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Referral Growth Hub

Your resource for new client referrals

Word of Mouth Marketing for Your Small Business

It’s no secret. 

Consumer trust is getting harder to come by.  In an age of digital saturation, lower attention spans and rising costs of advertising, small businesses are starting to look elsewhere for customer exposure.  And they should be. Deep pockets, coupled with the increasing ease of hyper-local advertising enables big businesses to target specific audiences in specific ways and compete with small businesses like never before.

However, there is one marketing method that has proven to be extremely effective for small businesses for and is perhaps the oldest “marketing strategy” in the book… Word of Mouth.  The funny thing is that very few small businesses capitalize on this strategy even when they know it’s precisely how they get most of their new customers.  If you're not convinced - check out some of these stats:

 

Can "Word of Mouth" be a strategy?

Nearly 80% of business owners say they have NO formal referral program.  

Think about that for a moment. 

Referrals are obviously crucial for small businesses, but hardly anyone is putting any effort or resources behind them! 

I am astounded by how many business owners I’ve spoken with who only reaffirm these numbers.

When I ask a small business owner “how do you get new customers?”  9 out of 10 will respond with things like “it’s all word of mouth” or “pretty much through referrals”.

And when I ask “how much more business do you want?” - well, you can guess what the answer is here. 

What percentage of YOUR customers do you get through word of mouth? 

What if you were able to scale this method of “marketing”?

No matter the size of your small business, word of mouth is likely the most powerful method for both your short and long term growth. 

You probably already know this, but let me show you just how powerful this method can be, when harnessed correctly.

A telling story...

I was recently discussing the Seattle housing market with a real estate friend of mine. 

He has had some great success in recent years (not surprising) and was telling me about an “offer” he jokingly gave out to a mutual acquaintance a few years back. 

Apparently he didn’t think much of this person’s social circle so he promised he would give him $2,000 per referral if it resulted in an actual deal.

What I heard next was astounding.

This single referral source had generated 14 leads in the past two years, SIX of which resulted in a deal. 

This netted my friend just over $170K in gross commissions, in TWO years!

He could not have been happier to pay out the $12,000 to our mutual acquaintance and it sounds like they are working on more deals as I write this.  

I was completely blown away by this, and couldn’t help but think about the impact a referral source can have if they are properly incentivized. 

This was just someone I knew, but my experience in working with hundreds of small businesses keeps confirming the power of word of mouth.

Not only is it the greatest unknown asset for a small business, but I firmly believe that the future success of small business will depend on its ability to harness and incentivize referral sources. 

It’s the clear advantage a small business has over the “big boys”, which should be exploited and scaled to the max.

Exploit your best assets

No matter what business you are in, whether you’re just starting out or are simply looking for a way to ramp up sales, referral sources are everywhere, and they’re waiting to be leveraged. 

The great news for you is that you already possess these assets - you’re just not using them. 

Whether you’re just starting out or have an established business, think of the people you know who would be an advocate for your business. 

They might be family, friends, acquaintances or past customers.

Next, think of how many people you know who would be advocates for your business if they were properly motivated

I don’t mean starting a weird pyramid scheme where you get your family and friends to buy into some kind of “referral marketing program”. 

I’m talking about inviting people YOU know would make stellar advocates for your business to join forces with you in making your business great, and be rewarded along the way.  

The idea behind this is very simple, but the message needs to be crystal clear. 

You have thought of THEM as a person you would like to represent YOUR brand and you are going to make it very, very worth their while...

 

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3 Common Reasons Most Referral Programs Fail

Good intentions...

All business owners and entrepreneurs have the best intentions when starting a referral program.  They might see a big brand name offering some type of program that seems to generate crazy amounts of leads.  They think "If I offer something, they will come". It’s a feel good effort. They put together an offer, post it here and there, send their customers an email, and they might even have some kind of “launch” for the program.  The problem is... it wasn't thought through. The offer wasn't compelling enough (the "what's-in-it-for-me" fell flat), there was no personal feel or appreciation attached to the offer, it was confusing, it was utterly forgettable, etc..

Common Reasons for Failure...

 

Reason#1 - Unwillingness to create a compelling offer

Why does so much of small business revenue come from referrals, despite any real effort going into their referral programs?  This is a major disconnect. The vast majority of small business owners don’t understand the magic behind referrals, or why putting resources into a referral program makes sense.  Most simply think “I’m getting referrals, so something must be working”. This may be true when it comes to advertising. For example, if you put $1,000 into advertising and $5,000 worth of business comes back from it, you might think “WOW!, something happened! Let’s see what $10,000 worth of ad spend delivers!”.  With this logic, why would you not spend money on something that has been PROVEN to work?

Reason #2 - It's not customized

Your referral sources won't take your referral program seriously if it’s not customized.  More importantly, they won’t feel that YOU are taking it seriously. Your referral program should feel like it’s invitation only, and it needs to be specific.  You need to spell out very clearly what the offer is, how the referral should be made and how the referral source will be paid. All these should come after you have made the referral source feel special and appreciated, and they have opted into YOUR customized program, not some “click here” out of the box program to herd the masses.

Reason #3 - No proven formula

Many referral programs are started because the business owner thought “I need to have a referral program” which is ABSOLUTELY TRUE.  However, you should create a referral program because it can revolutionize your business, not because it’s “something you need to do”.

This is how YOUR business will be different, how it can stand out and grow to enormous heights before your eyes.

The formula is SIG...

Simple

Interesting

Goal-oriented

Simple: 

Make your referral program easy to understand.  You need it to be customized for your business, but you also need it to be very easy to deploy, manage, and most importantly… be headache free for your referral sources.

Interesting: 

Confirm that the incentive you are offering is going to motivate your referral sources. This is imperative and the detail that is tragically lost on most small business owners.  Many people think they can offer any kind of discount and it will WOW people into referring them business. Nobody cares about 10% off their next visit if they refer a friend. NOBODY.  Make your incentive robust and in line with your business model (in our online course we take you through the math to establish a range of what you should offer depending on your margins, industry, etc.).

Goal-oriented:

Establish what your referral sources want to accomplish and give them updates along the way.  This is crucial. And remember, you can tell your referral sources how many leads they’re bringing to YOU, or you can focus on how much money is being made for THEM. 

You want your referral sources to be as close to 1099 workers as possible.  Would you rather have 100 referral sources working for straight commission and positioned to be advocates for your business whenever opportunities arise, or 1 salary sales person that needs to be trained, managed and compensated with a big commission?  Here’s a trick - have goals for both. 

If you’re taking your referral program seriously, your referral sources know that they’ve signed up to make money or benefit in a significant way.  You need to establish goals with them and keep them updated on their leads and payouts. This fundamental element is very important and is your roadmap to creating an army of advocates for free.

  

Tom Ryan, Founder | Referral Program Pros

Helping entrepreneurs and small business owners motivate referral sources to achieve 10x growth.



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