Many business owners and entrepreneurs underestimate the power and effectiveness of referrals. Spending hundreds, thousands, or hundreds of thousands on ads may or may not induce people in your target market to buy from you. Referrals, however, are much more effective. According to one marketing statistic currently bandied about, nearly 70% of people spend money on goods and services recommended by people they know.
Many business owners and entrepreneurs underestimate the power and effectiveness of referrals. Spending hundreds, thousands, or hundreds of thousands on ads may or may not induce people in your target market to buy from you. Referrals, however, are much more effective. According to one marketing statistic currently bandied about, nearly 70% of people spend money on goods and services recommended by people they know.
1.) It Cultivates Goodwill
Asking your customers and other friendly businesses for referrals in a polite way allows people who love your business to do something that makes them happy. They get to share something they enjoy with others. Additionally, creating a referral network with customers and other businesses cultivates goodwill among everyone involved. You’re helping to create a collaborative network built on trust.
2.) It Brings You New Clients
Because people trust the word of friends, colleagues and existing businesses they frequent, they’re likely to take a referral for your business if one is given to them. This results in new business for you without any additional advertising or marketing costs. Clients will be calling you saying they heard about your business from a respected friend or business, and all you need to do is live up to your reputation.
3.) It Keeps Your Existing Clients Happy
Asking existing clients to refer you and cultivating a referral network among businesses in your industry enables you to make your current clients happy. Current clients become more engaged through referring other people, and they actually become emotionally invested in your success. Moreover, if you’ve built positive working relationships with other businesses, you can refer your clients to them when you’re overbooked. When you refer your clients to other businesses you trust and respect, you keep the cycle of goodwill going, and you satisfy your clients. Instead of having customers that get angry or frustrated because you can’t serve them right away, offering them a good alternative allows them to have their needs met right away and paints you and your business in a positive light.
4.) It’s Free Market Research
Asking your existing customers for referrals allows you to do some free market research. If you implement a referral program where existing customers earn special discounts or where you can track referrals through another method, it allows you to see how happy your existing customers really are and how much of your target market remains untapped. If you know your customers are beaming with joy over your business but don’t seem to be able to bring in any new clients, you might be reaching the limit of the amount of market share your business is able to capture with its existing model. If, on the other hand, new referrals start pouring in, you may want to beef up your staffing and start marketing to all those potential customers you haven’t yet reached.
5.) Referrals Will Refer You
This is possibly the best reason of all. One new referred client doesn’t always equal one new referred client. Each newly referred client you receive can potentially be a source of unlimited new referral clients, who then refer more clients, who refer more clients, and so on.
What Type of Marketing Referral Program is Best for Your Business
To understand what type of marketing referral program is best for your business, it may be vital to first understand where referrals can come from in the first place.
When Your Referral Rewards Program Goes Wrong
The horror stories are enough to scare any small business owner into inactivity. That one business that was doing great with an excess of capital decided to enact a new referral program and the next news you heard was how they overextended their offer and were swept up and down the creek into bankruptcy. It can and does happen. When your referral rewards program goes wrong there can be a few good reasons why.
4 Tips for Preparing Your Business for Referrals Programs
If you have established your business, set up some marketing efforts and branded your company's name, it may be time to prepare your business for referrals programs.
