Why have so many advisors moved from commissions to fees? It’s a vastly more profitable model, sure, but only over the long term. The initial income grows slowly but the business that develops is more consistent and more durable.
I propose the business case for long term referral marketing is the same.
Referral strategies are historically transactional. You ask for introductions. You encourage (or demand) clients bring a friend to an appreciation event. And you get some introductions. While the model generates business there is a downside. Your referral flow will likely dry up unless you initiate new transactions consistently.
Adopting the relational approach involves different activities and produces a different outcome. In the long run, like the asset management analogy, it creates a more consistent, more profitable model.
With managed portfolios there is a process of keeping in touch with changes in client needs and perceptions. You make adjustments based on market conditions. The model is dependent on maintaining relevance, delivering consistent performance, and ongoing service. There is less temptation and conflict that arises from a big payoff when the client takes your recommendation.
The same can be said for referral marketing. There is less emphasis on meeting your needs and more on meeting theirs. Most of us have a need to help family and friends. Sometimes that desire for connectedness can be met with your help by introducing a friend to a service you provide. Their friend has a problem that you can solve.
Your challenge is to discover important or unmet needs and articulate how you can help. As with managed portfolios, a long term referral strategy requires staying in touch with developing needs and preferences through interviews, your client advisory board, and maintaining relevance. The better you can articulate the problems you solve in language clients (or centers of influence) can connect with, the better the strategy works.
Eschew the “quick buck” transactional approach to referrals. It may require an adjustment to invest effort in developing the relationship without an immediate payoff. But, like the move to fees, when done competently the model is more consistent and more profitable in the long term.