Referrals – Part 1


Why Get Referrals Anyway?

“I get all my customers by referrals, mate” is the most common response (or some derivative of it) that I have received, by a long way, from the thousands of business owners I’ve spoken with about their marketing. Indeed, in many cases, it’s the only form of marketing that the business owner has ever known. Often, they have been plodding along happily (in some cases for many years) relying solely on referrals as their source of sales leads and they actually view other forms of marketing with suspicion.

The majority of these same people (who proudly cite their referrals-only ‘strategy’ as something with pride) have neglected (or actively eschewed) other forms of marketing whilst having little or no structure for gathering their referrals. In other words, their entire business development (and therefore their personal wealth and the financial wellbeing of  their dependents) is entirely based upon the erratic and random whims of their clients. In other words, their business-generated wealth is based purely on luck

Leaving everything to chance (if you have no control over something then it’s chance) is, by definition, risky. It’s important not to get lulled into a sense of false security by having just one method of generating sales leads which may have worked historically.

Having no proper process in place to deal with referrals is wasteful and kills a lot of opportunities. I’ve often wondered just how much further these people could get (many of whom are nevertheless successful) if they just had a systemised process for acquiring referrals.

To substantiate that statement, let’s quickly review a few of the benefits of referrals …

  • Good Feedback. Regular inbound referrals mean you’re doing something right.
  • Low Cost. Generating business from word of mouth can cost nothing and is certainly cheaper than other forms of marketing where you’d need to pay to advertise and promote yourself.
  • Higher Level of Trust From Referral Partners. Managing referrals properly sends a signal back to the referrer that you’re trustworthy and consequently, they’ll trust you more … and send more referrals.
  • Referrals Breed More Referrals. Clients who are referred to your business are already predisposed to themselves send referrals your way. Monkey see, monkey do.
  • Increased Closing Rate.The implicit trust generated when someone refers you means that the sales conversion rate from this channel is significantly higher than other forms of marketing.
  • Referrals Are More Loyal. Statistics bear witness to the fact that referred clients will stay with you for longer and spend more money per transaction with you.
  • Reduced Competition. Just look at the websites specialising in reviews and you can see why those businesses with better reviews get more business than their competition. It’s the same with referrals.
  • It Reminds Referrers Why They Do Business With You. Your clients are being approached by your competitors and so when they’re actively referring you, they’re reminding themselves of your value.
  • Creates Client “Lock-In”. Not only are referred clients more loyal but also the referrers themselves are more loyal, having publicly endorsed you.
  • Boosts Staff Morale. A happy work environment is more productive, efficient and generally a nicer place to be around. Regular referrals coming to your business helps towards keeping staff happy and motivated.

Now, let’s consider a few statistics and soundbites …

Dale Carnegie has been credited with saying  “91 percent of customers said they’d give referrals when prompted to do so, yet only 11 percent of salespeople ask for them”.

According to Nielsen:

  • 92 percent of respondents said they trusted referrals from people they knew
  • People are four times more likely to buy when referred by a friend
  • Referrals are 4 times more likely to buy and spend 200% more than the average customer

Edelman Trust Barometer says  “84% of b2b businesses initiate the buying process with a referral”.

Heinz Marketing Suggests :

  • 71% of companies report a higher number of conversions with a referral program
  • More than 90 percent of consumers look to online reviews for guidance before making a purchase

The New York Times noted in an article that 65% of all new business in the United States comes from referrals.

According to :

  • 78% of marketers say referral marketing produces good or excellent leads
  • 60% of marketers said that referral marketing produced a high quantity of leads
  • 52% said that referral marketing had a low cost per lead, bettered only by non-paid social and in-house email across all channels

From a study by Advisor Impact “whilst 85% of clients were comfortable giving  referrals, only 29% actually did give one.” stated that of those companies with referral programmes in place :

  • 69% reported faster closing times
  • 87% reported highly effective sales efforts vs 42% without referral programs 

Data from Marketo Institute shows that the referral is the best acquisition channel for conversion rates at almost 4 times the average.

I think that’s enough statistics for now. Hopefully, this has made the point.

So, in short, when someone is referred to you, they’ll likely trust you right from the beginning, cost less to acquire, are more predisposed to buy from you, spend more with you, have greater loyalty to you and are more likely to refer others too.

Considering all these benefits of referrals, plus other spin-off as well (such as letting you know that you’re doing something right and having increased energy/morale in your team) it is clear that the whole process of getting referrals is too important to be left to chance.

And yet, people simply aren’t asking for referrals in a systemised way. Why not? Because they …

  • … don’t appreciate the importance.
  • … don’t know how.
  • … can’t be bothered.
  • … never get around to it.
  • … start but never finish.

Before we examine how to systemise referral generation, it’s useful to stop for a moment and consider why people give referrals in the first place, then look at why they don’t give them. In this way, we can be aware of those barriers to address,  before mapping out our referral process.

Next Time : Problems With Referrals …


Ready to find out more?

Drop us a line today for a free quote!

Posted in

Mike Knight