How making referrals unlocks sustainable growth for service businesses

If you’re a service provider – whether you’re a freelancer, consultant, or small agency, there are two ways to grow your business: get more clients, and service more of their needs.

Keeping your pipeline full by being a connector

Keeping your pipeline full of potential clients is one of the most important things service providers think about. There are a lot of well-trodden tactics that people use to generate pipeline – from outbound sales, to social media, to content marketing.

But there’s one channel that is vastly superior to the rest – referrals. Referrals have a 4x higher conversion rate than any other channel. And referrals leverage your most valuable asset – the trusting relationships you’ve already built. 

There are some things you can do to increase the referrals you can get from your network, like providing a referral incentive, asking people for referrals at the right time, and giving people materials they can use to share your services with others.

But the truth is, simply asking/empowering your network to send your referrals – on it’s own – is not a sustainable business practice. Sure, it can result in a spike in new inbound referrals, but continuously asking people for referrals over time becomes less effective and can be draining and demotivating. Or worse, it can make you look desperate or like someone asks for help without offering much in return.

Counterintuitively, the people who first make referrals are the ones who actually get the most referrals from their relationships. And they are able to more sustainably keep their pipeline filled with new potential clients. There are a few reasons why:

1. It gives you a new way to engage prospective clients even if they’re not ready for your services. 

Being a connector means you can help prospects and clients no matter where they are in their journey. Imagine if you could go to all the prospects in your CRM tomorrow who you had a good initial call with and could offer to help with any challenges they’re navigating through your network. Many of these people would take you up on it, ask if you knew someone who could help with a current challenge, and maybe even realize that they need your services as well.

2. When you make referrals to other service providers, they reciprocate and keep you top of mind.

‍You probably have different service providers you know and trust who you’d be willing to refer clients to. If you can refer clients to them, there’s a good chance they could refer clients to you. Leading with the fact that you want to know if they’re open to your referrals is a much less awkward way of broaching a referral relationship. And even better, if you actually refer someone to them, you’re always going to be top of mind for them.

3. Over time, you become people’s first call when they need help

‍If you’re making referrals outside of your own services, over time, people in your orbit will start to view you as the “first call” they should make when they have a need. You’ll always be top of mind and people will come to you even if they’re unsure if your services are what they’re looking for. People who make these referrals to others end up with an abundance of pipeline, most of which they will refer out, but some of which they’ll take on as client opportunities.

Finally, it’s rewarding and feels better than asking for referrals. Constantly asking for help or referrals can be draining. Instead, offering and providing value by connecting others is energizing, and counterintuitively results in getting a lot more referrals over time than just asking.

Making referrals isn’t just great for keeping your pipeline full, it can help you service more of your clients needs without spreading yourself too thin. 

Servicing more of clients needs via referrals

When doing client work, you’ll inevitably run into a situation where a client or prospect who trusts you needs help with something adjacent to the service you provide. If you’re a web designer, this could be brand identity design or an SEO engagement. If you’re a Fractional CHRO, this could be a comp plan revision or an exec search.

This is a great milestone. You’ve earned the trust of a potential client to the point where they’re looking to you to help with adjacent needs. That trust is hard-earned, so people wonder, “how can I make more money by helping with these adjacent needs?”

There’s an important fork in the road: you can hire/subcontract or you can refer to someone else.

A lot of people index towards subcontracting because it seems simpler on the surface (you can retain ownership of the client). But they often underestimate the hidden costs of operational overhead. Both subcontracting and referring are ways that you can earn more money, but it’s important to be clear-eyed about when to do one vs. the other.

Subcontracting means you find someone to partner with you on the engagement, you take full responsibility for orchestrating the delivery of the adjacent services, and you mark up the services so you can get paid a premium for the orchestration. You then pay out the person you partnered with based on their rates. Subcontracting only makes sense if all of the following are true:

• Your involvement in orchestrating the delivery of adjacent services provides significant value to the client and/or subcontractor
• You think this is an engagement model you will want to repeat in the future
• You are willing to be accountable for the work that your subcontractor delivers

Often people dabble in subcontracting when one of the above conditions aren’t true, and they end up regretting it. The operational overhead of subcontracting is material, and sometimes standing in the way between the client and the subcontractor creates more confusion and friction than it does value. In these cases, it’s typically better to just refer to the person you trust, and let the client work directly with them.

Clients always need to know who is the one responsible for what work. When subcontracting, you’re responsible. When referring, you can make it clear that they’re forming a direct relationship with the other service provider (and they are responsible). This doesn’t mean you can’t collaborate directly with the person you’re bringing into the project. It just makes it clear to the client who is responsible for what.

Ultimately, referring can be more client-centric and create more clarity on everyone’s responsibilities.

“I’ve started referring instead of subcontracting because there’s less downside risk. In subcontracting, I'm responsible for that person's work both directions - if the client isn't happy with the contractor, I look bad, and if the contractor isn't happy with the client or the gig doesn't continue, then I look bad. Referring is more egalitarian - every person for themself. I create value through the introduction, but don't keep intermediating after that.”

The other important thing about referring instead of subcontracting is that it can help you stay focused on the type of work you enjoy and are best at. Getting involved in projects that are outside of your sweet spot can slow you down and counterintuitively make it harder to grow.

Taken to a different extreme, a lot of people who’ve previously built agencies with dozens of people are now building much leaner practices by focusing on referrals.

“We had 50 full-time employees at our last agency, and it make things incredibly rigid. We had really high overhead so we had to provide a very specific type of services at a certain price point in order to keep the lights on. With this new agency, we’re taking a leaner ecosystem approach with almost no overhead. We can do high level strategy and smaller projects, and we’ve built a bench of freelancers who we can bring into projects or just refer to directly. We’re building in a much more flexible way that gives us lots of optionality about the type of work we do.”

Focusing on staying in your lane and referring work out to others can enable you to help more clients address more diverse needs, without you needing to staff up an agency with a lot of overhead.