Balance of Trade: The Secret to Profitable Referral Relationships
Referrals are the life blood of many businesses. This is especially true in professional services. Ask any attorney, accountant, consultant, real estate agent, or other professional, and they will confirm that the majority of their new business comes from referrals. This is also true of most employers. Ask any HR pro where they source most of their new employees and they will likely say, “Referrals from our current employees and partners.”
Referrals drive business. If everyone knows that, why can’t most people tell you how effective or valuable each of their referral relationships are? It’s because they don’t formally audit those relationships.
Last week I had coffee with a wealth manager. His clients are high net worth individuals. Many of them are business owners – my target audience. Like many lunches, coffees, calls and emails that consume a significant portion of my time, the objective was to explore how we might cross-refer business. After discussing our respective services, current deal flow and client profiles, I asked him point blank: “You obviously know a lot of good professionals in my field, how do you decide which ones to refer your clients to?” His answer was Insightful and illuminating.
He said, “I do a Balance of Trade Audit at the end of each year.”
Curious, I asked him how that worked. He said it was quite simple. He tallies therelative value of the referrals he made, then compares it against the value of the referrals he received from those same people. If they made referrals of equal value, he considers their relationship as being a fair balance of trade. If the value of their referrals were lower (or non-existent) than the value of the referrals he made to them, he considers them as having a trade deficit. If the value of their referrals were greater than those he made to them, he considers them as having a trade surplus…and he makes a point of balancing that account in the coming year.
To be fair, he has an advantage that many professionals do not. He often knows the general value of the business he refers because he is managing his client’s money and knows what they paid for those services. When he doesn’t know the value, or he is not seeing any reciprocal value, he simply calls the people whom he made referrals to and discusses their balance of trade. If the referral partner is indifferent to the one-sided relationship, or is not sincere about closing the deficit, they stop getting his referrals.
He was quick to add that this BOT Audit only works when there are plenty of other good professionals to refer. The best interests of his clients always come first. If they have a specialty need and there are not many good providers, he refers his clients to the best provider he knows, with no expectation that he will maintain a balance of trade with that provider. It’s a one-off referral. In most professions, however, there is a plethora of very good providers and plenty of opportunities to make ongoing referrals.
One of my pet peeves about Linkedin, BNI, and other referral networks, is the poor job they do in helping their members track accountability and reciprocity among their connections. This is the age of technology and deep data. The tools exist to do this so much better.
Last year I designed a new App for LinkedIn called “Chit.” It would track all of the introductions, recommendations, skills endorsements, referrals, follows, views, likes, comments and shares, across all of your activity and connections. It would apply weights to each and every “touch point” you had with your connections. Every week you would receive a report showing who you owed “chits” to, and giving you ways to repay those chits with a few clicks. Conversely, the report would also show who owed you chits, so you would know who to call on when you needed an introduction or other favor of equal value.
Unfortunately, the app didn’t fly because LI’s API does not make that data available to third-party developers (yet). If you want this granularity you have to download your data, import it into Excel, sort the data by touch point, and then apply weights to each. It’s a manual, time-consuming process, but the results are eye opening. Having done this for my connections, I know the balance of trade and relative value of each of my connections on Linkedin.
In the absence of an automated app like Chit was meant to be, a manual BOT Audit like the one I performed on my LI connections is probably overkill for introductions and small ticket items. But a manual BOT Audit like the one performed by my wealth manager colleague, makes a lot of sense when referring business worth tens of thousands of dollars. In my field of M&A, a good referral could be worth millions of dollars.
Earlier this year I wrote a popular post entitled, Increase the Value of Your Professional Network by 10X, partly based on my experience trying to engineer a Balance of Trade Audit for my Linkedin connections. In any case, it’s worth doing manually to build a great network and maximize the value of your connections. Regardless of the methodology you use, a fair balance of trade is the secret to more profitable referral relationships.
And by the way, if you need a wealth manager, I can refer you to a really good one!