Updated: May 5, 2018
Most small businesses agree: getting new clients through referrals is a great way to grow their business. And, they’d like more to have more people out there recommending their service to others.
But, even though many small businesses recognize the important value referrals play in getting new clients, they don’t have a systematic referral marketing strategy in place.
We’ve found that there are several reasons.
Many small businesses:
- assume creating a referral marketing program will take too much time
- don’t know where to start, or lack some practical know-how of how to create one
- fear that it will require a lot of uncomfortable “salesy” networking to make it effective.
In reality, though, while it does take some commitment of time and effort, establishing a referral marketing program can be done through a series of simple steps. And over time, the pay-offs can be extraordinary.
5 Reasons Small Businesses Should Have a Referral Marketing Strategy
1. Referral marketing is the most cost-effective way of attracting new clients. Generating prospects from targeted advertising, direct mail, telephone calls, and other methods have their own level of effectiveness. But the cost of getting new clients from referrals (in terms of both time and money) is far less expensive. For this reason alone, all small businesses should make establishing a referral marketing program a priority.
2. Prospects that come from referrals make great clients. Because these referrals come recommended by someone they know and/or trust, they are generally easier to convert to a paying client. As clients, they also usually make fewer complaints about your service, are generally more loyal, pay their bills, stay with you a longer period of time, and are more likely to refer other prospective clients to you.
3. If you have a reluctance for “business networking” or asking others for referrals, consider adopting a different mindset. Consider this: there are many businesses that are as ready to use your service as you are ready to offer it to them. In fact, data from recent research indicates that 53% -88% of business-to-business professional services buyers are willing to switch to new service providers.*
Realize that all businesses have problems to solve. Start viewing yourself as a “problem solver” to other’s business challenges rather than just a “service provider” looking for new clients. As you take on this new mindset, you will become more comfortable with referral marketing tactics.
Referral marketing has been a natural and authentic way of building businesses for centuries. Finding ways for others to recommend your services doesn’t necessarily require you to be a super-star business networker or schmoozer, spending lots of time uncomfortably “working the room” at business luncheons.
But having a solid referral marketing system in place can help you to make the most of the contacts you already have — and to find effective ways of making new referral-generating contacts.
4. Consider each current and future client as strong referral sources, rather than just short-term sales transactions. That means the real value of each customer is greater than what it often seems. With a referral marketing program in place, each customer has a greater life-time value (LTV) to your business (that is: the amount of total revenue they bring in on their own, plus revenue that comes from new clients they refer to you). To see how this works, visit the Life Time Value Calculator here.
5. Effective referral marketing doesn’t happen on it’s own. While you might get some referrals by happenstance for providing a great service to others, to maximize the benefits of referral marketing, you need to develop a system for generating more referrals. Once the system is set up and moving, much of it basically runs on “auto pilot,” potentially generating steady streams of new revenue for your business.