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Don’t overlook the value of referral marketing


What’s the fastest way to generate new business without spending a fortune? How can you develop a targeted list of potential clients that have a need for your product or service? Do you need to improve your conversion of potential clients into new clients? It’s time to think about referral marketing.

Many business people make the mistake of thinking that advertising is the best way to gain new clients. But the reality is that you need big bucks to get noticed through advertising and, in most cases, it doesn’t offer targeted marketing to your specific audience.

If you’re looking for a marketing tool that will improve your business development opportunities, then it’s time to consider referral marketing. While many business owners tell me that the easiest way to gain new business is through referrals, it’s often overlooked as part of the overall marketing strategy. It’s easy to think that a referral from a customer or supplier is pure coincidence or luck. But it shouldn’t be. A smart business has a system for generating referrals.

What is referral marketing?

Referral marketing encourages, promotes and rewards clients and other people who refer a business to people they know. It’s primarily created by word of mouth, but many businesses are now using the power of the internet to support their referral marketing strategies.

Referral marketing is a valuable marketing tool because:

  1. Referrals are more likely to be credible sources of potential business because they have an established need.
  2. Referred customers already have some sense of trust for your business because the recommendation has come from a reliable source of information.
  3. Referrals are highly cost-effective because you have spent a fraction of the money and time you would have spent developing this new business through other channels, like advertising or cold calling.

How to develop a referral marketing plan

To develop a referral marketing plan you need to understand who has the potential to refer business to you. Most businesses only think of clients when seeking referrals. This makes sense – who better to refer your business than a satisfied customer (hopefully they are all satisfied customers). However, think beyond your clients and consider some unique alternatives for referrals, such as suppliers, like-businesses, associations, friends and family.

The most important part of a referral marketing plan is the motivation for your potential referees. Without some sort of incentive, your clients and other sources of referrals may not be motivated to send referrals your way.When you look at it from their perspective, why would they refer someone to you unless there is something in it for them?

An incentive can be as simple as a small gift, discount, cash or commission.Once you’ve identified an appropriate motivation or incentive, you’ll need to communicate it to your potential referees through your marketing materials: your website, brochures or even a direct letter.A good referral marketing plan should deliver you a constant stream of referrals for a small outlay.

Examples of referral marketing in action

While you’re thinking about how referral marketing might work for your business, take some time to look at examples in your local community or industry. There’s dozens of great ideas out there – here are just a few:

  • My local gym offers a free month of membership if you refer a friend who takes up a new membership.
  • A small business offering roofing services asks you to refer two contacts that might need their services and in return gives you a five percent discount.
  • A company in a competitive market for talented staff offers current employees a small cash incentive when they refer a potential employee who is recruited.
  • An association that promotes a conference receives a commission every time one of their members pays to attend the event.
  • A baby website offers $1,000 in prizes to registered users who refer their friends to their website.

Set up your referral marketing plan today

Referrals are essential to your business, so don’t overlook them or treat them as ‘luck’.

Harness the ‘luck’ of referrals by developing a referral marketing plan. It’s a simple system to set up and you’ll find it’s a cost effective and powerful marketing tool for any business.

Renee Hancock is a marketing and communications specialist whose experience spans finance, government, education, not-for-profit, telecommunications and law. She has consulted for two of Australia’s most prestigious public relations agencies and now works in-house for a leading financial services organisation.

This article was originally published in Australian Anthill Magazine, Issue 32 (April-June, 2009).