How Do You Do Referral Marketing?

If you have been in business for any amount of time …

you already know ..

Referral marketing can be your best source of new customers.

That’s because a referral has already crossed the line of credibility.

That is, your credibility is not in question any longer.

In fact, many groups of people only do business with a new company as a result of gaining a trusted referral from a colleague, friend or trusted associate.

Think about making a high-end transaction, such as real estate, finding an attorney, buying a boat, airplane or luxury car, or even a money manager.

In these intensely competitive industries, referrals from happy customers will have better closing rates than all other sources:

Source of customer LeadsSalesConversion rate 
Online advertising10055.0% 
Direct mail1001919.0% 
Walk ins1002222.0% 
Newspaper advertising10066.0% 
Referrals1007272.0% 
Total50012424.8%avg.
source of customers from referrals

Oftentimes the differences are not even close, such as in this above example which are not unusual.

Advertising is extremely important and must be done to bring in new customers, but consumers in most cases are more inclined to listen to their friends, relatives, and even strangers promoting their honest feelings about a product or service.

Lets now dig into some examples of referral marketing that will generate big sales for you.

How to do Referral Marketing

We are going to focus on two ways we do referral marketing. And the results are fantastic. But first we need to establish parameters for your referral marketing strategy.

Here’s two plans for referral marketing, first to increase referrals for a service based business and another plan to increase referrals for an ecommerce business.

First, here is a 4 step plan that will reliably bring referrals to your service business:

1. Have a plan and a goal -- oftentimes business people tell us the majority of their business comes from referrals. Our first question is, “That’s awesome! What is your monthly goal for referrals?” We are always met with a blank stare because they have no system for gaining referrals, only an irregular volume of calls that randomly come in as a result of a referral. This is no way to build an actual formal referral program. And certainly no way to scale your business model, let alone have any chance at managing KPIs or basing your financial future on.

2. Build your referral flow from the beginning of the sales process -- here’s how to have a reliable flow of future referrals:

When you sign a new contract, build into the conversation that you build your business from referrals so you can keep the advertising costs down and therefore pass on the savings to the customer.  The customer will be delighted to hear this 100% of the time. Then say, “Who else do you know that can benefit from my services?” Then hand them your business card and ask them to write 3 names on the back of the card.

3. Do your research about each customer -- Make this process easier for your new customer by doing some research about who they know, what associations they are involved with, groups, etc. Find 2-3 names of people they know and ask, “Of these 3 names who do you think makes the most sense for you to introduce me to?” Let them think it through. Often, they will take the card, put it on their desk, and a few days later will make a longer list.

4. Follow up -- after a few days, ask your new customer again and say, “Is now a good time for you to introduce me to [the name on the card].

This is a quality referral marketing system, as part of your overall marketing strategy.

Let's assume you work with 10 new clients per week. That’s 40 a month. 480 per year.

If you get 2 names from each new customer, this is 960 potential referrals.

If you close 50% of the referrals, now you have a reliable referral program.

And one that you can do KPIs on and forecast sales.

Onward.

Now, let’s assume you have an eCommerce store selling products.

Referrals work in basically the same way, but these systems are automated in an eCommerce business.

One downside to automating these referral systems is that conversation rates will go down significantly. But because you have the opportunity to work with much higher numbers, sometimes databases with hundreds of 1,000’s of customers or more, your referral numbers can be quite substantial.

Similar to our above example, in eCommerce, a referral program will help you acquire new customers by teaching your existing customers to refer business. 

Your online store will offer rewards to referring customers when a newly referred customer completes a purchase.

Here is an example admin screen from retainful, a shopify app that helps owners manage a variety of digital marketing solutions:

retainful ecommerce referral program

Notice you can set the reward, typically a dollar amount or a product award and set the reward that gets sent to the customer for referring the friend.

Another benefit of using digital platforms for your referral program is that you can track the performance in real-time using the software dashboard.

4 Ways to Improve Your Referral Marketing

Recommendations and referrals are the easiest and most effective ways to increase sales and acquire a competitive edge.

That’s because up to 84% of customers tend to trust referrals from people they know. Here is how you improve your referral program:

  • Work on providing the best customer support and spend time-solving your customer’s problems. Individuals love being listened to, and this is a great source of referral. Be responsive by not letting queries and requests go for too long unanswered, and be sincere about it.
  • People appreciate exceptional experiences and are likely to come back when you offer more of that. They will also talk more about it and recommend the services to others. Always go above and beyond fulfilling the client’s needs, and it will improve your business.
  • Invest in a relationship with the customer, and they are going to be your greatest cheerleader. Send them personalized emails and compelling direct mail campaigns based on their unique preferences and likes to show them you care.
  • Ask for referrals, and even go as far as making a request for a referral as part of your customer on-boarding process. Use the above sample script as a template and make it your own using your language and style.

Referral Marketing Examples

Find one referral that works for your business and take off with it. Here are a few examples:

  • Incentives and gifts can improve customer engagement and strengthen their loyalty. Dropbox gave an extra 500 MB space of free storage for every referral, which improved their membership significantly.
  • Making your customer feel truly valued is the best way to motivate them to refer others to your business, and that’s exactly what Tesla did. Tesla referral gifts have evolved from $1000 to Powerwall 2 battery prizes. There are also prizes for a free Model S after referring a particular number of customers.
  • When it comes to referrals, one company excels in it, and that’s Airbnb. The company gives $100 to hosts every time their friends sign up through the provided link, and it has been quite successful.

About Your Strategic Marketing Partner
Sam Hirschberg, MBA, is Your Strategic Marketing Partner in Arizona. Always professional and a delight to work with, Sam is not your typical “marketing consultant”. Unlike most consultants who tell you there is a problem and say, “See you later and good luck!” Your Strategic Marketing Partner knows how to find solutions, execute programs, test and measure campaigns, and how-and-when it’s time to roll-out big! You are invited to call (602) 892-0777 to learn more about Sam’s background on his FREE 9-minute recorded message.  For more information about Sam, please visit https://strategicmarketingpartner.com.

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