James Veigli: The power of compounding referrals

In this article, I’ll reveal a system that will keep you flush with business and with willing clients lining
up at your door.

First, I love numbers and you should too! I remember when I was nine years old a friend and I started a game called ‘Numbers’. The game was simple: grab a piece of paper, a pen, and start writing numbers on the paper: 1, 2, 3, 4, etc. The challenge was to see who could write the most consecutive numbers. I’m pretty sure this went on for weeks, producing dozens of pages of  numbers, all written by hand. I even did this (for fun) as homework! I wish I could remember how far we got, but I’d say it was into the tens of thousands. Yes, I was a numbers nerd.

Today, I’m still obsessed with numbers and a concept known as the compounding effect – not just so that I can see how big numbers can get but because I can use the power of compounding (combined with the power of effective marketing and sales systems) to make money and teach other brokers how to do the same.

If you’re not familiar with the compounding effect, consider this: if you start with $1 and double it, you will have $2. Double it again, and you will have $4. Then, if you double your initial $1 10 times, you will have $512. Double that single $1 20 times and you will suddenly jump to having $524,288 in your pocket, and doubling it 30 times will give you $536,870,912! Yes, over half a billion!

So, in theory, you could start with $1, gamble it on roulette (betting on red or black), and if you won 30 times in a row (betting all your winnings each time) you would have over half a billion dollars!

Of course, the odds of winning 30 times in a row are low (you have a 0.00000009% chance), and the purpose of this article is not to promote or endorse gambling but to get you thinking about how to grow your client base and business fast using compounding referrals.

So what do I mean by compounding referrals, and how can one client each week potentially turn into 1,200 clients in just two years?

First let me explain the numbers, and then I’ll tell you the strategy of how to go about it.

COMPOUNDING REFERRALS: THE NUMBERS

I’m going to assume that you can generate just one new client each week in your business. (There are dozens of ways to do this, and if you don’t know how, visit my website for help.) To keep the numbers simple, we’ll say this equals to four new clients each month, which would give you a total of 96 new clients in two years’ time. Simple maths so far, but a far cry from 1,200 clients.

Here’s where the power of referrals comes in. In this example, to get 1,200 clients in two years you will need each new client you see to give you five referrals. Now I know you might be wondering exactly how you would do this, but bear with me as I’ll get to that in the strategy section.

The next part of the numbers is where the compounding kicks in. Here we need to assume a conversion rate for the referrals. I’m going to say in this example that you can convert 20%, or one out of the five referrals each month, into a new client (which is a conservative estimate in my view).

You start by generating just one new client a week, or four new clients in the first month. Each of those four new clients gives you five cold referrals – so 20 referrals in Month 1. In the next month, you convert 20%, or four of those 20 referrals, into new clients, and those four new clients each provide you with five referrals. Plus, in this second month you also generate another four new leads, so you have a total of 40 new referrals in the second month.

This may be a little confusing, so let’s break it down in a visual table:

Assumption: number of referrals per client = 5
Assumption: conversion of referrals into clients = 20%

Take a look at Month 6: you have a total of 84 clients, having started with just one self-generated client each week. What’s more exciting is that during this time your total database has grown from zero to 444 people. That means there are still 360 people on your database who are not yet clients (444 minus 84) and you can put them on a contact management strategy to ensure a good percentage of those prospects convert into clients at some point in the future.

Working the numbers out to the two-year mark, Month 24, you can easily see the significance of this strategy. Simply put, just two years after starting from scratch, you would have 1,200 clients on your books, with a total database of 6,096 people, of which a huge percentage could potentially become clients over time, using a smart contact strategy (a topic for another article).

Are you excited by these numbers? Are you sceptical? Good! Now that you’ve seen the numbers,
you need a strategy in order to play this game successfully. If you’re sceptical, it’s probably because
you’re not following the strategy below.

COMPOUNDING REFERRALS: THE STRATEGY

In the numbers section, I said that for each new client you see you should extract five cold referrals to get your 1,200 clients. Now I’m not talking about being annoying and hard-selling or pressuring clients. I’m not even talking about asking for ‘warm’ referrals; I’m just after ‘cold’ referrals. Here’s the difference, which is key to making this work:

•  A ‘warm’ referral = a direct personal endorsement or recommendation from the client to the referral. For example, you tell your best friend about a new café they  should visit.
• A ‘cold’ referral = provision of contact information (email, postal address, mobile phone) without the client having to directly engage with the referral. For example, providing a friend’s email address when entering a competition (or taking up an offer) so they too can enter or take advantage of the offer.

As an aside, five referrals is by no means a hard-and-fast number. In fact, you can make this number anything you like. Not happy asking for five? Go for three. Not satisfied with just five? Go for 10! Of course, changing the number of referrals per client will dramatically alter the speed in which you grow your database and business.

Play around with the numbers and do what suits your goals and makes you comfortable. Then, if you want to extract your target number of referrals from every single client, you’ll need to implement my five pillars strategy.

Here’s a breakdown of the five pillars in terms of compounding referrals:

‘WOW’ EVERY CLIENT

If you want your clients to be happy to refer upon request, you need to design and orchestrate your client process so that every single client has a ‘wow’ experience – it cannot be left to chance.

TALK ABOUT REFERRALS WITH EVERY CLIENT

If you don’t proactively discuss referrals and prompt them, this strategy will not work. Request referrals from each client as part of your standard sales process. Do this by educating them on the value of referrals to you and your business, and convey your passion for helping as many of their friends, family and colleagues as possible.

USE A 100% NON-THREATENING REFERRAL OFFER

A non-threatening referral gives your clients the comfort of knowing there will be no sales pressure on friends they refer you to. Do this by offering to send your client’s referrals an information pack on how you can help, the benefits of your service, with a special offer for taking the next step. If they take action and call you, that’s their decision.

MAKE IT EASY TO REFER

Referring people to you is low on your client’s list of priorities. That’s why the referral process must be very simple for the client. Ask who they know would benefit from your services, and have them open their phone and write down the names, emails and postal addresses of five of their friends or family members.

INCENTIVISE REFERRALS

Most people are motivated (at least on some level) by what’s in it for them. So create incentives for people to refer, such as value-based incentives of gifts, vouchers, fee rebates or charity donations. Gratitude-based incentives are powerful too – a thank-you call or card is very personal and acknowledges their efforts. Winning-based incentives create a competition environment that brings out people’s desire to try their luck and win.

So there you have it. The five pillars for making the power of compounding referrals work. Of course, there are numerous other execution details that I don’t have space to cover in this article, but hopefully at least you now have the motivation (from the numbers) plus the building blocks (the five
pillars strategy) to help you get more referrals so that you can help more people and make more money.

The only downside is that you could get too busy and have to expand and take on support staff or brokers. A good problem to have, I’m sure you agree! If you’d like me to customise and integrate the
complete Compounding Referrals strategy in your business, contact my office and make an appointment with my assistant, Clare. My final note is this: don’t fall into the trap of dismissing this strategy before you seriously consider and trial it yourself. Go get ’em!

THREE STEPS TO MAKE THIS HAPPEN

1. Set yourself a non-negotiable target of extracting a certain number of cold referrals (say three, five or even 10) from every new client.
2. Study the five pillars and design your strategy to cover each of these points.
3. Integrate referrals into your standard sales process with each new client. One suggestion would be to raise the topic of referrals just after you have signed a client up – at the point when you have clearly demonstrated that you can help them and solve their problems.

James Veigli helps mortgage brokers multiply their income using less time and effort so that they can have the business and lifestyle they deserve. Learn more at brokerprofitsvault.com.au.