Why Referrals Are The Best Way to Grow Your Business

Referrals and word-of-mouth marketing may not be the sexiest way to grow your business, but it’s often the best way. Referrals are generally superior to clients and customers that come through other channels, for the following reasons:

Referred clients are cheaper to generate. It costs little or nothing to generate referrals. Instead of investing resources into expensive ad campaigns, you can create referrals by investing into the relationship you have with each customer and by delivering a product or service that exceeds expectations. In my business, we occasionally offer referral incentives or prizes, but even when that cost is factored in to the equation, our cost-per-lead for referrals is dramatically lower than any other form of lead-generation.

Referrals convert into clients and customers at a higher rate. When somebody is referred to your business, they are significantly more likely to become a paying client or customer. I know several lawyers who convert referrals into clients at about a 70% rate, while leads generated through other channels convert at about 30%. In my business, we convert referrals into clients at about twice the rate as other lead channels.

Referrals are pre-conditioned to trust you. The hardest part of creating a new customer or client is persuading them to take the “leap of faith” and pull out their wallet. This is true in person, over the phone, and online. And the more expensive your product or service is, the harder it is to overcome this “trust deficit.” People are skeptical, and understandably so. We’ve all been burned in the past and we don’t want to repeat the experience. But when someone is referred to you, they are pre-conditioned to trust you – because someone they know has already vouched for you. So that person transfers their credibility to you. You may still have to do some work to close the sale, but you’re starting from a much stronger position.

Referred customers and clients are easier to work with. We’ve all dealt with nightmare customers and clients. Not only are these people unpleasant and discouraging to work with, they also take a very tangible toll on your operation. They generally demand more time and effort than other customers. They create negativity for your staff, and sometimes they spread their negativity to other customers and clients. You don’t want to deal with these types of people. Fortunately, referrals are much less likely to go this route. They start the relationship in a better place because they have a personal connection to you. And if nothing else, they’re generally going to behave better because they don’t want to make the friend, colleague, or family member who referred to you look bad. Think about your three favorite customers or clients to work with. How many of them came to you through referral? Now think about your three worst customers or clients. How many of them were referrals? Every business is different, but most entrepreneurs that I talk to report a similar trend: referred customers are the best customers to work with.

Create an endless cycle of referrals. Statistically, a client or customer who comes to you through a referral is more likely to make referrals of their own, creating a cycle. I’ve heard this referred to as a “referral chain” and it’s the holy grail of marketing. If you can get to a place where every customer creates a new customer you can grow your business dramatically without any other lead-gen tactics. For the first several years at Spotlight Branding, nearly 100% of our growth was through referral. It allowed us to go from $0 to $1 Million in just five years!

It’s Time to Get Serious About Referrals

Referrals are cheaper to generate, convert better, make better customers, and are more likely to make referrals themselves.

It sounds like a no-brainer, right? There’s no better way to grow your business than through referrals and word-of-mouth recommendations.

But for whatever reason, most entrepreneurs and marketers look right past it. It may be because referrals seem “basic” or boring. It some cases, business owners may not realize that they can actually control referrals – they view referral marketing as a passive strategy.

That couldn’t be farther from the truth. There are a number of strategies and tactics that you can use to create and systematize referrals. It’s not complicated, but it’s effective. I’ve personally built a million-dollar business on the back of these strategies.

Referrals are the best way to grow your business.  What’s your referral strategy?  

Want help getting started? Click here to sign-up for our exclusive Weekly Marketing Hotsheet. It’s packed with tips and ideas to help you generate more referrals and take your marketing to the next level.

The following two tabs change content below.

Danny Decker

I work with business owners to create real, practical marketing plans – and create systems to make sure the plan actually gets executed. I’ll help you put a strategy in place to create predictably positive cash-flow, to generate new leads consistently, to create more referrals and word-of-mouth marketing, and much more.

Latest posts by Danny Decker (see all)