Recently, a saleswoman handed me her business card with a symbol on it that said her business was 100% based on referrals. I thought this was a great idea until I realized there's a dark side to a pure referral-based business.
Now, let's not overlook how great referrals are. First of all, prospective customers who are referred from your fans are probably going to be nice people. Since birds of a feather flock together, assuming you sell to customers who are pleasant, they're likely to refer others of their ilk. Who wouldn't like to spend all day selling and writing orders with delightful customers?
Referrals are also often presold. When Customer Bob refers you to his friend, Jane, he has probably already told Jane some wonderful things about you and your wares. A sincere testimonial like that gets Jane half-sold before she has even spoken with you. If she isn't qualified, she may refer you to someone else in her network. If Jane is a qualified prospect, you will close her sale faster.
Referred customers are also more loyal to their vendors than nonreferred clients, because there's a friendship factor among them. If Javier, Ming, and Samuel are all personal friends with each other and customers of yours, too, they're more likely to keep buying from you, because buying from someone else may weaken the bonds of their personal friendships.
This woman's card trumpeted to the world that she was 100% referral-based, and affected me on a subconscious level. Without saying a word, she set the expectation that people should refer clients to her. It stimulated me to go through my mental Rolodex to see if I knew anyone I could refer to her. It also branded her as worthy of referrals.
Yes, there are many benefits to having a referral-based business, but there is one catch: You may eventually work through all your customers' strong connections, like a garden that has had all its nutrients depleted, or a hand of cards that has been played out.
This is why salespeople and companies with long-term success never stop marketing. Those salespeople who keep setting and breaking sales records year after year don't ask, "How long do I have to market until I can just sit back and grow my business from 100% referrals?" Rather, they have learned the importance of continually adding new customers who are not related to their present client base.
The reason is simple: From these new, nonreferred customers, you can then start to generate referrals from new spheres of influence, new "flocks," if you will. It's similar to opening a new branch office in a distant land. Suddenly, a whole set of new relationships and possibilities emerges that you would never have discovered if your business remained 100% referral-based.
There is a drawback to marketing for new customers vs. getting referrals from existing customers: The cost per new customer is much higher when you have to market to attract them. Although marketing is exciting, your bottom line will take a big hit if you choose to ignore referrals and focus exclusively on marketing.
Obviously, a mix of new customers from referrals and marketing efforts will yield the most sales at the least cost and maximize your profits. The best percentage for your mix will change over time.
When you started selling, you probably spent the vast majority of your time marketing for new customers. As your list of happy customers started to grow, and you started to receive and ask for referrals, the mix started to change. After several years, you will probably maximize your results with a mix of around 75% of new customers from referrals and 25% from marketing.
Since referrals will always be the best source of business, you may want to set up a formal referral program. These are popular with many Realtors and other salespeople, but they could be modified to apply to almost any industry. Just make sure you reward your referrers consistently and generously. You can even buy and sell referrals online from sources like InnerSell.com.
Genie Fuller, founder of Houston-based Winning Referrals, says you can't just wait for your customers to refer others to you. So she teaches professionals three "referral rituals": reminding your customers of what you have accomplished for them, recapping two or three "meaningful nuggets" that differentiate your services from the competition, and helping them identify your target customers.
When I heard Genie speak years ago, she recommended that salespeople help their customers think of someone specific to refer. Instead of asking your customers, "Do you know anyone you could refer to me?" she suggested that you phrase your question more specifically -- for example, "Do you know anyone at your workplace who drives a Lexus?"
I laughed when she reminded us that sometimes those customers will say, "I don't know anyone at work like that, but I serve on a charity board with two people who drive a Lexus." The point, of course, is that you're still getting the type of referral you wanted. In so doing, you also avoided that awkward, dreaded Bermuda Triangle of, "Gee, if I know anyone to refer to you, I'll let you know."
There's no perfect path to increasing your sales, but asking for referrals and teaching your faithful customers to refer you will increase your client base. Add to that a solid, targeted marketing program, and you will maximize your sales. Happy selling!