Building a Referral Marketing Strategy

A good referral marketing strategy is absolutely essential in growing your small business. This article deals with letting your customers find more customers for you. Once you get a good referral program up and running, it will essentially run itself.

There are three main reasons why a solid referral marketing strategy can be so powerful.

1. People feel more comfortable when a product or service is recommended by someone they know and trust. This is especially true if the product or service is expensive.

2. Referred customers are typically less price sensitive. A prospect that comes to you via a referral has already been told about the quality of your service. You'll find that most referrals can be sold at full price because they've been presold on your trust and credibility.

3. A good referral marketing system can quickly multiply, giving you plenty of interested prospects. This will allow you to choose who YOU want to work with instead of having to take everything that comes your way. You'll be able to focus on high-quality customers that are highly profitable for your business.

I've profiled my three favorite referral marketing strategies below. Your job is to select the one that most appeals to you and work to integrate it into your business.

It goes without saying that the success of any referral program directly depends on the quality of your products and services. However, even if your products and services are excellent, you must still work to set these referral ideas into motion. Once in place, you fill find they start working their magic by themselves.

Referral Marketing Strategy #1: It takes One to Know One

Don't dismiss this referral marketing strategy as too simplistic. I promise you it is very powerful. Here's how it works.

As soon as you have completed a successful transaction with a good customer, simply ask, "Do you happen to know anyone like yourself that would benefit from my products & services?" The key to this referral idea is twofold.

1. You have provided a product or service that ended with high satisfaction and/or went above and beyond expectations.

2. You have asked for the referral at the point of maximum impact. In every customer interaction that ends positively, there is a point of maximum satisfaction from the customer. Your job is to determine when this point is and ask for your referral as close to this point as you can.

You'll be amazed by how much new business you can bring in by just asking a happy client for a referral. Most all satisfied customers will be happy to provide a name or two upon request. Don't be shy about this one. It may be simple, but it works!

Referral Marketing Strategy #2: Show Me the Money

This referral idea uses the idea of complementary businesses. A complementary business is one that serves the same target customers as your business but is not a direct competitor. For example, I serve small business owners with a marketing consulting business. Complementary businesses in my target market would include accountants, lawyers, print shops and tax services.

I recommend only approaching businesses you have some type of established relationship for reasons that will be obvious in a moment.

Work with one business at a time and ask them to mail out a letter to all their clients introducing your business and recommending your products and services. In return, you promise to pay the company a percentage of all sales that you obtain through this mailing.

Don't be stingy here - make it worth their while. While you may need to offer 25% or more of first-time sales produced, the value comes from retaining these customers for future business.

If you make the offer attractive enough, you may even be able to negotiate for the company to pay for the mailing. Another option is to see if the company is willing to include your letter in their next customer wide mailing as an additional insert. Everything is negotiable so craft a compelling offer that will benefit the company in return for exposure to their customer base.

Another option is to find a company with a similar sized mailing list and each of you do a mailing for the other. In this way, you each pay for your own mailing expense but you don't have to give away a percentage of sales. Of course, the main advantage of this referral idea is to approach a company that has a much larger mailing list than you. So, I recommend you work it from that angle and agree to give a percentage of sales booked.

One of the critical factors for this referral idea is the ability to track when clients come to you as a result of the mailing. The best way to handle this is to come up with an offer that requires either a coupon code or a visit to a unique URL that you can track. Keep a spreadsheet of responses and business booked from the mailing so that you can make your payout at the appropriate time.

When you find a company where this works well, they may be willing to repeat your mailing (with a different offer) on a yearly basis.

This referral idea really does require you have a trusting relationship with the complementary company as they will be relying on you to track the business you book from the mailing.

Referral Marketing Strategy #3: You Scratch My Back & I'll Scratch Yours

This referral marketing strategy is simple but powerful. Your client sends you people that make a purchase and you give them coupons worth 20% off a specific product or service.

Let's say you are a consultant and have an established relationship with a client for whom you are working on a project. The project is a day-long training event and you are charging $2,000. You tell your client that you will knock 20% off the price for every client they send you that makes a purchase.

What makes this system so compelling is that there is no limit to what they can save. If they send you 5 prospects that end up doing business with you, then their $2,000 training session is free (5 x 20% = 100%).

Would you trade a free service for five new clients? I would! This referral provides a strong incentive for the client to send you good referrals.

Make sure you keep careful records of who sends the referral and when the referred customer actually makes a purchase. If you are using ACT! as your customer contact software, there is already a standard field to input who referred the customer. This makes it easy to keep track of which clients have sent you referrals.

Another thing to keep in mind is that referred customers usually don't make immediate purchases so you have to take this lag time into account. Typically, this means you will need to cut "referral" checks to your client for a past service performed. In our $2,000 training example, the client would pay the $2,000 and then, as their referred clients made purchases, you would cut them 20% referral checks. This referral marketing strategy is a great way to help differentiate your business.

So there you have it! Pick the referral marketing strategy that most appeals to you and get to work integrating it into your own business. You'll be surprised at the results!