Los Angeles, CA (PRWEB) March 14, 2012
A recent survey of business owners showed that 41.4% of businesses count on referrals for over 80% of their sales. According to Dave Lavinsky, co-founder and President of leading entrepreneurial firm Growthink, Inc., this statistic seems too high, but is an exciting indication that many entrepreneurs are successfully taking advantage of referral marketing.
Lavinsky goes onto explain the importance of referral marketing, how it works to boost revenues and profits, and allow entrepreneurs to dominate their competitors.
"First of all, referrals generally don't cost any money. So rather than spending $X to acquire the new client, businesses spend $0. This dramatically boosts profitability. Secondly, getting referrals boosts the average profit per client. For example, let's say that the average profit per client is $50. Now, let's also assume that 20% of clients refer just one additional client. What that means is that for every 10 new clients obtained, 12 new clients come out of this (including the 2 referrals). Since each client gives a profit of $50, this means that $600 in profit has been generated from the 10 initial clients. So, the profit per new client goes from $50 ($500 divided by 10) to $60 ($600 divided by 10)," explains Lavinsky.
Whilst Lavinsky is encouraged that 41.4% of entrepreneurs are successfully using referral marketing, he also notes that 58.6% of entrepreneurs fail to do so.
To help these entrepreneurs, Lavinsky has revealed 4 keys to an effective referral system:
Step 1: Make the Client Want to Give a Referral
According to Lavinsky, "Clients must be happy in order for them to give referrals. So, entrepreneurs should make sure that they satisfy their needs and fulfil the promises made to them when they purchased the product or service."
Step 2: Ask for the Referral
Many clients will give referrals on their own. But according to Lavinsky, it is possible to dramatically increase the number of referrals by simply asking for them.
"Of critical importance is to ask 1) at the right time, and 2) multiple times. With regards to the former, if a client needs to use a product/service in order to be satisfied, then clearly the referral cannot be asked for immediately. Rather, wait until they've used the product/service and can vouch for its success. With regards to the latter, it is critical that clients are asked multiple times for referrals. This is for several reasons. The first is that clients are often busy and if asked at the wrong moment, they simply might not have time to give the referral."
"Secondly, it's possible that today one of your clients does not have a new client they can refer to you. But maybe in a month they meet someone that would be a perfect fit for you company. But unless you ask for the referral again then, they'll probably forget to give it to you."
According to Lavinsky, more effective referrals can be obtained by guiding the thinking of clients.
"In asking clients for referrals, don't just ask them who they think might be a good fit for the product/service. Rather, it's more effective if to guide their thinking. For instance, entrepreneurs should ask, "I know you're a member of the XYZ organization; do you know anyone else in the XYZ organization that could benefit from our product/service?" This allows the client to focus their thinking in order to find more potential names for you," said Lavinsky.
Step 3: Effectively Contact the Referral
Lavinsky says that "once the referral is received, the client should be contacted to try to close the sale."
"A key tip here is to ask the referral source to let the referral know to expect contact. As such, rather than contacting the referral cold, a warm introduction we be received that will make the referral more likely to speak about the products/services on offer."
Step 4: Putting it All Together
Lavinsky goes onto explain how each of the above points can be put together to create a successful referral marketing system.
"The key to a successful referral program is to formalize and systematize it. It shouldn't be something that one of the employees does once in a while. But rather, it should be a sequence of events that always happens," said Lavinsky.
"For example, the system for a business might include the following: Ten days after a sale is made the client gets an email requesting referrals. Fifteen days after a sale they receive a postcard. And then 28 days after the sale, a salesperson calls them to request referrals."
In addition to systematizing the referral program, Lavinsky advises business owners to maintain statistics so they can see what's working and what's not working.
"It is important to track each of the referral attempts and see which ones lead to new clients and which do not. And then tweak them (e.g., change the email to offer an incentive for the client to give a referral), and track which tweaks work and which don't (and clearly keep using the ones that did work)."
Growthink, Inc. is a leading provider of entrepreneurial consulting services. Growthink has also developed several training products and tools for entrepreneurs, including a business planning template, a private placement memorandum template, and a marketing planning template. To learn more about Growthink’s products and services, call 800-506-5728.