What’s Your RQ (Referral Quotient)?

Discover your “Referral Quotient” and how willing your clients are to tell their friends about you.

And here’s perhaps the sweetest point of all. Insurance agents can use the three R’s and the index to grow their practice without doing the one thing many of them dread—actually asking for referrals. Clients who are advocates for an agent give referrals of their own free will, acting almost like an unpaid sales force. Those are the clients every agent should understand, measure, identify and replicate.

The two happiest days in insurance agents’ careers are the day they attract a new client and the day they retain that client long term.

All insurance agents and annuity sellers should strive to achieve both of these things as one seamless goal. What they probably don’t realize is that the letter R can make them very happy indeed. That simple letter can help them attract clients, perhaps retain them for life and generate new clients. R stands for Risk, Reputation and Refer. You are on the road to growing your practice when you understand what these Rs mean and how they can work together for you.

Let’s examine Risk and Reputation first. This is not the risk you’re thinking of. I’m talking about a client risking his or her reputation for you. When people risk their reputation, they are vested in the outcome. For example, when a client tells a friend about you, that client is truly putting his reputation on the line because that friend may place his financial future in your hands. Most people view their reputation as a precious thing. So when people put their reputation at risk, they do so with caution to avoid tarnishing it.

The next R is Refer. According to exhaustive research published by Harvard Business Review (“The One Number You Need to Grow,” Frederick F. Reichheld, December 2003), if a person recommends you, he is not only telling others to use you, but is signaling that he will continue to work with you and purchase more of your products. The research showed that when people risk their reputation and make a referral, their behavior matches their words. If Robert tells Betty and Jim they should arrange their insurance with you or buy an annuity from you, Robert is very likely an existing client who will stay with you over the years. Robert represents repeat business. When Betty and Jim become clients, that’s new business. If Betty and Jim value what you do for them and make referrals, the cycle repeats itself.

Here are two important points about clients who risk their reputation and give you a referral. First, they are what I call client advocates. Second, client advocates make referrals of their own free will. They are so pleased with your products and services that they take the initiative and say good things about you to friends, relatives and associates. Advocates are golden! You want to have as many of them as possible.

Now comes the interesting part; something that it’s likely no agent has ever done. You should quantitatively measure clients’ willingness to give you a referral. Don’t ask for a referral. Instead, find your Referral Quotient.

Measuring willingness is critically important because when you look at how many clients are willing and unwilling to refer, you end up with a statistic or quotient that expresses the degree to which you have advocates. Let’s consult a referral index. We all know the advantage of an index. It can be tracked. The first measurement establishes a baseline index, and subsequent measurements establish a trend line for the index. The more clients you have who are willing to risk their reputation and refer, the higher the index goes. Remember what I said above about Robert, Betty and Jim and the cycle they create. The higher the index, the more likely you are to have new and repeat business.

The real opportunity comes from the comments clients share about why they rank you a five or a 10. These comments give you the guideposts you need to make improvements to the way you run your business. The improvements help create more clients who are willing to refer. I’ll let you in on a surprising secret. The majority of the negative comments will have little to do with money. Most will pertain to service issues. That’s wonderful news, because you can control the quality of the service you provide.

One last but important point about measurement. When agents think about risk, reputation and refer in the manner described here, they should realize that I’m talking about clients who are far beyond being satisfied. In fact, a client satisfaction survey is useless for measurement. It’s a waste of time and money. A client can be satisfied one month and dissatisfied the next. So, is that person satisfied or not? A satisfaction survey is just a snapshot in time. The willingness to risk and refer measures something more meaningful and lasting: advocacy.

The index is valuable for another reason. It’s easy to communicate internally. To know how well your practice is doing, all you and your staff need to do is look at the index. Staff will easily grasp its importance. If certain operational changes are made and the index jumps a point or two, everyone makes the connection. What could be more simple and straightforward? Obviously, the point of all this is to improve your bottom line. You are in business to help people with their financial future but you are also in business to make money. Let’s say you measure in April, start at a baseline index of 10 and bump it to 15 by the end of 2011. When you see the increase in the index, you should also see an increase in revenue.

I’m sure you realize where this is going. You now understand the value of advocates and how to create them. You understand the relationship between advocates and the index. With simple math, you also understand that for every one-point increase in the index, revenue should go up by a certain amount within a certain time frame. You can set a goal to reach an index of 20 next year, for example, and project that revenue will increase by a certain percentage in 2012. Not only do you have a system for increasing revenue, you have a management tool.


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