When speaking with business owners in residential and commercial service industries, we often hear that word of mouth and referrals have been their best driver of company growth. It does work, but like most marketing strategies, word of mouth comes with both pros and cons.
Though many business owners have built multi-million dollar companies through word of mouth and referrals, we suggest you use word of mouth in addition to other forms of marketing to drive faster and more reliable growth.
**To be clear, we are a marketing company, so word of mouth is one of our direct competitors. With that said, the purpose of this blog is not to dissuade you from using word of mouth but to convince you to consider other marketing activities in addition to it.
Let’s dive into the pros and cons for word of mouth.
Word of mouth marketing is as close to free marketing as you can get. Unless you’re mailing cards to people requesting referrals or are running a referral program with paid incentives, you don’t have to spend any money on word of mouth marketing.
If you’re doing outreach via phone or email to encourage referrals, you’re only spending money on the employee who’s doing the outreach. To save more money, you could do the outreach yourself, but if your time is more valuable doing other activities, then you’re losing the money you’d make if your time was spent elsewhere.
In most cases, the potential customers that come by word of mouth are more likely to become a customer because they’re ready for the service and have gotten the validation to do business with you from a trusted source.
Less Control Over What You Get
When loyal customers send your company potential business, they are not aware of the characteristics of your ideal customer such as:
How profitable they need to be
What type of service(s) they need
Where they need to be located
How much revenue they need to generate
What they need to value (quality, communication, etc.)
They just send you whatever comes their way which can do more harm than good. Imagine getting a referral customer who will produce thin margins or who will even lose you money in the long-run. That’s not good! What’s worse is that it’s harder to deny them because they were referred to you.
Creates an Unpredictable Pipeline
Companies in service industries need a strong and consistent pipeline of potential business, especially if they want to grow. With word of mouth marketing, you don’t know when and how frequently you’ll get customers from word of mouth.
There’s no steady cadence, and it’s often not consistent. You can try to create consistency by sending out frequent requests for referrals, but ultimately, it comes down to whether your customers know anyone at the moment who might need your services.
Though there are tactics your company can use to encourage referrals, growth by word of mouth is still a slow process. Because of the sheer numbers needed to scale quickly using word of mouth, it often takes several years to build a customer base big enough to produce a lot of referral business.
Like any other advertising method, word of mouth is a numbers game. It depends on how many customers you have that are enthusiastic about your company and how many people they know who might be interested in your service.
If you’re a commercial landscaper with 50 accounts and want to submit 30 proposals next year, over half of your accounts would have to successfully send you 1-2 potential customers. With 50 accounts on hand, your numbers would produce only a few proposal opportunities through word of mouth alone.
Leads to Conflicting Expectations
When you use more controlled means of marketing, you’re able to interact with potential customers before they’re ready to buy. This gives you time to educate them about your service offerings and to set reasonable expectations for what you can provide.
When you pick up customers from referrals, you’re often skipping that period of education and expectation setting. This can lead to unhappy customers in the future or less profitable work for your company because the customers’ expectations and your service offerings won’t align.
To Sum it Up
As you can see, word of mouth marketing has convincing arguments for and against the marketing strategy.
But like we mentioned earlier, the purpose of this blog isn’t to convince you to drop word of mouth marketing.
The purpose of this blog is to convince you to think about adding more consistent means of marketing to your word of mouth marketing efforts to drive faster and more reliable growth.