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Word of Mouth: The Key to a Thriving Referral Program

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As a small business owner, sometimes it can feel as though your message is getting lost amid all the marketing noise—particularly when larger competitors have blanketed your customers with advertising blitzes.

But you have a valuable competitive advantage: The ability to increase business by reaching your top existing customers on a personal level and inspiring them to refer their friends, family and co-workers to your business.

Increasingly, building referral programs is the top marketing strategy for small business owners. In a 2012 survey conducted by the online small business network Manta, more than half of the 1,000 small business owners who participated said that word-of-mouth referrals from their best clients were the single-biggest source of growth for their companies.

Mark Deutsch, a Richmond, Va.-based marketing and networking consultant, says he is seeing small businesses succeed by spending less time and money on formal advertising campaigns and putting more effort into converting happy customers into loyal referral sources.

But to make outreach and marketing efforts targeted toward your existing customers worthwhile, you need to establish the groundwork for a referral program so you can maximize the benefits and measure the results.

Build a strong foundation

Before you encourage customers to spread the word about your business, step back and ensure that your products or services are worth referring, that you are providing each customer with a personal, positive experience, and that your business is ready to build its presence.

“The first step is to get your house in order and understand your client base,” Deutsch says.

Be confident that your finances are in order, your business plan is set, your mission is clear and that you have the right staff and facilities to satisfy existing customers—and take on new ones.

Survey your customers

Customers tend to make referrals when a business is sound and goes above and beyond to meet or exceed their needs and expectations. It is important to know if your business is achieving that goal from the customers’ perspective—and the easiest way to find out is to ask them directly.

Give customers an ongoing opportunity to provide you with direct feedback. Deutsch suggests reaching out with a simple customer survey distributed through the channels in which your customers are most likely to engage. This may be in-person, through social networks like Facebook or business rating sites like Yelp, or through email or comment cards.

The survey can ask questions such as: “On a scale of 1 to 10, how likely are you to refer us to friends and family?” and “How did you find our company?” Leave space for comments and contact information so you have the chance to follow up for more information.

If you have too many people on the low end of the scale, assess their concerns and make changes before moving ahead. As you directly address consumer complaints or comments, you can get back in touch with them to let them know you’ve taken action based on their feedback.

Understand the data

In addition to surveys, you may also want to request referrals from your top clients. However, directly asking them to spread the word, or for names of people in their network who may benefit from your services, could make them uncomfortable. Instead, consider connecting with them on social networks, offering limited-time incentives, or hosting or sponsoring an event where they can bring family and friends. The key is to do your homework ahead of time to know who is in your clients’ networks, what their needs might be and how they like to do business.

To better know your customers, Deutsch recommends closely tapping into available information, starting with what you might already know from your records—how long they have been a customer and how much they typically spend. This lets you sort out your top-tier—and often top-referring—clients from others and target your efforts to reach the right people.

“If you’ve got an existing client base, database management is critical,” Deutsch says. “It doesn’t need to be super complex, and you don’t need to spend thousands of dollars—it can be as simple as a spreadsheet.”

Deutsch looks for a 10-to-1 return on investment when it comes to referring customers. For every $100 you spend reaching out to your top clients, you should see $1,000 come back in added profits.

“The best programs I’ve seen really leverage what I call the principles of influence,” he says. “Embed reciprocity within your programs so you are consistently giving to your clients, and they are giving referrals right back.”

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

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