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| Business Development |
 Referral-EASE: Secrets of Successful Business
Builders - Part 1By Mara Osis - Action International Who doesn’t dream about a referral-based business where your customers act as your sales and marketing arm? It may be unwise to rely totally on referrals to build your business; still, it’s an extremely important resource for your future success. This article looks at the fundamentals of building a solid referral program. Use this process to improve the number or quality of referrals you’re getting, or to get started building up your referral base. Decide that you will have a formal referral program. Many businesses depend on referrals for a substantial part of their revenue; yet expect referrals to ‘just happen’. Every year you can lose up to 20% of your current customer base through attrition, so it pays to be proactive in generating new referrals consistently. Word of mouth is great for your business if it’s positive, so monitor customer satisfaction closely. Even good clients sometimes ‘forget’ to be your advocate, so have something in place that reminds them to make referrals. Define your ‘ideal’ customer. What type of client would you like more of? We usually define a good client as one that contributes substantial sales volume. But look beyond revenues and consider whether they are profitable to deal with, have growth potential, and/or can influence others and bring you more high quality referrals. Apply your ‘ideal’ customer criteria to current customers. Don’t be surprised to find that 20% or fewer of your customers are ‘ideal’. Nurture these ‘Awesome A’ customers, and see how many ‘Basic B’ customers you can convert to ‘A’ status by paying more attention to them. Stop over-servicing the rest; the ‘C’ and ‘D’ grade clients who drain your time and energy and stop your business from moving forward. If you can’t ‘reform’ these customers, you may suggest another provider who would be happy to have their business. Get a grip on acquisition cost and lifetime value. Think about what you are spending to acquire a client now and how much a repeat customer will add to your bottom line over several years. If you spend $1000 to acquire 10 new customers, your acquisition cost is $100 per customer. That means you have to make a profit of $100 (not just a $100 sale) from each of them to break-even on your marketing expense. How often must customers purchase from you to give you a healthy return on your marketing investment? Acquisition costs can be relatively low for a client that comes to you by referral, but you can use your acquisition cost figure to budget for a referral rewards program and to estimate how much extra a good client is worth when they refer someone to you! Teach your customers why they should refer you. People love to refer others where they have had good experiences. It validates their own choice and they are eager to let others know that they’ve made good decisions or are connected to the best product or service providers. In fact, most happy customers are willing to refer you, but it won’t occur to some if you don’t ask. Find a way to let them know that referrals keep costs down, allow you spend more energy on them, and can involve other tangible rewards. To encourage referral behaviour, be diligent about rewarding and recognizing those that do. If possible, make the rewards personalized to show how much their actions mean to you. If your referral sources are other businesses, consider that you both may benefit from the synergies of adding certain types of clients or by combining marketing initiatives (e.g. financial planner and accountant, gym and vitamin store). Be prepared to give before receiving. Referrals come to those who give, especially when it’s without expectation of gain. You can use your network to do much more than just refer business to your clients and associates. You can also act as talent scout, loan broker, purchasing agent, publicist or other type of advocate for their business. You may even know someone that can help them with family or other personal problems. A genuine interested in helping others is always reciprocated, often from the unlikeliest places. In our next issue, we’ll build on these basics and look at some specific referral strategies that you can tailor to your business. Mara Osis works exclusively with owner-operators who want more out of their businesses…and more out of life. Contact Mara at 403.225.0906 or maraosis@action-international.com |