The Secret to Generating a Ton of Referrals

Too many business owners take whatever referrals they get and think that’s all. Plus, most businesses believe that referrals are earned by delivering a good product or service. However, if you create a deliberate and organized program to stimulate referrals, you can easily multiply the amount by three or four times. That’s how you turn a struggling business into a storm-proof business.

For example, I tell my managers that anything less than a 1:4 referral ratio is unacceptable. That means one referral per year per four active customers. If you have 400 customers, you need to get 100 referrals. I encourage you to check your records and take the time to figure out where you are against this standard. I also recommend that average out the process, set a monthly goal, and measure your monthly effectiveness to make sure you don’t fall behind as the year progresses.

I’m pleased to say that my karate school business does a little better than 1:4. We come in at 1:3. So, with 400 customers, we’re likely to get around 130 to 160 referrals. I’m even pressing for 1:2, so 400 customers would yield 200 referrals! If your number is below par, the problem may reveal something about your expectations and a lack of effort to convey the goal to your staff and customers.

Many business owners are too reluctant to spend money on stimulating and rewarding referrals. To me, this is a foolish mindset, because all other sources of new business cause you to incur a new customer acquisition cost. For example, if the average acquisition cost of advertising in the Yellow Pages, newspaper, Val-pak, direct-mail, etc, is $118.00 to land a new customer, then anything less than that, even one dollar less, is a win for you. So, you should eagerly spend up to $117.00 to stimulate and reward a customer to refer more people. If you act like a scrooge, you’re thinking will box you in and limit your growth.

For instance, I make sure that my staff continually and constantly lets people know that ALL of our customers should refer their family and friends. If they don’t, they know they are the “odd man out” for not referring. We communicate this expectation every way we can, including our newsletter and advertising, recognition at meetings, and by asking for referrals directly.

Another key to our high referral success is that we reward referrals. We give T-shirts, free product, and special merchandise. We also run specific referral reward campaigns and give out unique monetary or gift incentives too. We look at referrals as a regular part of the business, rather than an occasional promotion.

An additional reason why referrals are so important is that a referred customer is, by far, the best customer. They’re key to your business growth, because referred customers are usually less price resistant, more likely to stay, and much more likely to refer prospects than a new customer obtained by other means. Therefore, a referred customer is extremely valuable.

Obtaining maximum referrals hinges on three factors: expectations conveyed, recognition, and reward. Whenever someone refers a customer candidate to us, we send a thank-you card — regardless of whether that person enrolls or not. When they refer new customers, we issue special gifts and prizes.

Also, most businesses tend to get a lot of referrals from a smaller pool of current customers. While there are several reasons for this tendency, customers who have already referred someone are much more likely to refer again. And, it is easier to get more referrals from those who are comfortable doing it. So, giving your top-referring customers special appreciation and reward is worth the effort and cost. These individuals tend to feed on the recognition, and they want more of it. So, they’re likely to repeat the behavior, and they already know how to do it.

Obtaining new customers is never easy. But, the process can be enhanced by making current customers part of your own sales force – without having to add more overhead, salary, or benefits. For that reason, set goals with your staff to create regular referrals, make the expectations clear, empower your customers to attract new business, and generously reward them when they take action. A storm-proof business is a smart business, and making referrals a top priority can create smooth sailing for your future.

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