Why are referrals the best source of business?
They get you more of the right type of customers
If you ask your best clients (the most valuable and the ones you most like to work with), for referrals the companies they refer you to are going to be similar. It’s important to do your homework here and truly work out which customers are your most valuable. Don’t just pick your favourite. If you really want to increase your turnover, analyse your customers, work out their value to you as a business, then get more of them!
Work out the Customer Lifetime Value (CLV) – the gross profit generated by the purchases made by that customer. Add up the profit across the whole time they’ve been a customer. Using CLV in your strategy will ensure you’re focusing on the customers that are most important.
They build trust and brand awareness
If customers are happy to refer clients to you it means they are true advocates of your brand. Every time they refer someone to you, they’re risking their own reputation so the fact they do this means you have a very strong relationship based on trust. And, in turn, this creates a strong relationship with the client they are referring you to.
People are 4 times more likely to buy when referred by a friend. - Nielson
The Lifetime Value for new referral customers is 16% higher than non-referrals. - Sassquatch
Obvious but true. Don’t ask all the time. Just at the right time and in the right way. Ask the customers with the highest LTV. Ask when they are particularly pleased with their purchase, the deal you have done for them or they’ve enjoyed an event that you have hosted - when they’re at their height of customer satisfaction. Clients won’t actively offer so you need to ask.
2 Make it easy
If you make anything complicated, it won’t happen. Everyone is really busy so help them to help you by creating a template if that’s what it takes. Whether you’re asking through LinkedIn or email, these are easily created. Contact email@example.com for more ideas.
Where are your referral opportunities?
Identify those you are going to ask:
- Highest LTV
- Highest customer satisfaction score
And if you haven’t conducted a customer satisfaction survey or calculated your NPS recently, get on it! This is vital for planning the strategy to increase turnover.
Identify those that work with your potential customers. Look at whether there’s a way to include referrals in your supplier agreement. Asking suppliers has the added benefit of really engaging them in your business. Your whole business works better if they understand how what they supply helps you provide a great service to your customers.
Relationships with industry influencers can be a key source of referrals. Their PR machine may be larger than yours, and if they are a fan of your brand, you might be able to piggy back off it.
iv) Your team
If you’ve got the right and happy staff, not only will you save money (read How to Save £50K), but they will proactively promote your brand. They will refer friends and family to your business, both as potential employees and as customers.
What should you offer?
There’s a number of options, depending on your industry and your customers:
Some customers will just be happy to spread the love and help others.
If you really feel that you need to offer a discount, I would approach this with caution, remembering that discounting may make a rod for your own back. If you do decide to go with this option, it’s important that you give a discount to both the referrer and the referee to maximise the likelihood of the referral happening.
It has been proven that actually the incentive doesn’t have to be big.
Offering a reward increases referral likelihood, but the size of the reward does not matter. - American Marketing Association
Whatever your analysis reveals as right for your business, make sure that it’s communicated regularly, the reward is given instantly and that you do a great job on the referred work. If it's not, all your work is in vain.
The Neilson report on trust and advertising found that word of mouth is the primary factor behind 20-50% of purchasing decisions and that B2B companies with referral have a 70% higher conversion rate. Now, how much difference would that make to your turnover?