The Importance of Customer Referrals

Of all the marketing tactics throughout the history of mankind, it has remained true that word-of-mouth is still the best way to get your name out there. People who trust your business will often speak highly of you, and word can spread like wildfire. In recent years, this strategy has become known as “referral business,” and it has taken on many different shapes and sizes. According to one survey, 85% of all business for small businesses comes from customer referrals of some kind.[1]

Online referral traffic is also a major contributor to the success of any website. Indeed, a recent study suggests that just over 31% of all traffic to websites is based on social media referrals.[2] Facebook maintains the lion’s share of these referrals. Clearly, referrals are good for your business, but is there a secret to getting more referrals or is it all dumb luck?

Ask and You Shall Receive

Perhaps the largest misconception with customer referrals is that happy customers are automatically going to spread the word. But, a happy customer doesn’t always equate to a talkative one. Many satisfied customers won’t naturally think to tell everyone they know about your products or services. But, if you plant the seed, then they may be more willing to spread good news about your business.

Customer referrals are key to small business success
If you have a system of referral tactics, then people are more likely to refer their friends and colleagues to you.

The best time to ask for a referral is when the customer is at the peak of their excitement about your business. For instance, if you sell electrical parts to contractors and you have a customer who is thrilled at your massive selection of accessories, then you might want to ask if they know someone else who could benefit from your selection. You can also have premade referral cards that your clients can hand out to their friends.

Another great time to ask for a referral is at the point of sale. This can occur in person or even in an online marketplace. You might want to have a system in place that asks for the emails of any other potentially interested parties. Of course, the goal is always to be introduced to another potential client who might be interested in what you have to offer. This can be through a face-to-face meeting, email message, or a phone call.

Referral Programs

One of the best ways to ramp up business is with an established referral program. You can use any of the techniques mentioned above like:

  • Directly asking a satisfied customer
  • Offering referral cards
  • Using a “refer a friend” email link
  • Providing easy ways to leave testimonials

If you have a system of referral tactics, then people are more likely to refer their friends and colleagues to you.

In some cases, however, customers will need some incentive to refer their friends to your business. Reward programs are some of the most highly effective forms of referral marketing because they give your clients an incentive to inform their friends. Companies like Airbnb and Dropbox have used reward programs to their advantage. Indeed, Airbnb tripled its daily bookings after implementing a reward program that offered referrers a $25 travel credit. Dropbox grew from 100,000 registered users to over 4 million in a four month span after implementing a reward program that offered increased storage space to successful referrers.[3]

The secret to their success was that they offered a relatively inexpensive but supremely functional reward to referrers. Reward programs for customer referrals are often unsuccessful because the reward is something worthless. But, if you actually offer something valuable, then your customers are more likely to take you up on your offer.

Clearly, the importance of customer referrals cannot be overstated. Referrals on their own are nice, but if you have a formal referral program at your disposal, then you stand to gain even more business. You can’t just wait for referrals to start taking off without a little push. You have to be proactive with your referral marketing strategy to yield optimal results.

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