In this month’s business advice column, Aaron McLeish examines how positive recommendations can go a long way in growing a business’s customer base.
The best way to show you how powerful referrals can be is to show you a breakdown of the numbers. Let’s imagine you are just starting out with two customers, and you ask them for two referrals every month. Let’s assume your conversion rate is 50% (you win one new customer for every two people you meet) and you don’t do any other marketing. By the end of the month, you will have four customers (assuming the original two customers stay with you). Then the next month you will have eight customers, then 16.
If you keep the same momentum, by the end of month five you will have 64 customers and by the end of month 10, you will have a whopping 2048!
Word of mouth marketing happens when happy customers tell their friends and family about a product or service, and those people then go on to make an enquiry or purchase. The key word here being a happy customer.
Missing a trick
I find that many business owners I talk to don’t have referral systems in place – despite it being one of the easiest (and cheapest!) forms of marketing.
Let me rephrase that: referrals are what drives a lot of growth in business, but a lot of businesses do not actively seek referrals – that is madness! A well-designed referral system can dramatically increase the number of referrals you naturally receive, and it’s a great way to show your appreciation to your existing customers. See it as a reciprocal arrangement, beneficial to both parties.
If referrals are your main way of generating business, how do you systematically ensure you receive them? Do your customers know that you welcome referrals? You can make it easy for customers to refer others by setting up an online form or providing business cards with your contact information.
Social media
In today’s age of social media, it’s easier than ever for customers to share their experiences with their friends and families. That’s why it’s essential to have offers and rewards in place to encourage people to tell others about your business. By providing an incentive for customers to spread the word, you can dramatically increase brand awareness and boost sales.
Timing it right
There are many referral systems that a business can have. Here is one example:
A good time to ask for a referral is after a customer has paid you. At this point in time they are probably happy with the work you have done (otherwise you wouldn’t have been paid). Therefore this is an ideal time to let your customers know that you welcome referrals.
If you send receipts to customers, you could send them a thank you email, thanking them for their custom along with wording such as: ‘The way we grow our plumbing and heating firm is we ask for referrals. If you were happy with the work we have undertaken, please tell your friends and family. In return for telling your friends and family about us, we will…’
• Give you a voucher
• Give you a gift
• Money off your next boiler service
• Donate to a charity
• Plant trees
• Etc, etc
By taking some time to develop a referral system, you can ensure that word of mouth continues to be a powerful marketing tool for your business. A referral system can help you to build relationships with new customers. When customers are referred by a friend or family member, they are more likely to trust your business and give it a try.
Rewarding loyalty
A referral system is a great way to generate new business while also recognising and rewarding loyalty. When customers refer others to your business, they are not only helping you to grow, but they are also showing faith in your products and services. This makes them some of your most valuable advocates. By providing them with a referral incentive, you can show your appreciation for their support and, as a result, a referral system is an excellent way to build customer loyalty.
