Why referral marketing can be bad for business and how to avoid the trap

Our Hub39 Marketing Manager explains why he thinks referral marketing can be bad for your business. 

Referral marketing can be bad for your business. There. I said it. It’s not a very popular thing to say, especially if your business is service-based.

Referral marketing is not a silver bullet

The reality is service-led businesses – and particularly professional services businesses – put far too much emphasis on referral business in their marketing strategies… if they even have a strategy.

Here’s a scenario I’ve seen too many times in the past. Services Company A loves getting referrals. They love it so much that they see referral marketing as just about the only way to bring new business through the door.

So, that’s what they do. They sit and wait. Luckily, they have a large clientele and a good reputation so guess what? They get a regular stream of referrals.

Referral marketing is great… when it’s converting leads into business for you. But remember that referral marketing is also passive marketing. In fact, it could be argued that waiting for your clients to refer other clients to you is really not marketing at all, although I’ll leave that debate for another day.

The outside factors

Here’s the fundamental problem – and what makes me most nervous about referrals – it relies on many outside factors to work.

Firstly, Services Company A has to ensure that it does a first-class job for client A. It should also really think about choosing a more original business name, but anyway.

Let’s assume that the first-class service is a given. So client A is happy with Company A. But just because client A is happy, does not mean that client A will tell lots of people about it.

Even if client A does tell lots of people about the amazing service they received, there’s no guarantee that any of those people will engage you as clients B, C, D and so on.

The point is, there are too many variables at play with referrals for it to be your only form of marketing.

Just excuses

Even worse than being too heavily reliant on referral marketing are businesses that use referral marketing as an excuse for not investing in more proactive methods.

The bottom line is referrals should be seen as a good way to generate business but it should never be the only way.

Businesses that rely heavily on referrals as their only way to generate leads are playing risky. Don’t get caught out when the referrals pipeline runs dry. Be proactive.

Hub39 is a group of financial services business that includes Altitude Advisory.