Referrals Are the Lifeblood of Anybody’s Business

January 22, 2009

How to Make it Rain Referrals
If you don’t have a systematic referral program you are missing out on one of the simplest, lowest cost, ways to generate your highest quality customers. Referrals are the lifeblood of small business and if you haven’t yet institutionalized a referral program, you’re making a huge mistake.

Why are Referrals so Powerful?
The reason referrals are so powerful is because they come from a credible third party that has experienced first-hand the benefits of doing business with you.  They are even more powerful when they come from a friend because you know that a friend has no ulterior motivations but to do what’s in your best interest.  You can believe what your friend is saying versus hearing a commercial from a salesperson whose sole purpose is to make money from you.

Referrals are also valuable because most of the time they are completely free.  How would you like to receive the benefits of the most compelling sales advertisement on earth for absolutely nothing?  You can through referrals.

Research shows the importance of referrals.  According to Paul and Sarah Edwards (authors of Getting Business to Come to You), up to 45% of most service businesses are chosen by customers based on the recommendations of others.  A recent Dun and Bradstreet survey found referrals to be one of the two most popular small-business marketing methods (the other one is advertising).
Lastly, and I think this is the most powerful reason of all, customers that give referrals become more loyal to you and your business.  Once someone stands up and makes a public statement about you, psychologically they will become more loyal to you and your business.

Customer Service Doesn’t Always Equate to Referrals
Customer service is critical to the success of your referral program.  It is the foundation of the referral process.  But just because you give good customer service, it doesn’t mean that you will get a lot of referrals. Receiving referrals on an ongoing basis is as much a function of deliberate planning as it is great customer service.

Many small business owners assume that referrals will happen by themselves if you give good customer service. This isn’t true.  If you are not deliberate and proactive in creating referrals, the chances of you receiving as many referrals as you want are slim.  And your best customers are ready and willing to give you referrals as was shown in the statistics above, you just need to show them how.

Word of Mouth Advertising and Referrals are Not the Same
Word of Mouth advertising happens when one of your customers or friends mentions your small business in a casual conversation.  It’s not intentional or planned.  It’s just something that came out of their mouth.

A referral system is a methodical process that you have put in place to capture qualified prospects through your association with other people.

A ‘system’ by its definition is a ‘process that products predictable results.’ A system can be turned on and off like a light switch at will.  Your business needs word of mouth advertising but don’t mistake that with developing a methodical system for referral prospecting.

Making it Rain Referrals Starts with Your Attitude!
Time and again the same question keeps coming to me, ‘How do I get more referrals?’  My answer is always the same, ‘You must ask for them.’  In reality, most small business owners know that they have to ask for referrals to get more referrals but it’s the fear of asking that impedes them from moving forward.

This fear of asking is rooted in your attitude.  If your attitude is one that believes that you are asking that person to go out on a limb for you by asking them to give you referrals then you will always be battling with fear.

People Want to Give Your Referrals
If you truly believe that it will be helping them if you ask them to give you referrals your fear would fade quickly. Your customers want to give you referrals.  It makes them feel good that they found a great small business that they had a good experience with and they want to share their ‘little secret’ (you) with their friends.

They will be seen as a hero, or someone ‘in the know.’  And when their friend receives great service from you as well, your referring customer will feel as though he was able to do their friends a great favor.

When you ask for a referral, and you have treated that person right, you are actually doing them a special favor.

How to Ask for a Referral
Has someone ever asked you for a referral?  Did it go something like this: ‘Hey John, by chance would you know someone who could benefit from my services?’  John starts to ponder and think about it and eventually says, ‘Well, not off the top of my head, but I’ll keep thinking about it.’

This is how 90% of all referral questions are asked and unfortunately, you might as well not ask the question. Rarely, if every, will you get a positive response.  Why? Because you didn’t ask the question right. ‘know anyone who…’ questions are too broad for people to think about.

People need a frame of reference to help them narrow down the playing field of potential referral candidates. For instance, imagine that you are talking to one of your good clients who is pleased with your services.

You ask her, ‘Mary, you’re a member of the Women’s Financial Planning Association here in Chicago right?’ Mary responds, ‘Yes, I am.’ You ask, ‘Do you go to their meetings on a regular basis?’  ‘Yes, most of the time.’ Mary says.  ‘Is there anyone in your association that you believe could benefit from my services?  Maybe one or two people you’ve known in the group for awhile or sit next to regularly?’
Did you see the difference?  You gave Mary a narrow frame of reference from which to think about.  It allowed her to ‘see’ the potential referrals in her mind.  This may be limiting the number of potential people that your associates might know, but it is far more effective than opening up the ocean of people that Mary may know, but can’t remember.  Your request will also stay in Mary’s mind long after you’ve asked it because she visualized your services with much greater intensity.

Two Types of Referral Programs
Basically, there are two sources for referrals, your current customers (people who have done business with you) and other influential people. You should have an active referral system for both types of people.

Your customers are perhaps your most enthusiastic referrers because they have experienced your product.  But, you may in fact, get more referrals from other influential people who have never tried your product.

Develop a system for obtaining referrals first from your customers and second from other influential people or ‘Centers of Influence.’
Perhaps the simplest way to harvest referrals from your customers is to write a simple letter asking them for their help.

Centers of Influence and the 80/20 Rule
Your best referrers are your customers.  The people who have experience with you and can vouch first-hand for your product and service.  However, there are many other people and organizations that you must include in your referral prospecting system.
These individuals are people who know and mingle with many other influential people.  These people are often known as, ‘Centers of Influence.’

Centers of Influence can multiply your marketing efforts ten-fold.  They turn your marketing efforts from one-to-one to one-to-many.  They are the heavy hitters that can have a profound multiplying effect on your business.

A smart small business owner will spend the majority of his referral prospecting time with the 20% of their centers of Influence that will produce 80% of the results.

Conclusion

Establishing a referral program with your customers and other influential people is absolutely critical. Many small business people make the mistake of not institutionalizing a systematic program for referrals. They confuse word of mouth advertising with a referral system and, hence, overlook the single most effective advertising for a small business.

Don’t make the same mistake. Develop your networking skills and referral programs today and start receiving an endless stream of new customers.
Now go out there and make it rain referrals!
Courtesy of David Frey
For more information see: http://socreferral.com/jeff

David Frey is the author of The Small Business Marketing Bible. David spent five years as a senior business consultant in Anderson Consulting; one of the world’s largest consulting firms. He was also a former Senior Vice President for a $500 Million company, and a Vice President of Sales and Marketing in the retirement community industry. David’s Marketing Best Practices newsletter is read by over 45,000 small businesses in over 20 countries worldwide. He was the #1 top sponsor in SendOutCards from 8/06 through 8/07, and the #2 income earner in the company.

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