Asking a satisfied customer for a referral may seem like the easiest thing to do. But for many small business owners it’s a tactic they like to avoid at all costs. The question is—why the aversion?
“There are really two things in my experience—pride and fear,” says John Jantsch, small business marketing consultant and author of the book The Referral Engine: Teaching Your Business to Market Itself. “The pride part comes into play when a business owner feels that asking their customers to refer business is like begging or an admission that they don't have all the business they can handle. The fear part is a little trickier: It’s fear of being rejected and fear that perhaps their clients aren't as satisfied as they hope.”
So if fear, a primal emotion, is what prevents small business owners from utilizing this most cost-effective method of attracting more customers, how can they overcome their phobias and build referrals?
Initiate a gift program for referrals
Jeremy Schaedler, president of Schaedler Insurance, a three-year-old Northern California-based firm that specializes in insurance and bonding for contractors, says that he relies so much on rewarding referrals that it’s become his company’s primary marketing tool. He says referrals have helped grow his business 20 percent annually for the past six years, the challenging economy notwithstanding.
To illustrate his point, Schaedler, whose company has a staff of three, cites a popular rewards program he conceived that helped boost his company’s bottom line. “One of our most successful ideas was to partner with upscale local restaurants to purchase $50 gift cards for $25 each, and use those for referrals,” he recounts. “The restaurants that participated loved the idea because it got people in to try the restaurants. We were also able to offer something with a $50 value for only a $25 out-of-pocket cost.” As Schaedler’s business expanded beyond northern California, the local gift cards made less sense for him, but he still believes in the concept. “It is still a great approach for the right type of local-based business looking to build relationships in the community and reward referrals,” he says.
If you do decide to opt for a gifts or cash rewards program, be careful you don’t go overboard or your customers will feel like mercenaries.
“I had a client that was not focused on referrals in the right way and it was obvious from talking to their clients that they were loved but no one was referring,” recalls Jantsch. “What we discovered was that it was the way they were addressing referrals that was hurting them.”
The client, an upscale remodeling contractor had a standing cash offer of $1,000 for a referral. Jantsch discovered that the contractor’s customers were “put off by the fact that they would gain from telling a good friend to hire this service.”
So Jantsch and his client restrategized. Instead of offering $1,000 for a referral, they switched the referral award to securing the services of a skilled carpenter to spend a day at the client’s house fixing things. “All of a sudden the referral motivation changed and the contractor’s clients started bragging about earning a carpenter for a day, which, as it turns out, was hard for them to acquire and more appreciated than the $1,000,” he continues. “It was something they felt good about earning.”
Build a relationship of trust with customers
Asking a new customer straight off the bat for a referral would be a mistake, says Bruce Loren, owner of the 12-year-old Loren Law Firm, which is based in West Palm Beach, Florida and has a staff of eight.
“You need to spend time building up trust, and treating a customer like a business colleague or a friend, not simply a money-generating client,” explains Loren, whose firm specializes in construction law. “If you have been fair with the client, they will want to help you. For example, I often tell clients to settle cases, despite the fact that it is against my financial interest. They know that and appreciate it.”
Michael Raanan, president of Landmark Tax Group, a tax firm based in California’s Orange County, echoes Loren’s sentiments. Having launched his company with a staff of two in January, Raanan, a former IRS revenue officer, says you can’t have referrals unless you build relationships first.
“Every interaction with another person, whether they are part of your target market or not, provides a chance to build a relationship that may lead to an untold number of referrals down the road,” he says. “The best source of referrals has always been, and will continue to be, satisfied customers. When customers are satisfied with the service they received, not only will they send additional clients your way, they do it with a smile and with a certain sense of personal satisfaction knowing they are helping out a friend and sending business your way as form of thanks. Word-of-mouth advertising is priceless, and for small business owners, there's no better investment.”
Provide exemplary customer service
This tip may sound so obvious as to be counterintuitive, but it is that simple. If you want your business to be referable, then you will have to treat your customers with courtesy, respect, and value. At the same time, you shouldn’t be shy when asking for a favor from a regular customer.
“This is a time consuming and long-range process,” says Loren. “You may start a relationship today that will result in business two to three years from now. Think like you will be in this business, in this community, for the rest of your life. You always want people to speak highly of your skills and trustworthiness. People give and refer business to people they like and trust.”