What if there was an inexpensive system you could put in place today that would effectively allow your business to grow itself?
There is. It’s called referrals.
For most business owners, a large part of their customer base is comprised of referrals. These people found out about the company’s products or service from the recommendation of a friend or colleague who had a positive experience purchasing from that company. If your business benefits from referral customers, you will find that these customers arrived ready to buy from you and tend to buy more often. They also tend to be highly loyal to your product or service. Seem like great customers to have, don’t they?
Referral customers cost less to acquire. Compared to the leads you generate from advertising, direct mail campaigns, and other marketing initiatives, referral customers come to you already qualified and already trusting in the quality of your offering and the respectability of your staff. With a little effort and creation of formalized system or strategy, you can not only continue to enjoy referral business, but easily double the number of referral customers that walk through your door, all for a minimal investment of time and resources.
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Is your business a referral business? Referral-based businesses benefit from a stream of qualified customers, who arrive at their doorstep ready to spend. These businesses put less focus on advertising to generate new leads and more focus on serving and communicating with their existing customers. Generally speaking, a referral program can generate outstanding results for nearly any business, since most referrals do not require any effort, the addition of a strategy and a program will often double or triple the number of qualified referrals that come through a business’ door.
This means you don’t have to throw money at online advertising, which for most small businesses is expensive and doesn’t generate a positive ROI. For example, if you placed an ad for $200 and 20 people make a purchase in response to that ad, you would have paid $10 for each customer. Referral customers cost you next to nothing, your existing customer does the work of selling your business to their friends or associate, and you benefit from the sale. Aside from the cost of any referral incentives or coupon production, there is no cost involved at all. Referral customs cost less and require less time investment than any other customer. That means, you can spend that time making them a loyal customer or a devoted fan.
You’ve probably heard of the 80/20 rule. Well it definitely applies to your customer base. 80% of your revenue comes from 20% of your customers. These are your ideal customers. These are also people you have established as your target market and are the people you cater your marketing and advertising efforts towards.
You also have a group of customers who make up 80% of your headaches. These are the people who complain the most and spend the least. Use your referral strategy to get more of your ideal customers, spend more time servicing your ideal customers, do everything you can to make them happy and less time on your headache customers. You can even ask your headache customers to shop elsewhere. Then, focus your referral efforts on your ideal customers. Ask them to refer business to you and reward them for doing so. Try to avoid referrals from your headache customers. Chances are, you’ll just get another headache.
Double your referrals. Take some time to brainstorm all the people who could potentially refer your business. Think beyond your business to your extracurricular activities and personal life. There are endless sources of people who are ready and willing to send potential customers your way. Here are some ideas to get started. Past relationships. No, not romantic relationships. I’m talking about anyone you have previously had a relationship with, but for one reason or another, have fallen out of touch.
This includes former colleagues, associates, customers, and friends. Including them in your referral strategy can be as simple as reaching out through the phone or email and updating them on your latest business initiative or career move. Gently ask at the end of the correspondence to refer anyone who may need your product or service. They will appreciate that you have attempted to reestablish that relationship.
Here’s some additional sources of referrals:
Suppliers and vendors. Your suppliers and vendors can be a great source for referrals because they presumably deal daily with business that are complimentary to your own. The opportunities to connect two of their customers in a mutually beneficial relationship are endless. These businesses should be happy to help out, especially if you have been a regular and loyal customer.
Customers. Customers are an obvious source of referrals because they are the people who are dealing with you directly on a regular basis. Often, all you have to do is ask and they will happily provide you with the contact information of other interested buyers, or contact those buyers themselves. Your customers also have a high level of product knowledge when it comes to your business, and are in a great position to really sell the strength of your company. Remember from the testimonial section, the words of your customers are at least 10 times more powerful than any clever headline or marketing piece you could create.
Employees and associates. Give your employees and associates a reason to have their friends and family shop at your business with a simple incentive program. These people have the most product knowledge and are in the best position to sell you to a potential customer. This is also a way to tap into an endless network of people. Who do your employees and associates know? Who do their friends and friends of friends know? A referral chain that connects to your employees can be a highly powerful one.
Competitors. This doesn’t seem so obvious, but it can work. Your direct competitors are clearly not the ideal source of referrals; however, indirect competitors can refer their clients or potential clients to you if they cannot meet those clients’ needs themselves. For example, if you sell high-end lighting fixtures. A low budget lighting store down the street may be able to refer clients to you and vice versa. You may wish to offer a finder’s fee or incentive to establish these arrangements.
Your network. Don’t be shy about asking your friends and family members for referrals. Too many people do not provide enough information to their inner circle about what they do or what their business does. This doesn’t make sense, since these are the people who should be the most interested. Take time to explain clearly what your business is all about and what your point of difference is. Then, just ask them if they know anyone who may benefit from what you are offering. You could even provide your friends and family with an incentive, a gift, a meal, or portion of the sale.
Associates and special interest groups. This is another place where you likely have a network of people who have limited knowledge about what you do or what your business does. This advantage here is that you have a group of people with similar beliefs and values in the same room. Use it.
The media. Unless a member of the media is a regular customer of yours, or you’re in business to serve the media, this may not seem like an obvious choice either. The opportunity here is to establish a relationship with an editor or journalist, and position yourself as an expert in your field or industry. Then, next time they are writing a related story, they can ask to quote you and your opinion. When their audience reads the story, they will perceive your business as the industry leader.
A referral strategy is any system you can put in place to generate new leads through existing customers. The ideal way to do this is to create a system that runs itself. Here are some ideas or simple strategies you can begin to implement into your business immediately.
Just ask. This may seem simple and obvious, but it’s true. Be open with your customers and associates and simply ask them if they can refer any of their friends or associates to you. Make it a part of doing business with you, and your customers will grow to expect the question. Or, let them know in advance that you’ll be asking at a later date. Remember that this can include potential customers, even if they don’t buy from you. The reason they choose not to purchase may have nothing to do with your business. Any person who has begun to or actually done business with you can refer you to another person.
Offer incentives. When you speak to your customers, when you ask them for something, you typically try to answer the question, “What’s in it for me,” before they ask it. The same is true when you ask your customers for a referral. Incentive-based referral strategies work wonders and can easily be implemented as a part of customer loyalty program. Or, as a part of your existing customer relations system.
Consider offering customers who successfully refer clients to you discounts on products, free products or services, or gifts. Offer incentives relative to the number of referrals or the success rate of each referral. This can have a spinoff affect, as your referral customers may become motivated to continue the referral chain. They, too, will be interested in the incentives you have provided and tell their friends about your business.
Be proactive. The only way your referral program will work is if you put some effort into it and maintain some level of ongoing effort. Here are some ideas. Put a referral card or coupon in every shopping bag that leaves your store. Promote gift certificates during peak seasons. Offer free information seminars to existing customers and ask them to bring a friend. Post a closed-door sale for your top 20 customers and their friends.
Provide customer service. An easy way to encourage referral business is to treat every potential customer with exemplary customer service. Since the art of customer service is lost in many communities, people are often impressed by simple added touches and conveniences. That alone will encourage them to refer your business to their network.
Stay in touch. Make sure you are staying in touch with all of your potential and converted customers through newsletters, direct mail, or internet. Keep your business name at the top of the minds, ahead of the competition. Even if they have already purchased from you and may not need the purchase for sometime, a newsletter or email can be a simple reminder that your business is out there. If someone in their network is looking for the product or service, it will be more likely that your customer will refer your business over the competition.
Chapter review. For most owners, a large part of their customer base is comprised of referral customers. These people found out about the company’s product or service from the recommendation of a friend of colleague who had positive experience purchasing from that company. With a little effort and the creation of a formalized system or strategy, you cannot only continue to enjoy referral business, but easily double the number of referral customers that walk through your door, all for a minimal investment of time and resources.
Generally speaking, a referral program can generate outstanding results for nearly any business. Since most referrals do not require any effort, the addition of a strategy and a program will often double or triple the number of qualified referrals that come through a business’ door.
Take some time to brainstorm all the people who could potentially refer business to you. Think beyond your business to your extracurricular activities and personal life. There are endless sources of people who are ready and willing to send potential customers your way.
A referral strategy is a system you can put in place to generate new leads through existing customers. The ideal way to do this is to create a system that runs itself. Just ask, offer incentives, be proactive, provide great customer service, and stay in touch. What are you doing in your business that’s working well in generating more referrals? Share in the comments below.
Stacey Riska, aka "Small Business Stacey" is a serial entrepreneur who is passionate about saving small business and rebuilding Main Street. She helps small and local business owners become a #SmallBizMarketingWiz by teaching them marketing strategies that get MORE: MORE leads, MORE customers/clients/patients, MORE sales, and MORE money. Stacey is the founder of Small Biz Marketing Specialist, THE go-to place for marketing tips, techniques and strategies that get results. She's also the author of "Small Business Marketing Made EZ" where she shares the 6-simple-step plan to get your marketing into ACTION - literally and figuratively. Stacey is also the creator of the Daily Deals for Massive Profits, an online video training program that teaches small and local business owners how to use daily deal sites like Groupon to skyrocket their business growth and get massive profits. In this program she teaches from experience, as it was the key strategy that transformed her coffee and smoothie business from being $500K in debt to a 7-figure profitable business. When not saving the small business world, she enjoys sipping red wine, eating chocolate (who doesn't!) and spending time with her amazing husband.
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