Last week, I shared some thoughts about the importance of referral-based marketing. I even went so far as to call it the one, true silver bullet of marketing, as much as it pains me to say that such a thing exists.

Several people even took time out of their day to read it. Many comments were along the lines of “totally agree” or “great point” — which was nice to know I was on target with smart, talented business owners.

Other responses were along the lines of “no s$#@, Sherlock.” Of course referrals matter. Hardly Isaac Newton under an apple tree.

So please humor me as I defend the importance of calling out referral-based marketing as an important, standalone strategy to grow your company, and why we are often too quick to take referrals for granted.

Do you take referrals for granted?

If you own a smaller professional service firm, you know the critical importance of referrals to your business. But when it comes to sitting down to plan your budgets and priorities (if you even have time for such things), honestly, do you put “referrals” at the top of the list?

Instead, we assume the referrals will come and our attention drifts to the bright, shiny silver bullet-y marketing tactics: digital ads, text messages, mailing lists, video content, etc.

Please hear me: all of these are good things to do, but they need to be done at the right time. If you don’t have good, organic, referral-driven growth happening for your business, then when you run ads, buy mailing lists, or buy expensive camera equipment, you are setting money on fire.

A lack of referrals does not mean you need to spend more to market your business, it means you need to reevaluate your business.

Referrals are key to building an in-demand business

I have sadly seen too many organizations to count spend millions of dollars on paid promotions only to find out afterwards that they never had product-market fit.

If you want to grow a business that scales, regardless of industry, here’s the three steps to success:

1. Take the time early to test and iterate
2. Incorporate active client feedback
3. Focus on solving a single problem.

If you do that, you will see referrals increase and then — and ONLY then — will you know that you have created a service in-demand by the market.

As that demand increases, if you still have capacity to serve more clients, then paid marketing tactics likely make sense.

Referrals have higher ROI than any other marketing strategy

Because referrals come naturally for people who offer a good product or service, we take them for granted. If we made it a priority to generate referrals though, they could be a massive driver of new business at a fraction of the cost of other marketing, outreach, and sales initiatives.

Here are a few statistics about the importance of referral-based marketing:

According to McKinsey & Co, referrals drive 20-50% of all purchase decisions.

Boston Consulting Group put referrals up against paid ads and found word of mouth anywhere from two to ten times more effective than paid advertising.

Finally, according to Nielsen research, buyers are 77% more likely to buy a product based on a friend’s recommendation.

Smart businesses are built on referrals

There will be a time for your business when you are growing quickly and need to expand your audience. At that time, flush with cash and opportunity, you will be able to smartly and strategically launch paid marketing efforts.

If you honestly can’t say that the foundation of your business’s growth is a robust, consistent, proactively built pipeline of referrals from people who love your work, then take a step back before you drop that credit card on ads, lists, or sponsorships.

Determining the health of your business can happen very quickly by answering three questions:

1. How many of our current clients came from referrals?
2. How many of our past or current clients have referred business to us?
3. Do we have a plan to product regular content, keeping our business top of mind to our network in order to strategically build a healthy flow of referrals?

Long live the humble referral. Stronger than the slickest ad, mightier than the best mailing list.

Need help building a referral-based marketing strategy? Connect with me on LinkedIn (@allenfuller) and let’s talk.