How Many Referral Sources Do You Need?

As readers know, the holy grail of a firm’s success is the professional stream and practices that sustain the referral stream. In the author’s view “it does not have to be an endless stream, just a manageable one.” The author shares his views on how to make this happen.

As you know, the holy grail of your successful professional practices is a stream of referrals. But it does not have to be an endless stream, just a manageable one. Let us consider how to calculate the number—literally, the number—of referral sources you need to sustain your BV practice. And as you might suspect, it turns out it’s a numbers game. Like most things we do, there is a mathematical formula for it. Here it is:

Start with the annual dollar revenue you need.

Divide that by your expected average fee per engagement.

Divide that by the number of referrals your average referral source can likely get you.

Divide that by the “win rate” you have on your referrals.

That equals the number of referral sources you need.

If you need $300,000 of revenue … have a $10,000 average fee per engagement … get three referrals per year from your average source … and a 60% win rate … you need about 17 different referral sources to reach your revenue goal, as these calculations show:

$300,000 ¸ $10,000 = 30 needed referrals @ an average fee of $10,000

30 ¸ 3 = 10 needed projects per referral source @ a 100% win rate

10 ¸ 0.60 = 17 different referral sources @ a 60% win rate

And if I may add, 17 would be the number of referrers who you enjoy being with enough to cultivate, nurture, and serve! If you want to reduce the number of referral sources you need, it’s easy to see which levers to pull: average fee per engagement … number of referrals per year per source … and win rate.

Now, how do you get those referral sources? Well, here’s an interesting tidbit. Hinge Marketing reports that almost 82% of professional service firms get referrals from people who have never worked with them before … mainly as a result of word-of-mouth attributable to a professional’s speaking and writing efforts. So, there is another lever you can pull.

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Everyone has a different idea of what a successful practice is. The practice you want is personal because it is based on what “successful” means to you. I help practitioners focus on the strategies and tactics to build/grow their versions of successful practices. If you want some help with that, e-mail me at rod@rodburkert.com.