In the words of Henry Ford, “I know half my advertising doesn’t work; I just don’t know which half.”
As small business owners, we face an overwhelming array of marketing options, with paid advertising being a common go-to method. However, the truth is that paid advertising can be a hit-or-miss approach, lacking guaranteed success. Fortunately, there is an alternative that can bring long-term value to your business: building high-quality referral relationships.
The Benefits of Referred Business
While I may be biased, there are several advantages that referred business holds over paid advertising. The foremost benefit is the level of trust that referred customers have in your business even before they meet you.
According to a Nielsen study, a staggering 84% of consumers trust recommendations from friends and family more than any other form of advertising. Imagine 84% of prospects already trusting your business before even knowing you!
This trust translates into a higher likelihood of conversion and loyalty among referred customers. They are more inclined to become paying customers and make repeat purchases, leading to increased customer lifetime value for your business.
In my own experience running a mattress store, referred clients consistently made purchases, spent significantly more, and the sales process was smoother as they were already familiar with our product and service.
Another compelling advantage of referred business is the cost savings it offers compared to paid advertising. Paid advertising can be expensive, and measuring its return on investment can be challenging. With referrals, the cost typically amounts to your time, occasional coffee or lunch meetings, and perhaps a thoughtful thank-you gift or card.
This investment is often much lower than the expenses associated with paid advertising. Moreover, since the referral comes from a trusted source, the chances of a successful sale are higher, requiring less effort to close the deal. This makes the time spent building relationships a valuable investment.
Referred customers are also more likely to share their positive experiences with others, generating additional referral business in the future. This creates a snowball
effect, where each referred customer brings in more referrals, resulting in a steady stream of new business.
Don’t forget to ask your referred customers for reviews, especially on platforms like Google, as this not only serves as passive referrals but also acts as social proof. You can leverage these reviews to show your referral partners that the people they send your way appreciate your business, further encouraging them to refer more clients.
A study by the Harvard Business Review revealed that referred customers have longer-lasting relationships and a higher lifetime value. This is due to their higher satisfaction with the products or services received, leading to a more reliable customer base.
Additionally, referred customers are more likely to refer others to your business, expanding your customer network even further. It’s a win-win situation where both your business and customers benefit, fostering growth and prosperity. The benefits of referred customers cannot be overstated, as they contribute to increased customer satisfaction, repeat business, and overall small business growth.
According to a study by the Wharton School of Business, referred customers tend to spend 16% more than non-referred customers. This is because they trust the business and are more willing to invest in products or services. Just imagine a 16% increase in sales simply by having customers who already know, like, and trust you, willing to spend more.
This aligns with my personal experience in the mattress business and echoes the sentiments shared by members of BNI, who consistently report receiving better referrals than those generated through other sources.
Building referral relationships, however, requires a genuine desire to help others. Referrals cannot be obtained simply by asking or expecting them to come to you. Your primary focus should be on assisting the other person, demonstrating your commitment to building
Written by Braith Bamkin