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The Place for Personal Referrals in Business
Word count (including title, 3,286)
How Personal Referrals Can Make or Break a Business
Any business owner worth his salt knows that marketing is one of the most critical aspects to success. Without people knowing what you offer or where they can find them, all that will enter the business’s doors will be the air blowing in from outside. Many business owners shy away from developing a marketing plan simply because of the sheer cost of some of the means.
And what’s more, most of these same business owners just don’t realize how powerful personal referrals can be. It’s no exaggeration that regardless of all other advertising or marketing means, personal referrals can make or break any small business. One of the most common reactions people have when it comes to personal referrals is that they feel uncomfortable asking their clients or simply don’t know how to ask for a referral.
Personal referrals are crucial to any small business success for a number of reasons. They are usually developed from a network of customers or business associates that believe in what the business has to offer, as well as the service it provides. Personal referrals are based on a level of trust that is earned over time and when a business reaches that level of trust, it is easier for a client to refer their friends, family, and colleagues.
Personal referral marketing, as it is commonly referred, out-performs all other marketing practices by ten-to-one. That’s not a misprint. It is ten times more successful than running an ad in the newspaper or on television, or the radio. Ten times.
Personal Referrals in Any Economy
At the moment, the world is still mired in an economic recession. Whether we are climbing out at last or merely feeling the calm of the eye of the storm is yet to be seen, but economic prosperity is cyclical. During difficult financial times, people are more protective of their money, more guarded; they won’t part with it based on simple promises. And they’re not necessarily looking for the cheapest products on the market. They still want quality but now they’re looking for the best buy.
When people begin to pay attention to where they spend their money, when they take a vested interest in it, they look more closely at the businesses they frequent. They want to feel a connection to the business, whether it’s based on the products it carries, or the service it provides. And when a business earns their trust, those customers can be that business’s greatest advocates.
Yet when it comes to referrals, many customers, or clients, depending on your particular business and how you view them, don’t often think about the power of networking. It’s not their job to think about it. As far as they know, a business will take care of its own marketing.
People often prefer to know what to expect from certain businesses during any economic outlook, but during a recession, opinions of trusted friends, colleagues, or family, become an even more important factor when deciding what to buy and where to buy it. If a person’s best friend tells them about a particular store and that it offers great products and service, they are more likely to become check it out for themselves. If that business honestly lives up to their expectations, then it has earned a new customer from a personal referral.
Earning Personal Referrals
Personal referrals come from a faith a client has in a particular business to do well for not only them, but also for those whom they plan on referring. It requires a strong level of trust for someone to recommend a business, or to refer a friend to that business. This faith, or trust, isn’t guaranteed nor is it earned easily.
A business must outperform its competition and cater to the specific needs of their clientele. That high performance must come from multiple levels. Some of the factors that help businesses gain their clients’ trust are:
- Strong customer service – people want to know that a business stands behind what it sells. Whether your business is service or product-oriented, customers need to feel as though their purchase will come with some manner of guarantee.
- Responsive – if a business takes days to respond to phone calls or email inquiries, then consumers may grow frustrated, feeling as though they aren’t important enough to merit a timely or quality response.
- Producing Quality Results – a business that doesn’t produce high quality results stands little chance of gaining referrals. Price alone isn’t enough of a factor for individuals to put their reputation on the line.
- Having the Right Price – a business doesn’t have to undercut its own bottom line to satisfy customers. Owners have to be able to put food on the table as well, but if you’re charging twice what your competition is for the same product and brand, there had better be a very good reason why (see above qualities).
Consumers tend to be smart about their money overall. They won’t simply refer close friends or associates because they find one little bargain in your store. When someone offers a referral, they are staking their reputation on that recommendation.
An example of this situation would be the restaurant business. If a woman refers her closest friends to a particular steakhouse because she ate their once and found the food to be remarkable, then her friends will likely believe her and give it a shot. If the recommendation is grossly over-hyped and the food is second-rate, then her friends will know. If this happens, her credibility will take a hit and they may not want to heed any future recommendations of hers again.
Personal referrals are precious for so many reasons. For one, it establishes a trust between the client and the business. A client who refers a friend is staking his or her reputation on that referral. If, as in the example above, the business doesn’t take that referral seriously, then it risks not only alienating the referred client, but also the initial customer as well.
It’s a double-edged sword. If you work on building a network of personal referrals, you stand to gain business. If your product or service fails to live up to, at the very least, expectations, you risk losing the business you already had.
A personal referral also initiates a faith-based relationship with the referred individual. When someone’s trusted friend recommends a business, then they are more inclined to want to see its quality for themselves. The strength or bond of the relationship they have with the person giving them the referral will determine the odds of the business gaining their patronage.
If someone’s most trusted lifelong friend recommended a particular auto repair shop because they had a wonderful transaction there and saved a lot of money, and they told their friend, that friend -unless they already had a trusted and fair mechanic- would most likely call this new shop the next time they had car trouble.
Ultimately, people will only want to refer a business for a specific set of reasons. They either:
- Want to help the business
- Want to turn a friend on to the business
- Want to help themselves
Earning personal referrals is never guaranteed. Remember, the first step is building a solid business that people will want to rave about to their friends. And a solid business starts with exceptional service, great products, and a personal interest in its clientele.
Getting Personal Referrals
When it comes to personal referrals, many business owners shy away from it. Why? Simple. They find it uncomfortable asking their clients for referrals. This is perhaps the greatest hurdle to overcome with regard to personal referrals.
Any small business owner that truly wants to succeed needs to chase this idea out of his or her mind. As mentioned earlier, networking, and personal referrals in particular, will outperform every other marketing plan by more than ten to one.
Most consumers aren’t going to volunteer referrals. It’s not something they regularly think about. A business advertises, it informs the public of sales or specials or any number of promotions. They feel that a referral is a gift to their friend, not to the business.
They may find a business that is perfect for them and think of a close friend or relative who would like it, and they often tell the business owner this, but there are no guarantees that they will actually follow through with that referral. Talk is cheap in the business world. When someone mentions a friend or relative that would love this store, the owner needs to follow through and increase the odds of the referral being given.
This example would be a perfect time to inquire about the friend’s name and to offer to send a card in the mail to them mentioning the friend’s referral. This way the business takes chance out of the equation and puts control of the referral in its hands.
If a business owner doesn’t initiate the conversation or topic, then that business owner is leaving his success to a matter of fate, hoping that they will spread the word.
Calling out, “Tell Your Friends,” as the customer is walking out the door after a transaction isn’t enough; it isn’t going to motivate someone to become involved in the referral process.
How To Plant the Referral Seed
Bringing up the idea of referrals is for the business owner. It’s his or her responsibility. To make it a more comfortable process, though, it’s a good idea to introduce it from the very beginning of the transaction. Whether your business is a deli or an accounting office, you will encounter any number of customers throughout the day.
One possible opening could be:
“Our business is based on performing to the highest expectations of our clients. We hope (or trust) that by the end of our transaction, you will be so impressed that you will refer your friends and colleagues to us.”
If that seems too forward, then another opening might be:
“I wanted to take a moment and thank you for your business. Is there anything in particular that you really like about our store? Do you have friends who might enjoy shopping here?”
This example requires an existing relationship with a client. This doesn’t meant that the owner has to personally know the client, but that client should be a regular shopper in that particular store, somebody who is recognized when she comes in and greeted by name, for instance.
These won’t work for all businesses, of course, but it should get the ideas rolling. The only way to truly devise the best opening is to know your own business. If a business owner plants that seed early, it will be in the back of the client’s mind, regardless of the business.
Setting Up for the Referral
Evaluate your business. You may be having success with your business, earning a fair profit margin at the end of the year, but that doesn’t necessarily mean your business is referable. You need to make sure that you give your customers a solid reason to stake their reputation on the line by referring their friends and family to you.
Besides the most obvious, such as selling a superior product or service, a business can do the following to ensure a stronger referral rate:
- Offer guarantees – whatever the business is, there is always room to offer a satisfaction guarantee. It doesn’t have to entail every single service or product offered in the store, but there should be some kind of comfort zone offered for potential new clients. People will be much more willing to try a new store, or product, if they know the business stands behind its reputation.
- Incentives – people want to be enticed by a new business. If someone has been going to a particular shop for the past ten years, odds are they are content with that business to fulfill their needs. By offering both the referrer and ‘referree’ some sort of incentive, a business will increase the odds of gaining that referral.
- Keep customers happy – this is perhaps the single most challenging aspect for any business. It’s also one of the most critical. A business owner needs to go out of his way, or bend over backwards sometimes to offer the best service, the kind of service that people want to go home and rave about.
The personal referral starts at the very beginning of the first transaction with service and continues well beyond the final sale. If your business isn’t customer friendly or has holes in its mission, people will notice and they won’t necessarily be likely to want to refer anyone to it. It may suit their needs well enough for the time being, until something better comes along. Don’t assume if you’re the only business in town that it will remain that way forever. Or even for long.
The Lifetime Value of a Client
Personal referrals are crucial for any small business because it brings in new customers and, ultimately, new sales. How a business goes about getting those referrals is up to the business alone, but most people respond positively to incentives. Incentives can come in the form of free merchandise, special deals, or any other promotional means.
Many small businesses operate on razor thin profit margins and are unwilling to shave them even further just hoping they gain a new client or two. What they don’t realize is that each client has a Lifetime Value attached to them.
The Lifetime Value of a Client refers to the amount of money (sales) that can be attributed to each client throughout a period of time. For example, Sally is a regular customer of Betty’s Beauty Salon. She spends an average of one hundred dollars at this salon every month. She has been a regular customer for five years and shows no indication that she will be leaving in the future.
Sally spends $1,200 every year in that store, and over five years, she has spent $6,000. Add another five years and she will have spent $12,000 in that store. If you measure the Lifetime Value of a Client in ten-year increments, then Sally’s value is $12,000.
Now, if Sally has a friend who is a client at Joe Mosh’s Barber shop and she spends $150 a month on beauty supplies, her value over ten years would be $18,000. If Betty’s Beauty Salon managed to entice Sally to refer her friend to them, and they won her over, then that one referral would be worth $18,000 over ten years. That referral may have cost one free perm for Sally and one free hair styling for her friend. A pretty good deal, wouldn’t you say?
When a business has strong customer service, getting a client into their store is the most important aspect of the transaction. And remember, Betty’s Lifetime Value suddenly increased too, didn’t it?
Business to Business
Small businesses are not alone. They share the stage with dozens, or even hundreds, of other small businesses in their region. Most of these fellow businesses are not in direct competition. But they may have crossover clientele.
This means that a client that conducts business with Store A may have a need for something that Store B offers, but they might not be aware of Store B. By networking with other businesses whose products or services complement their own, but don’t compete directly, then there is another world of opportunity through which to offer referrals.
Business-to-business networking can be approached in the same manner that personal referrals are. And remember, a business isn’t going to stake its reputation on another poorly operating business. Incentives can be offered from one business to another for referrals. It’s the business form of ‘I’ll wash your back, you wash mine,’ and when one business is motivated to refer its clients to another the reciprocation must be genuine.
Give Clients an Easy Referral
When a business asks clients for referrals, they need to offer an easy way to make those referrals to their friends and family. Nice business cards to well, as do websites. You can also:
- Offer an easy way for a client to bring up your business with their referral. There are many imaginative ways to go about this.
- Offer their referral something of value, such as a gift certificate, special menu not available to the general public, or any other type of idea.
- Offer them a card with a personalized note for their referral. Invite them into your store and promise them a guided tour or other service not generally offered.
Don’t offer to pay your clients for referrals. Odds are, they will not be willing to stake their reputation on your business just for a little money. If they don’t believe in it, they’re not going to sell it. That referral wouldn’t come from the heart, so you won’t be able to count on a high lifetime value (your client could merely make a deal with their friends to have them come in, get their items or gifts, and not have to go back again).
Also, make your business a low-risk referral. Elevate your customer service to the highest level, and then people will want to refer others to you.
The Easiest Solution
A simple solution to personal referrals for any business is what’s become known as RipCards. RipCards are numbered, perforated business cards that can either be handed out whole, or divided in half. The idea is for a business to hand its client one half of the card to offer as a personal referral and the business keeps the other half. The client’s name is recorded and the card is stored.
When a new customer comes in with the other half, offering a special deal or discount or freebie, then the business owner can easily track who gave that personal referral. The next time that original client comes into your store, you can offer them their own special ‘thank you.’
RipCards are also great for other businesses to refer to one another as they can be tracked readily. You can find out more about these through www.RipCard.com.
Personal referrals may be a difficult aspect for business owners to ask for, but they are the cornerstone of small business success. Other marketing efforts will still be required, and important, but over the long-term, when personal referrals generate a ten-to-one advantage over all other marketing means, why wouldn’t a business strive for referrals?
There are a host of simple solutions to get started. Just make certain that your business is referable and that you understand that they require faith and trust from your customers. You need to make them want to give referrals.
Get out there and start earning personal referrals immediately. You’ll soon see the Lifetime Value of your Clients begin to rise as well.
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