Are referrals enough to grow an accountancy practice?

Picture a managing partner at a UK accountancy practice with one hundred clients, who has turned down no work and chased none. Last year twelve clients left, some through retirement and some through a move to a firm nearer home. Fourteen new clients arrived, every one by introduction. The partner reads that as a healthy year and is right, until the other partners ask for the practice to grow by a tenth. This is an invented practice, and the sum it leads to is one any partner can run in ten minutes.

What the referral sum actually measures

Referrals hold a practice level or grow it, and which one they do depends on a subtraction. Take the clients who arrived by referral and subtract the clients who left. A positive result is net growth from referrals alone. A result near zero means the practice is running to stand still, which is sometimes the aim and sometimes not.

The sum has a second half that gets skipped. A partner who wants growth of ten clients a year does not need ten referrals. The practice needs twelve to replace leavers plus ten, so twenty-two arrivals in total. The target is the gap between that figure and the referrals the practice has actually seen, and the next section puts numbers on it.

The referral replacement ledger, with invented figures

Every number below is made up to show the method, and none is a UK average. The imaginary practice has one hundred clients at an average annual fee of £3,000, so £300,000 of fee income. Twelve clients leave in a typical year and referrals bring fourteen. Replace each figure with the practice's own before drawing a conclusion.

Why the gap grows faster than the target

Leavers are a fixed charge on growth, so each extra client wanted adds to the gap one for one. In the ledger, aiming for a tenth more clients means referrals have to rise by more than half, because the twelve who leave come off first. A partner who thinks of a ten per cent target as a modest ask of the referral network is underestimating the ask by a wide margin.

The ledger also shows the case where referrals are enough. A practice content to hold its size has two clients spare in a year like this one. The partners can decide that is the right ambition, and the sum then confirms it. The ledger is not an argument for growth. It makes the cost of the ambition visible before anyone hires or spends.

One more caution on the inputs. Use the average of the last three years of referred arrivals and leavers where the records allow, not the best year. A practice that had fourteen referrals once and eight twice will otherwise plan around a number it rarely sees.

What one source stopping does to the same book

Volume is only half the picture, because referrals can cluster around a few people. Suppose the fourteen referred clients came from four invented sources: a local solicitor, existing clients, a financial adviser and a handful of one-off introductions. The table holds the leavers at twelve and removes the largest sources in turn.

A partner can build this table in the time it takes to list the last twenty clients and ask where each came from. The result may be uncomfortable if one name dominates the list. It is not a reason to stop courting referrers. It is a reason to know how many the practice could lose before the book shrinks.

Filling in the ledger with your own figures

An afternoon with the client list and the fee records is enough for a first version. The method has four steps, and the second is the one that gets skipped because the records are not tidy.

1. Count the clients on the books today and the clients who left in each of the last three years, with the reason where the partners remember it.
2. Tag every client who arrived in those years with the first person or place that introduced them, asking the client when the file does not say.
3. Work out the average annual fee of a new client, which may differ from the average of the whole book.
4. Agree the growth the partners want, then fill the ledger and run the dependence table on the two largest sources.

The third step matters more than it looks. A new client can come in below the fee of a client of ten years' standing, and if so a gap priced at the book average overstates what filling it is worth. Use the new-client figure where it differs, which is the honest basis for deciding what to pay to close it.

What the evidence says, and where it stops

Referrals are still among the most named sources of growth for UK practices, but by a far smaller share than they were. AccountingWEB reported in July 2021 that 23% of Accounting Excellence award entrants in early 2020 attributed their growth to client referrals, level with social media and ahead of SEO at 20%, against 76% in 2018 (AccountingWEB, Secrets of excellence: practice growth). The UK accounting software supplier Capium calls referrals a powerful form of word-of-mouth marketing in a whitepaper that asks the same question as this article (Capium). Award entrants are a small group who chose to enter, so the figure is a direction, not a benchmark for any one firm.

Nothing we read gave a sourced share of UK practices that grow on referrals alone, and an article that invented one would be doing the thing a sceptical partner is right to distrust. That is why the method here uses the practice's own records. A national average would say little about a firm with its own partners and its own network of introducers.

Sizing the second route

The gap in the ledger is also the brief for whatever comes next. In the ten per cent case the gap is eight clients a year. If the practice converts one enquiry in four into a client, which is an invented rate, eight clients need thirty-two enquiries, so just under three a month. That is a number a partner can check against a quote. Replace the one in four with the practice's own rate from its enquiry records.

It also sets a sensible ceiling on spend. Eight clients are £24,000 of annual fees in the invented case, and the practice should know what it is willing to pay to win that, over what period, before it talks to anyone. Our article on how long SEO takes for an accountancy practice explains why search work cannot close a gap this year, and the one on how much partner time an agency engagement needs covers the hours the practice will have to give in return.

Capacity is the quiet limit

A practice already at capacity gains nothing from a second route. If the partners cannot take on eight more clients without hiring, the first cost is a salary, and the ledger should carry it. A referral flow can suit a full practice because it is slow enough to absorb. Fast, measured enquiries from a second route are a different operating problem, so decide who answers them before any agency starts.

Reading the ledger a year later

Run the same sums again after twelve months and compare the two ledgers, not the two feelings. The comparison shows whether the gap closed and whether the new route earned its cost. It also keeps any later agency report honest, because the practice holds its own figures. Our article on checking an agency's reported numbers shows how to test a supplier's count against the practice's own records, and the accountancy practices page sets out what we check before we introduce a specialist to a firm like this.

When not to hire an agency yet

Do not hire an agency to find clients until the practice can say where its last twenty clients came from. Without that, nobody can tell whether an agency added anything, and the reporting becomes a discussion of clicks. Wait, too, if the referral sum is comfortably positive and the partners want the practice to stay the size it is. Then the honest advice is to keep looking after the referrers and spend nothing. And wait if nobody has the hours to answer a new enquiry within a working day, because extra enquiries would go stale.