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Leads vs. Referrals – Develop a Referral Mentality

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Marketing by Saul Klein

RISMEDIA, December 9, 2010—Contact with people creates opportunity or, said another way, contacts create contracts. Never forget this basic requirement in sales. The day-to-day success of your business depends upon a steady flow of leads and your ability to convert them into sales. The more efficient you are at doing this, the more successful you will be. Pretty simple.

But not all relevant contacts, which form your prospect base, are created equal. While the day-to-day success of your business depends upon a steady flow of leads, the basis for long-term success of any sales business is referrals.

What is the difference between a lead and a referral?
While both a lead and a referral can be classified as a customer contact, there is a tangible difference between them. The distinction is where the contact lies on an abstract and multi-dimensional continuum from the initial contact to closing, and beyond…to more referrals. What many people call a referral is often no more than a name and phone number or e-mail address. An “unqualified referral,” or more appropriately, a lead.

A referral requires less of your time and other resources to convert to a sale. A referral can be called a “qualified lead” or “hot lead.” The more well qualified it is, the more valuable it is to you.

The quality of customer contacts can be split into three categories:
1. Suspects
2. Prospects
3. Customers

A lead can fall into categories 1 or 2. A referral falls into category 3.

It should be the intention of your business to deal with more category 3 contacts, over time, and less of category 1 or 2. Doing so will not only maximize your revenue and time potential but also allows you to devote more of your attention to building your business, spending time with your loved ones, or whatever else you deem important. Leads and referrals are generated through many different sources. True referrals fall into distinct categories.

1. Personal referral – This is contact information and even an introduction from someone you know.

Referrals from satisfied clients are the “referral gold.” People prefer to do business with those they can trust, and in real estate, many buyers and sellers seek the opinion of close contacts that have relatively recent experience working with an agent to buy or sell a home.

When a referral is made by another Realtor, communication with the referring Realtor and prompt payment of the referral fee is essential if you expect repeats from that Realtor.

2. Designation referral – If you are a CRS, e-PRO or a member of WCR, you can cultivate relationships with other Realtors who are members of these “communities,” as referrals of this nature are usually of reasonable quality.

3. Leveraged relationships – Professionals such as tax preparers, CPAs, attorneys, financial planners and insurance agents have the trust and rapport of many people. If you can gain their trust and confidence, you can reach many through a few.

4. Relocation companies – These are usually good-quality referral sources and worth your time.

Remember, the feature that distinguishes a lead from a referral is the quality of the customer contact. How well do they know the party making the referral? If they have a high degree of trust and loyalty to the person making the referral, there is a good chance they will be loyal and have a high degree of trust in you.

Part 2 of this series will discuss the value of referral networks, best practices, and an action plan to get you on the road to maximizing revenue through referrals.

Saul Klein is senior vice president, Point2, author of MLS 5.0 – The MLS of the Future Whitepaper, a licensed real estate broker in California for the past 32 years and 1993 President of the San Diego Association of REALTORS®. Klein created NAR’s ePRO Technology Certification Program in 2001 and NAR’s Web 2.0 & Social Media Course in 2009. Klein has been providing strategic planning and leadership programs to the Industry since 1994 and is a 1972 graduate of the United States Naval Academy at Annapolis.

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