the great service you provided. An explicit endorsement comes when your source speaks to your prospect before you call. This, of course, is the best type of endorsement.

Don't ever underestimate the power of these two elements: commonality and endorsement. These factors can turn a cold call into a warm call and can get you past voice mail and all the other obstacles to selling. I've found that when I leave a voice mail message from a cold call, it rarely gets returned. But when I leave a message from a referral, it usually gets returned!

These elements of commonality and endorsement don't just make the first conversation easier. They also significantly increase the chance of the final sale. You'll get fewer obstacles and objections, you'll immediately operate from a higher level of trust, and your new prospect-turned-customer will have a stronger sense of loyalty right from the start.

Barry Graham Munro, in his book Smart Salespeople Sometimes Wear Plaid, says, "To some, a referral is merely a name. However, a referral is actually much more than this! A referral is the authorization to use the influence attached to that name."

Why Don't Agents Ask for Referrals as Often as They Should?

Quite frankly, this baffles me. I think that part of the problem is that, until recently, there has been very little real teaching in this area. In 1980, Tom Hopkins came out with How to Master the Art of Selling. Hopkins viewed referral prospecting as the "back bone of prospecting for champions." However, his book devotes less than two pages to the topic. His readers would have benefited from more depth on this powerful way to sell. Sales representatives need to know more about this strategy.

Many successful agents know how to generate tons of referrals, but most learned this technique on their own-sheer common sense. However, there's no reason you need to figure it out all by yourself.

I think it's time to elevate referral gathering to a profession. Jay Abraham uses the phrase ethical opportunism, while others call it leverage. As you serve people better, as you create relationships of trust, some assertive involvement will mean a boon to the buyer-seller relationship.

Selling Through Referrals Is a Growing Trend in Selling in All Industries.

This is, partly, because of the obstacles that I've already mentioned- voice mail (high tech, but low touch), increased competition, and everyone is busier than ever before.

However, it exceeds these factors. The United States continues to evolve into a service economy. This means that many more salespeople are selling services instead of products. Also, the salespeople who are selling products are usually selling "service" to help them distinguish their products from their competitors. You can sell a product through literature, advertising, and cold calls. But it's much harder to sell a service that way. Buyers understand what good service is, but they can't test-drive the product before they open their checkbooks. For this reason, meeting you through a colleague or friend is their preferred method.

Your Prospects Would Rather Meet You Through a Referral!

Through the endorsement and testimony of others, they feel much more comfortable opening their door to you and giving you their business.

Build Your Practice with Unlimited Referrals

In Championship Selling, Marylin Jennings writes, "The best prospect is the client who has already dealt with you. The second best, is the one referred to you by a client who has dealt with you previously. The third best, is one referred to you by another trusted professional or friend..."

Listen to my Five Critical Steps to Building a Referral Practice. Let me use the metaphor of a castle. Any great structure begins with a foundation. The foundation for your castle of unlimited referrals is your attitude about referrals and the relationships you form. First, you must be truly committed to using referrals as a major part of your prospecting strategy. You must look beyond the single transactions and revere the lifetime value of each of your clients. Then, you must create trusting relationships with people. This foundation supports your four cornerstones. If you master any one of these four cornerstones, you will come closer to an unlimited supply of high-quality endorsed referrals:

The Four Cornerstones of Building a Referral-Based Practice.

1. Exceed Your Clients' Expectations

You must serve your clients continuously well. Clients say "thank you" by continuing to do business with you and by recommending you to others. Remember, enough companies are providing such great service these days. Your service will be measured by what your clients know you are capable of.

Joe Girard, in his classic sales book How to Sell Anything to Anybody, says, "I look at every customer as if he (she) is going to be like an annuity to me for the rest of my life. So they have to be happy. The have to believe in me."

2. Form Referral Alliances

Not all your referrals come from satisfied clients. Many result from the relationships you nurture with people who may never become clients. These people, often referred to as centers of influence and have the ability to give you a steady stream of referrals.

The key word with referral alliances is "service." As you serve this population, it will serve you. As you help them become successful, with referrals, with advice, or with other help, they will refer people to you. One of the most powerful referrals a salesperson can receive is from another salesperson. Think of the relationships as business alliances.

3. Prospect for Referrals

Barry Graham Munro learned that back in the 1800s, when people left their homes in search of gold, they became known as prospectors. "I guess this was because most of their time was spent searching for gold rather than actually finding it." He says that in sales, only a small percentage of our time is actually engaged in the selling process. For most of us, we're spending time prospecting. He suggests, "maybe we should call ourselves prospectors instead of salespeople! Of course, then we'd have to grow beards and everyone would want to see our mules. No, the title salesperson is fine, so long as we know that our real job is prospecting."

Without question, prospecting for referrals is the best prospecting system you can use. To achieve sustained success in the insurance business, you must become a master prospector. Why prospect with cold calls when you can prospect for referrals? You'll spend more time in front of more qualified buyers, you'll make more sales, and you'll experience much less stress.

4. Target Niche Markets

Creating a reputation for you and your company within one or more niches can substantially increase your referral business. When you target an industry or affinity segment, requesting referrals is more effective. You gain a high level of expertise which will help you serve your prospects and clients better right from the start. When you target a specific industry or affinity segment, you bring value to the first appointment that your competitors, who don't target, can't bring. You can engage in a deeper level of conversation right from the start-which brings added value.

Your reputation will spread much faster within a targeted group than it would between groups. Businesses in most industries tend to copy each other. When they find other businesses in their industry doing things that are working, they share the knowledge and help each other out. Phil is the pseudonym of an agent who got introduced to more than 100 prospects by one happy customer. He simply accepted an invitation to a trade show by his customer who walked up and down the aisles introducing Phil to everyone he knew.

Quite often, when you target niche markets, many referrals seem to come out of spontaneous generation. If you follow my cornerstones, prepare for a constant flow of "found business."

Using referrals is a powerful selling tool for obtaining quality customers. Work on developing all four cornerstones of your referral castle, and you will soon be living in your own real castle. Happy prospecting!
The goal of the CompleteMarkets editor is to bring valuable content to the CompleteMarkets members. Providing content to insurance professionals to enhance their sales process, increase revenue streams, understand their clients and provide value to their agency. 
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