One thing I've noticed is that my testimonial page is one of the more visited on my site usually be first time traffic. People want to know what others say about you. It counts a lot more than what you say about yourself.
I've seen many, many examples of testimonials working. And I completely agree with all you said. I always link back to the source (assuming there's something to link to) and always ask permission to use them.
One tip I've found when asking for testimonials is to ask just before you finish a project. Your clients are usually happy at the point (assuming you've done a good job) because the work is close to being finished, but since you haven't quite finished they're more likely to actually write the testimonial.
The article I linked to has a lot of ideas for what to do when you can't get testimonials. They'll work even if you do have testimonials too. You want to establish that trust and the post lists a number of ways to establish trust with your visitors to help turn them into paying customers.
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