Referrals in Business

By far, the single most effective and inexpensive marketing tool is referrals. Simply stated it is a ‘Selective Word of Mouth’ form of marketing. The key to its success relies in the ‘Ask’. This is where the business asks its existing customer to refer a future client or customer. 

It is most commonly used in the service based industries to bring in more clients. The best examples include professionals (lawyers, accountants, architects and engineers), medical practices including dentistry, hair stylists and cleaning services. It is also used in the home services industry by A/C servicing companies, plumbers, pest control and electricians. It is underutilized in the retail industry mostly due to the impersonal relationship of the check-out clerk to the customer. 

How effective is this system in growing a business? What are the best ways to make the ‘Ask’? How do you monitor this program and ensure quality of relationships with the existing customer and the potential customer? The following sections will explain this program, methods to follow and maximizing the value from referrals. 

The Referral Program 

There is a hierarchy of marketing and advertising programs used by businesses. In terms of effectiveness, the referral program is considered the absolute best. However, it is more effective with some forms of businesses than others. Right behind referrals is the generic ‘Word of Mouth’ system in driving customers to your business. 

Commonly referred to as a ‘Word of Mouth’ marketing program, the referral program relies on existing clients to expand your pool of clientele. However, it is one level above the true meaning of ‘Word of Mouth’. By simply getting your customer to communicate your services to others brings more customers to you. But the key to a successful program relies in the owner of the business ‘Asking the Customer’ to send particular customers to the business. It is much more successful in the human services industry than in any other form. The following chart lays out the levels of success for various industries: 

Industry                          Program’s Value
Professional Services       Highly Effective
Residential Services         Highly Effective
Technology Services        Highly Effective
Salon Services                  Highly Effective
Medical Services             Mildly Effective
Auto Repair                     Mildly Effective
Pet Services                     Mildly Effective
Auto Sales                       Neutral
Restaurants                    Neutral
Retail                              Generally Ineffective
Convenience Retail        Totally Ineffective
Gas Stations                    Totally Ineffective 

If you notice anything about the chart, as the business moves towards product based sales, the less effective the referral program becomes. The reason is that market price for the product drives the value for the consumer.  Whereas in professional services, the product via the service is the value the client seeks. The more reliant the consumer is on human service, the greater the effectiveness is with using referrals as the source of additional work.  

Did you notice how the results are neutral for a restaurant? Well the reason for this is that food is a delicate subject for your average consumer. For restaurants, the best program for marketing is just really great food and a warm and embracing environment. In general, folks do use ‘Word of Mouth’ to let others know about the restaurant, but it doesn’t qualify as a true referral and the reason is that the restaurant didn’t get the customer to make the ‘Ask’. It served great food and the customer is letting others know.  

The referral program is a very successful system of growing your business. The real problem is that it is often overly successful. If you are not careful, the referral system will cause you problems. How so? Well, many inexperience business owners don’t spend enough time designing the program to achieve financial success. The referrals received are often trash or clients that bring little to no value. This takes time away from the real goal of a referral – quality clientele. I’m going to say this again, you want quality clientele. There is a saying in the service business; you are only as rich as your clients. If you have very wealthy clients you can charge a higher fee structure and get paid faster for your services, so better clients means more money in your pocket.  

Right from the start, you need to set your goal for better clients because it will serve you well in the future. If you are in the home service industry, target better neighborhoods, if you are in the medical profession, aim for the patients that have better medical coverage (the insurance carriers that pay higher fees) through corporate plans.  Get those patients to refer others from the company. The following is short list of the better types of clients for respective industries: 

  • Accounting – clients that have multiple employees on their payroll
  • Legal – clients that are business owners and not your local kid with a speeding ticket
  • Hair Stylists – zip codes with higher median incomes
  • Cleaning Services – businesses and not residential homes
  • Dentists – families over individuals 

If you end up using the shotgun effect to get more clients, you’ll create a lot more stress for yourself and in addition overall lower fees. The worst part is a poor referral program consumes the time you need to get the better clients. First rule to use in designing your referral program is focus on higher value clients, NOT more clients. 

How do you get the better clients? How do you go about making the ‘Ask’? 

Making the ‘Ask’ 

The key to the ‘Ask’ is preparation. What I mean by this is paying attention to your existing clients for indicators of who they know and groups they participate with for networking. Once you know your existing clientele make a list of your clients and identify the best clients for the ‘Ask’.  

Identify the top 10 clients and who you believe they know.  At your next meeting with this client, confirm who they know. Prior to beginning your meeting during the casual conversation part of the introduction, ask the client if they know so-and-so. If they do, ask how they know them and how often the client talks with the prospective referral. They client will ask you why you are interested in so-and-so and tell them that you are interested in meeting them for potential work. This is the pre-ask stage of the referral request. Once you have completed the meeting, it is time to move to the actual ‘Ask’. 

The trigger to the ‘Ask’ is the thank you. When a good service is provided the client is going to let you know with a thank you. Often if the service is done well, the client will modify the thank you with additional accolades such as ‘You did a great job’ or ‘This is really going to benefit me’ or ‘I can’t thank you enough’.  All of these are the triggers that should key you in to making the ‘Ask’.  

Once they have made their thank you, respond with ‘You are welcome, I take pride in my work in this field’. Then follow this with one of the following lines for the ‘Ask’: 

  • Now that I have helped you, I was wondering if you could help me?
  • I’m really interested in expanding my scope of service in this particular field and I was wondering if you could help?
  • I enjoyed working on your case and would love to have an opportunity to present at one of your club’s meetings? 

In almost every single case, the client will be glad to help you. Make arrangements right there on the spot to attend meetings with him, or get him to ‘Ask’ the particular target to call you and discuss business.  

Remember, the ‘Trigger’ is where you make the ‘Ask’. Be prepared for the trigger as a part of your pre-meeting review. Practice making the ‘Ask’ with yourself and you’ll be ready. 

It doesn’t end here. To assist in completing the ‘Ask’ follow up.  

Follow Up 

This is an important step in the process as it ensures a complete ‘Ask’. The best tool is an e-mail to your client highlighting the meeting. Finish by thanking them for serving them and a reminder of them referring a particular client etc. Here are some lines I’ve used: 

  • Again, thanks for the opportunity to serve you and thank you in advance for the opportunity to ‘meet, join, visit etc.’ so-and-so.
  • Finally I do appreciate you asking so-and-so if they would consider my services. Please let me know how that goes.
  • Please keep me in mind the next time you meet so-and-so.
  • Please keep me in anytime anyone talks about ‘XYZ’ and get them to contact me if they are in need of help. 

All of these steps mean nothing without proper tracking and monitoring. I personally have used Microsoft Notes and created a dedicated page to ‘Client Referrals’. I would then create sub-pages for the particular clients that I would ask for help. Then in turn, each time I made some form of contact with them, I would note it in their respective sub-page. The software is easy to use and very conducive to this situation.  

Maximizing Value from Referrals 

The key to the referral program lies in preparation and planning. Listen to your clients talk about who they know and their particular groups of business colleagues etc. All too often professionals seek out more work and not quality work. Too much work takes away from opportunities to get the better clients or the type of work you prefer.  

To truly maximize the value of the referral program, seek out clients that are going to make a difference in your life. I can’t emphasize enough the importance of making a list and tracking the contacts. Often it takes a year or two to finally have the opportunity to get that particular client. This is OK, you are in business. This isn’t a sprint but a marathon.  

The most important relationship is the existing relationship that you have with your client. Maintain that first and hopefully you will have an opportunity to expand your relationship. But with expansion comes issues. The most important is confidentiality once you have an engagement with the referred client. Keep the two separated in terms of work.  

The real value comes in serving the new client and as time goes on, this client is a candidate for the ‘Ask’. This is how referrals bring real value to the practice. Furthermore, if the first referral from your primary client is successful, that client will make more ‘Asks’ as you request them. People love to help other people, especially those they are close to in their personal life and in their business life. 

Finally, don’t forget to thank your client for the ‘Ask’ no matter the outcome. A note card is the best sent in the mail. Make a hand note to them and they’ll appreciate it immensely. If you have any comments or questions, e-mail me at dave (insert the usual ‘at’ symbol) I would love to hear from you. Act on Knowledge. 

Value Investing

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