References and Referrals are Different

by Geoffrey James

Referral selling is the art of getting your existing customers to do some of the heavy lifting when it comes to developing a new opportunity. That’s a really good thing because, in B2B sales situations, the hardest part is breaking the barriers of indifference and resistance that separate you from decision-makers at the beginning of the sales cycle. A customer referral neatly catapults you over those barriers, allowing you to sell more quickly and more effectively.

Before going any further, though, I must clarify a key point. A “customer referral” is not a “reference account”.

A customer referral is when an existing customer recommends you to a new prospect. The activity takes place before the beginning of a new engagement… at your behest. A reference account is a customer agrees to be interviewed by a prospect to confirm that you can deliver as promised. The activity (the prospect calling the customer) takes place towards the end of the engagement… at the prospect’s insistence.

It turns out that, in most cases, prospects don’t actually call reference accounts. (Often it’s just enough to cheerfully give the prospect the contacts.) But if the prospect actually does call the reference account, there’s plenty that can go wrong because:

• You can’t control what the reference accounts says. If the reference account says something negative or inaccurate, you’re suddenly thrown into damage control mode and the entire sale could fall apart.
• You’re risking the entire deal late in the game. Because the prospect generally contacts the reference account towards the end of the sales cycle, if the prospects hears something distasteful, it can scuttle the deal, which means that you just wasted all the time and effort that you put into developing the opportunity.
• The reference account can accidentally sour the prospect. Even if the reference account says generally “nice” things about you, it’s pretty easy for “nice” comments to have the effect of damning with faint praise. If the reference account isn’t wildly enthusiastic, the prospect may be turned off.
• The reference account might share too much. If the reference account loves your firm because you gave them big discounts (in order to keep them happy and a good reference account), there’s a good chance they’ll share the details of their deal with the prospect. Say goodbye to your profit margin!

This is not to say that a reference accounts can’t be helpful, but consider this: if you enter an engagement with a reference from an existing customer, you probably won’t need a reference accounts, because you’ve already been “pre-qualified.” And because a referral takes place at the beginning of a new opportunity, if the referral doesn’t pan out, you’ve only wasted a few minutes of your valuable time.