Why It Pays Small Business Owners To Ask For Referrals

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Imagine that you need to buy a new piece of equipment for your garage, but you’ve never bought something of that type before and are unsure how to go about it. You’ve heard that your friend recently went through the same process, so you decide to ask him for advice. He tells you that he bought his equipment from Trusty Bob’s Equipment Shack, and that he is very satisfied with what he got. The next day you go down to Trusty Bob’s and buy yourself the same equipment, telling Bob about your friend’s advice. He gives you a discount, and your friend gets a credit towards his next purchase. At the end of the day, you got what you wanted, your friend was rewarded for helping you, and Trusty Bob was able to double his business. This silly story highlights something real that can work for your small business in a strong capacity, that being the power of referrals and word of mouth marketing.

Word of mouth doesn’t only make sense anecdotally, it also has statistics behind it proving that consumers react more strongly to opinions passed on directly to them. According to McKinsey & Company, 20 to 50% of all purchasing decisions are influenced by word of mouth referral. The paper goes on to speak on the strength of experiential word of mouth. Experiential word of mouth means that a customer has had hands on experience with a product, and accounts for 50 to 80% of all word of mouth activity. However, within this type of referral, there are massive differences between a referral coming from a trusted source, like a family member, and that of a secondary or tertiary source. In fact, a trusted recommendation can be up to twice as likely to create a conversion as a non trusted one.

So what does this mean  for your small business? It means that it’s time to start encouraging discussion around your brand. While word of mouth in it’s purest form comes from your consumer’s impetus to share their great experiences, there are still things that you as a small business owner can do in order to promote and encourage positive word of mouth, and drive more referrals to your small business. For one thing, starting a referral program is a surefire way to create an incentive to share information about your small business.

Like almost everything you do for your small business, you’re going to want to do some market research before you create your program. Putting out a referral program is a bit like hanging a picture; you can eyeball it and get it to look ok, but in the back of your mind, you know that it’s a little crooked because you didn’t break out the tape measure. Similarly, you can offer an incentive to get more referrals from your customers, but in the end if you didn’t figure out what they would best respond to by conducting surveys and taking the temperature of your clients feelings towards your business, you won’t be sure that your program is functioning as strongly as it could. You should take the time to create a list of possible rewards for referrals, calculating for ROI on marketing and ensuring that your deal doesn’t have the potential to start losing you money if it takes off. After that, you can put out a survey with your various rewards options, allowing your customers to choose. This exercise as well has the potential to increase good feelings and PR for your brand, as customers will respect that fact that you’ve given them a choice.

Feature your customers. When your customers spread the word about your brand, it is because they want to. Usually, they will do it more so out of a desire to help people than out of a desire to collect on promotions. Because of this, it can be great for you and them to shine a little spotlight on their own words. If you have a customer write a stellar review of your business, then you should reach out to them. Ask them if they would let you feature their review on your website or blog, and don’t be afraid to give back to them if they say yes with some link-love or a feature of their complimentary services.

Most importantly, embody customer service that deserves referrals. Your customer service and the quality of your products need to be up to snuff in order for you to expect positive referrals, regardless of whether or not you have a loyalty program in place. Small business owners should never lose sight of the fact that their customers will ultimately decide whether or not their business will succeed or fail, so before you finance changes to your marketing strategies, you should be sure that your small business is offering the standards of service that you would expect if you were a customer.

Photo Credit to Coolio-Claire on Flickr

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