The TRUTH about Paid Advertising over Referred Business
“I know half my advertising doesn’t work; I just don’t know which half.” - Henry Ford
Small business owners have a lot of choice these days when it comes to marketing their products or services – it can be overwhelming! One of the most common and go-to methods of marketing is ‘paid advertising’, but the fact is, this can be a hit-and-miss approach, with no guarantee of success. Henry Ford famously said “I know half my advertising doesn’t work; I just don’t know which half”. However, there is another option that can deliver your business long-term value: building high quality referral relationships.
OK, so I might be biased, but referred business has a number of benefits over paid advertising. One of the main benefits is the level of trust that referred customers are in your business before they even meet you. According to a study by Nielsen, 84% of consumers trust recommendations from friends and family more than any other form of advertising – 84% of prospects trusting you before they know you is extraordinary!
The extension of this level of trust is that referred customers are way more likely to convert into paying customers than those who come to you through paid advertising. Additionally, the study showed that referred customers are more likely to be loyal and make repeat purchases, which can lead to a higher lifetime value customer for your business.
I saw this when I had my own mattress store. Our referred clients nearly always bought, they spent WAY more and the sales process was always easier as they came in knowing about our product, what to expect from my sales team and a fairly good idea of how we were going to be able to solve their problem. If only every retail transaction had been that simple, life would have been a breeze.
Of course another obvious benefit of referred business is the cost savings. Paid advertising can be expensive and the return on investment can be hard to measure. I used to cringe every time I paid for an advertisement or letter box drop and wait with a mix of anticipation and low level anxiety over whether this one was going to work.
With referred business, the cost is typically only your time, maybe some coffees and lunches and maybe the odd thank you gift or card. This is likely to be much less than the cost of paid advertising. Since the referral comes from a trusted source, the likelihood of a successful sale is higher - because the referrer has already vouched for your business which means you have to work less to get the sale over the line. This surely makes your time in building relationships a worthwhile investment
In addition, referred customers are more likely to share their positive experiences with others, leading to more referral business in the future. This creates a snowball effect where each referred customer leads to more referred customers, ultimately resulting in a steady stream of new business. Don’t forget to ask your referred customers for a review, typically google, as this can act as a passive referrer but certainly as social proof. You can also use these reviews to let your referral partners know that the people they are sending you appreciate what you do - it's a circular way of ensuring they refer you to more clients!
A study by the Harvard Business Review found that referred customers stay longer and have a higher lifetime value. This is because referred customers are more likely to be satisfied with the products or services they receive, and are therefore more likely to return for repeat business. This can be a huge benefit for small business owners, as it can help to create a stable and reliable customer base.
Additionally, referred customers are more likely to refer others to your business, leading to an even larger customer base. This is a win-win situation for both the business and the customer, as the business can grow and thrive. Overall, the benefits of referred customers cannot be overstated, as they can lead to increased customer satisfaction, repeat business, and growth for small businesses. What's not to like???
A study by the Wharton School of Business found that referred customers spend 16% more than non-referred customers. This is because referred customers are more likely to trust the business and are therefore more willing to spend more money on products or services. Imagine a 16% bump in your sales simply by having customers who already know, like and trust you want to spend more money. As mentioned before, this was certainly my experience in my mattress business. But working with clients through BNI, I constantly hear members saying that the referrals they receive are way better than the business they generate through other sources.
Despite the measurable benefits of referred business, building quality referral relationships is a long-term game. This isn’t something that can be achieved overnight and it requires your commitment to building deep relationships with your key referral partners. This can take time and effort, but the rewards are well worth it – plus you’ll have fun in the process and hopefully enjoy a few good cups of coffee!
One of the reasons why referral relationships are so valuable is because they are built on trust. Humans have an innate desire to connect with others and build relationships, and referrals are all about relationships. Put simply, we are social animals and being close to others is something the internet can never replace. Picking up social cues and reading eh energetic cues from others is something we are hardwired to do and certainly in the foreseeable future, this is not something that can be reproduced online.
Bottom line is people are more likely to trust and do business with people they know, like and trust, hence why referrals from your network are so powerful.
This is all great, but the fact is, referral relationships require a genuine desire to help the other person first. You cannot simply go out and get referrals by asking for them or expecting them to come to you. You have to first want to help the other person, demonstrate your desire to build a quality relationship and be willing to invest in building deep relationships with them. As a starting point, I always say “Be more interested than interesting” which is a skill that sadly I see being lost with the ‘fast’ society we have built.
A great way to develop these skills is to ensure you are actively engaging in quality networking. I am biased of course (if you’ve read my BIO you’ll know why) but I think that being part of a formal, accountable group, such as BNI will supercharge your skills in this area. Members consistently tell me that it's these soft skills they value over everything else in their membership – yes even the referrals!
As a marketer, I want to encourage you to look at all channels to market. I’m not for one minute suggesting you don’t advertise, but what I am saying is that there are other ways to market your business and referrals are often seen as the poor cousin or not considered at all, usually due to the perceived time required. I hope I have given you an insight into this unique and misunderstood business tool and certainly an understanding how word of mouth is far cheaper but way more impactful than you may have expected.
Building referral relationships can be incredibly beneficial for small business owners. Not only do referred customers stay longer and have a higher lifetime value, but they also spend more money. Referred customers are more likely to be converted into paying customers than those who come to you through paid advertising. Building referral relationships is a long-term game that requires a commitment to building deep relationships with key referral partners. It's important to remember that referral relationships require a genuine desire to help the other person, and you cannot give up on this strategy until you have truly invested in building deep relationships. So there you have it, the TRUTH about paid advertising. I hope you consider building referral relationships as a key part of your marketing strategy and reap the rewards over time.
