Referral marketing is a marketing tactic that makes use of recommendations and word of mouth to grow a business’s customer base through the networks of its existing customers. It’s undoubtedly one of the best ways to attract new customers and when done right, it can fuel your business growth on an ongoing basis. Referral marketing is also a fantastic strategy for when you are just starting your business as it is low cost and allows you to work with your network to refine your offer and identify and work with your target market.
In fact, we see it working for businesses of all sizes and all stages in their business lifecycle (see Resource Maturity: Stage 5 of business growth). In our annual survey of businesses in Australia, 95% rely on referral marketing for a significant portion of their new customer acquisition strategy. When we have this discussion with professional services businesses (accountants, financial planners, lawyers and consultants) specifically, many of them say that it is the primary focus of their marketing strategies that they rely on for their business growth.
This is exciting but can also be scary. Often, referral marketing does not come with the structure and repeatability that will allow a business to grow consistently over time because you are reliant on your network and word-of-mouth to help drive your business. It can, at times, be opportunistic which is difficult to track and measure and plan against. It is also concerning if your businesses single growth strategy is reliant on one source of acquisition . As we have mentioned previously (see Choosing the Right Type of Marketing), a successful marketing strategy needs to be diversified.
To make the most out of the opportunities that referral marketing brings, it is important to understand the primarily sources of where/how your business attracts customers and equip them properly to support your growth. The first is your referral network. These are people who understand what it is that you do, know, like and trust your business and who will refer people to you when an opportunity arises. Your referral network could be friends, family, fans, or existing customers and having a large referral network is a massive advantage for your business growth. The challenge here though, is that using your network to find new business, could be inconsistent because it’s unlikely they are actively searching for new business for you. The key to effectively using your network to attract new business is to ensure they know who your target audience is and the value your product/service offers them. It is also prudent to encourage your network to be on the look out for opportunities for referrals when they come across them. An example of this is when they hear a potential client talking about or seeking a service / product which you offer and encouraging them to refer them to you.
The second, and likely more meaningful source, is through a referral partner. A referral partner is a person or business who can consistently refer to you because they have access to your target market. This is a key concept to understand and presents significant opportunities for growth. A referral partner does not necessarily have to run a business that serves your target market, rather they have to have access to your target market on a consistent basis and can consistently refer these people to your business.
Referral partners have a solid understanding of your business and the value that you offer, but most importantly understand the referral process. That is, how they identify a referral opportunity and how they meaningfully pass it to your business to ensure it will be successful. A proper referral handover doesn’t just pass details onto your business; they facilitate the referral process and ensure the handover is meaningful and set-up for success.
In addition, it is important to continually work with your referral partner to refine who it is that they are identifying for your business, confirm the referral process and ensure efforts are aligned to your business growth goals and strategy. The more that you can educate your referral partner about what you’re looking for, the more successful this marketing initiative you will be. To make the most out of the opportunities that referral partners bring, your business will have multiple referral partners consistently referring you to your target market.
By focusing on using your referral network and having multiple referral partners as part of your marketing strategy, you are helping to mitigate the inconsistencies of word-of-mouth referrals and set your business on a path for growth.