How Referrals help your Business

Why Referrals are good for Business

Chances are that if you’re reading this article, you are looking at ways to grow your business.  Somewhere along the way, the notion that referrals would be good for your business has popped into your head.  Perhaps you have a strong network and are already receiving referrals and would like more, or maybe you’re new in business and want to understand how to generate business by simply using word of mouth sources and never want to pay for advertising.  Whatever your reason, in this article I’m going to share why referrals are not only good for your business, but how in the long term they can generate significant revenue streams that set you up for success.

Everyone is chasing online, but ‘people’ buy from ‘people’ they know, like and trust

If you hang out at all online, especially in the social media world and you are in business, your feeds are likely to be full of experts telling you that they can get you a gazillion customers by following their proven formula for success and just how easy it is.  You may be bombarded with companies telling you that they can fix your SEO rankings and get you on the front page of google (which is very easy, but for what search term is another matter) or you may have social media companies telling you that advertising with them is the only way to get customers.  

Well none of those are necessarily ‘bad’ strategies, in fact I have spent a lot of money on all of the above, with varying degrees of success.  And not for a minute am I suggesting you should not explore these opportunities too, but what I have learnt in my own business journey and seen with thousands of people I have worked with over the years is that referrals have been the best source of business for and yielded the highest value, ‘stickiest’ customers.

The reason for this is that people, and we’re ALL people, even those hanging out online, want to buy from other people that they know, like and trust.  

Think about that sentence for a minute.  Even when you are buying online, you are looking for signs of trust.  If it's a big brand name that’s been around for ages, chances are you're likely to hand over your credit card details a lot faster than someone you have just found on social media.  You may still buy from a stranger quickly, but the higher the value the sales is, the more likely you are to want to have a higher degree of trust.

Have you found a product or service you like the sounds of online, but then spent time deeply researching that business or person online?  You looked at their website, their social media, their reviews and then, only then you purchased?  It’s completely normal to do this, it's what we ‘people’ do to try and develop a level of trust high enough that we are willing to put your credit card details into a site we’d previously never heard of.

Whilst buying online is often the only way to get a product or service these days and using that as a forum to market your business is becoming increasingly more pressing for many, the simple fact is that we, as humans want to deal with other humans we trust and the online game is a lot tougher than you may think.  Sure, you will see results faster, but advertising (online or old school) is still a game of chance and no matter how clever a marketer you are, the surety is never there.  

Human to human referrals, on the other hand, are significantly easier to generate (when you know how) and have a degree of predictability that online marketing simply can’t match.

Play the long-term game

In today’s world, we have a desire for immediacy like never before.  I’ve been in business long enough to have seen a massive transformation around the way we live and do business.  I’m not a luddite for one minute who wants to go back to the old ways, I mean standing by a fax machine waiting for an order to be printed out on thermal paper used to take forever.  The point is, stuff has changed and there is an expectation that things happen instantly now.  But the thing about referrals is that it’s a long game and you have to plan accordingly.

Many people give up on a referral strategy because they can’t see the pay off immediately.  I want to challenge you to think about the notion of delayed gratification.  You may have heard of the Stanford Marshmallow test with kids.  You can read the study here or check out the neat summary from James Clear, who wrote Atomic Habits.  Bottom line is, all good things are scientifically proven to come to those who wait (yes, your Mum WAS right!), so plan your referral strategy accordingly.

As Executive Director of BNI Melbourne Central, I have seen members wait months or years for quality referrals to start rolling in.  That takes a lot of faith in a system and a LOT of sticking power.  But time and time again, I have seen referrals change peoples lives and accelerate their business to heights they had never imagined.

If you can plan on planting your seeds of growth today and waiting for them to mature before you harvest, I can assure you that you will see a change in your business.

Higher conversion rate

Referrals might take longer to arrive, but there is one fact that is indisputable and that is that referrals are far easier to convert into closed business.  And the reason is that when you have been referred by someone who trusts you, your prospect is already warmed to you and inclined to buy.  If their connection with the referrer is strong and highly trustworthy, then the conversion rate is going to be as close to 100% as it can be.

Referrals versus leads

To be truly successful in giving and receiving referrals, there is one very important distinction to be made and that is the difference between a referral and a lead.  A mentor of mine once said “a lead is like being handed a yellow pages, the person has no idea you’re calling and it's essentially a cold call”.  

So what distinguishes a referral from a lead?  Firstly, a lead only involves two people: the person telling you to contact someone and yourself.  A referral requires three people, the referrer, the referee (the client) and you (the supplier).

When the referrer has made an effort to contact the person needing your product or service and told them you’d be in touch, that person is expecting your approach.  They know you can solve their problem and hopefully if they are in high trust with the referrer, they will already be primed to do business with you.

Of course, there are different levels of a referral from simply a call right through to a three way in person introduction.  Of course, not all referrals require an in person introduction, but if the product or service is of high value, then this is the ultimate way to connect.  I’ll cover this concept in subsequent articles.

You’ll need a strategy

A quick bit of research on the internet quickly comes up with an interesting statistic.

98% OF BUSINESSES RELY ON REFERRALS TO GET NEW BUSINESS Only 3% of businesses have a strategy for referrals.

I learnt this years ago when I joined BNI as a member and it really resonated with me.  I’d been generating referrals for 20 odd years by that stage and I thought I had been really successful, but as the saying goes “if I knew then what i know now…”.

Whatever the statistics, it's clear that business owners are keen to generate business through referrals.  So if businesses rely on referrals so much, or at least want to, why do so few of them have a strategy to generate them?

It's an interesting question and now as Executive Director of BNI, I have helped thousands of business people put in place a strategy for generating referrals.  But I have also learnt that you can teach someone the strategy, but you can’t force them to use it.  

Givers Gain - the Law of Reciprocity

One of the key parts about a referral generation strategy is often the one that most people miss, misunderstand or ignore.  If you get this part right and really understand it, referrals will flow to your business.

In BNI we call it “Givers Gain”, but you don't have to be part of BNI to gain a deep understanding of this concept.  

One of my first bosses and my first mentor taught me this concept.  She said:

“if you genuinely help other people to get where they are going faster, that will come back to help you and it's an endless loop and it never runs out”

As a young man in his early 20’s it was one of the best life skills ever shared with me and I’ll treasure this information as it set me up for success time after time in various different ventures (I’ll cover this more in later articles).

You’ve probably heard various iterations of the concept.  Some might say “what goes around, comes around”, you might have heard it as “universal energy” or you may know it as “the law of reciprocity”.  Whatever you know it as, if nothing else, helping people is just a great way to love your life and run your business.

So how does it work in a practical way in planning for referrals?  

Trust is the mechanism that drives referrals

To understand how referrals work, you'll need to understand that all referrals are based on trust.  I spoke earlier about trust and people buying based on trust.  You’l know from your own life that you won’t buy unless you have trust in the seller and if your purchase is a high value item, that trust will be significantly higher than if you are buying a low cost low involvement item.

So it stands to reason that if I want you to refer me to your trusted network, you are going to need to have trust in me.  One of the fastest ways to gain trust is to show the other person that you genuinely care about THEM and their needs.  

Once you have done something for me, my level of trust goes up and the law of reciprocity kicks in…I’ll WANT to do something to help you, even though you never asked.

As our referral relationship grows, we can start to ask specifically how we can help each other, but you can see that this only happens when we have a certain degree of trust.  It is trust that fuels referrals 

Do I pay for referrals?

One of the questions I get asked the most is “should I pay for referrals?”

My simple answer is no.  Think about it, if I am helping you and you want to help me as a result of our trust, why would you ever want to pay for a referral?

That said, many companies have in place a paid referral system.  If this is how you run your business, my sense is that your referral relationships won’t be deep and a paid referral doesn’t usually come with a high degree of trust.  Perhaps some, depending on how it's set up.

In a previous franchise business I owned, the master franchising company had a paid referral partnership in place.  Essentially this was one step up from cold leads.  The businesses that generated me the most referrals though, were the ones where we had a deep symbiotic relationship with those who knew my store well and trusted we could help their clients.  

In my experience, genuine referrals don’t come from a paid system.  Obviously if you want to reward the referrer, there are many ways you can do this.  I cover this in my “7 Steps to High value Referrals” programme, but essentially, if we know each other well enough there are many ways I can thank you that often involve little or no money.  But by FAR the best reward I have come across is a genuine “Thank you” delivered in a meaningful way.

Are you set up for referrals?

If this article has sparked thought around your referral system, why not jump into my FREE 3 Day mini challenge “3 Easy Steps to get your business REFERRAL ready NOW”.  Here I’ll give you the fastest way to set yourself up for long term referral success.

In my experience, referrals definitely are the best way to help your business grow for the long term.  How have you used referrals in your business?