One of the questions that we pose early on in our training is “Do you agree that asking for referrals is important?”. I get pretty close to 100% agreement. The follow up question “Do you consistently ask for referrals?” ends up with a significantly lower percentage of agreement; typically closer to 10%.
Usually there are some efforts in place, either a stand alone email that goes out, some language at the bottom of every email, or some type of postcard/letter than goes out with a request. There really is only one reason why asking for a referral is important. Because it works. While I would continue all of the other ways that agencies use to let clients know they would like referrals, verbally asking for them both on the phone and in person significantly increases the chances of your clients letting people know about you and your agency.
I could leave it there, but that would make for a fairly short blog. So, I came up with 4 reasons why obtaining referrals is important. Everyone knows that referrals are the best source of business, but I wanted to dive in a little deeper and define why.
At a high level, obtaining a referral hits four of the components of a successfully functioning insurance agency; efficiency, effectiveness, new business revenue, and retention. Each one of my reasons why applies to one of these components, so we will walk through each one.
Efficiency
The amount of effort that goes into selling a policy to a referred prospect is significantly less than a more random prospect. A referral prospect is ready to buy from you. They already have some level of trust and really just need confirmation that you are the right person from which to buy their policy. The odds of needing to send a quote, discuss reasons to buy from you or the agency, or hit objections is reduced. The odds of being able to quote right over the phone and move directly into obtaining the application (instead of sending a quote) increase. Less effort means more efficiency.
There is also typically an efficiency savings on the servicing side. Referred clients are typically a little more top tier and are less likely to need you for billing or claims issues. They are also less likely to complain or be difficult reducing the effort needed to provide a high level of quality service.
Effectiveness
This is probably the component that most people would first indicate when explaining why a referral is so valuable. Our close rate is usually the best on referred business. As discussed with the efficiency component, referred prospects are ready to buy from us, they just need an application in front of them. We will also typically get higher customer satisfaction scores from referred business because there is a little bit of a self-fulfilling prophecy at play where since they believe that we will be providing excellent service, they are more willing to allow us to follow our procedures instead of fighting against them allowing for smoother service which allows us to provide that excellent service.
New Business Revenue
Another more obvious component is that referred business leads directly to increased new business revenue through the higher close rates that we have discussed. However, a more subtle effect of obtaining a referral is that the newly referred client is more likely to refer another client because of the way they learned about you. This effect should actually be built right into your referral request language.
Example: “I am so glad that Bill connected us together. It was a pleasure working with you. Just like Bill let you know about me, if you know of anyone that I’d be able to help, I would love to hear about them.”
Retention
Finally, there is a positive effect on retention. Again, there is the more obvious component that referred business tends to have a higher retention than business that comes in from other sources. However, there is also a more subtle component. The odds of the original client leaving you are reduced. If Client A referrs Client B, Client A is unlikely to then decide that he or she is going to go elsewhere. And the odds of defection decrease even greater the more new clients that Client A provides!
Referred business is able to drive efficiency and effectiveness along with new business revenue and retention. These are all components to running a successful agency and all contribute significantly to growth. However, asking for referrals is a skill that most service and sales people do not have or try to build. In our AppX training programs, we discuss how to identify the right time, language, and tone which are vital in making sure the request comes off naturally and in a way that increases the odds of your clients complying with the request.
