Why Implementing a Formalized Referral System is Key to Growing Your Business

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“Loyal customers, they don’t just come back, they don’t simply recommend you, they insist that their friends do business with you.” ~ Chip Bell, Bestselling Author

What happens when a pipe bursts in your house?

You look for a plumber.

So, you check your rolodex… Hm, no plumber in there. The next thing you do is you call a friend, colleague, or you ask your neighbor. Rarely do you jump on the internet looking for a plumber without previously gathering valuable information by consulting your peers.

According to a recent BCG study, referrals and recommendations from friends, colleagues and other consumers trump every other source available. Consumer rely on word-of-mouth two to ten times more often than paid media.

If all the above is true, how come there’s so little emphasis on word-of-mouth aka referrals? Why are business owners so obsessed with trade shows, events, brand websites, SEO, advertising, direct mail, email marketing, you name it — instead of referrals?

Don’t get me wrong… All these marketing instruments are great and when applied strategically they will definitely help you boost brand awareness, gain credibility and long-term turn a cold audience into a warm one, gather leads and prospects, and ultimately convert them into customers.

Here’s what I suggest:

1. Set up a client referral system. Create and implement a formalized internal referral system.
2. Don’t ignore the conventional, externally focused marketing programs.

The truth of the matter is that a solid referral system (step #1) will give you many times the results for less time and money than conventional marketing and sales programs do (step #2).

Do you have a formal referral system in place?

You see, most small business owners will say “Nope”.

They will tell you that sometimes they ask their customers to refer them to friends and family. But that is too generic. It happens randomly. There’s no process behind it. Nothing.

And here’s the bad news:

You’re leaving big money on the table. Referrals — both direct and indirect, are essential to increasing the number of clients and consequently your income.

Your Journey from Random to Intentional Means Putting a Formalized Referrals System in Place

Before I highlight the benefits of developing a formalized referral system, let’s have a look at the key elements or components of it.

First off, a formalized referral system is INTENTIONAL. Meaning, you’re not just pulling current customers by their elbow and asking for random referrals. Intentional means you have a process in place.

Second, you need to INVEST into it. You have to put work into it. Your referral program can go from a simple Thank You note up to monetary rewards. BTW the magnitude and size of the reward depends on your customers. Don’t confuse creativity with math. What is your customer lifetime value? What does it cost you to get a customer from the street and convert that person into a client? It all comes down to maths!

Third, it has to be INTEGRATED. You have to ensure that the referral program you’re about to create and implement is integrated in your business process and your entire team knows about it. You want your sales people to know about it. You want your accountants to know about it. And you most certainly want your secretaries and customer service employees to know about it.

Cultivating Advocates

You can’t deny the enormous power and influence of advocacy.

More than ever before, having a strong advocacy program, generating ongoing conversations, providing excellent products and services coupled with real-time feedback has become critical to deepening your client relationships.

Serious buyers have become immune to the “buy me” cacophony and to the fake reviews on Amazon, Yelp and Facebook.

That’s why, to this day nothing beats a trusted referral.

“One customer, well taken care of, could be more valuable than $10,000 worth of advertising.”  ~  Jim Rohn, World-Renown Motivational Speaker

The Benefits of Referrals

Here’s why it’s essential to get referrals and have a formal referral system…

1. Least expensive way to acquire a new client. On top of that it has the highest potential payoff. People who come to you via referrals are generally less sales resistant meaning you don’t have to do a lot of pre-selling. Actually it’s a pretty neat instrument for those who don’t like to sell, or aren’t particularly good at it.

2. Referred folks are often less price resistant. They are much less likely to price-shop. And this again allows you to sell your products and services at premium prices.

3. A formalized system, or process enables you to consistently get referrals.

And of course, let’s not forget the TRUST issue. People who recommend your services to their loved ones trust you. They are willing to transfer their trust to your company and brand.

Two More Stats and One Tool

I’d like to leave you with two statistics and one tool, a customer referral software to be more exact…

STAT #1:

“Word-of-mouth is the primary factor behind 20 to 50 percent of all purchasing decisions.” – McKinsey & Company

STAT #2:

“McKinsey research shows that marketing-induced consumer-to-consumer word of mouth generates more than twice the sales of paid advertising in categories as diverse as skincare and mobile phones.” – McKinsey & Company

REFERRAL TOOL

If you want to set up your own referral program without over-complicating the entire process, I suggest you have a look at Referral Candy.

The tool allows you to create customized coupons, offer discounts and free product samples. The program comes with a 30 day free trial, so no risk on your behalf.

[We are not affiliates and do not generate any revenue from this recommendation.]

Wrapping It Up

Needless to say that working ON the business pays off.

Please understand that referrals seldom happen automatically. And if so, you often end up with somebody at your door who isn’t at all your ideal client.

Take the time to create and implement a referral system. Randomly asking people to refer you isn’t a strategy. That’s random acts and hope marketing, or should I say hope referral marketing.

Establish systems because systems and processes are the opposite of happenstance. You want to know, not guess and hope. You want results. You and I know, that only results matter.

Do you have a formal referral system in place? If so, how many?