Author: Alan Boyer
What I've discovered from most of my small business clients is that most
would prefer to build their business through referrals rather than through
direct mail, advertising in newspapers, radio, TV. However, most leave the
referrals to a somewhat chaotic, unplanned approach. When they have a
repeatable system of going after referrals their business growth suddenly
explodes.
Let's look at something. Most of my clients find I emphasize the
importance of having a measurable, repeatable, "system," a step-by-step plan
that can be duplicated over and over and know EXACTLY how many new
customers, or repeat customers, we will get every time we do it the same
way. And, we also know, that if we tweak the system slightly how much
improvement we got from the last time. In other words, we are in control and
know what to expect. We even know exactly how many customers we'll grow from
week to week.
On one hand we know how many new clients walk through the door when we
market through direct mail, or when we advertise in the newspaper. And on
the other we should know how many people we'll get from asking for
referrals. And I've found that my sales close ratio is even higher when I
have a referral, sometimes almost 2 times higher, so having a "system" for
getting referrals rather than leaving it to chance is one of the greatest
things you can do for your business.
Here is a way for you to develop a system of highly effective referrals.
First, ask yourself, o How much are you willing to pay to acquire a
customer? o How much CAN you pay? o How much is a customer worth on one
purchase? o How much is a customer worth to you over an entire year? o What
is the lifetime value of a customer to you (in other words, knowing that a
customer will likely come back for 3 or 4 years, how much total revenue he
will generate, and how much profit he will generate allows you to understand
how much you can pay to acquire new clients and still make a profit. In most
cases they are worth more than the one-time purchase.)
To answer the first question, if they haven't answered this question
before, and most haven't, I usually start my clients at somewhere around 15%
of their gross profit for the product they are selling, but that isn't cast
in stone. How much CAN you pay is a very critical question. Even though 15%
of gross profit is a good start, since this is only 15% of my profit margin
I COULD go a lot higher. And, under some circumstances I will. But, of
course this is still considering only the one-time purchase. You are likely
to find that you actually could spend more to acquire a customer that is
likely to come back weekly or monthly for the next 3-4 years. So, you might
be willing to pay more to acquire a customer than that customer would
generate in his next purchase. That all depends on your system of generating
repeat customers and how reliable that is. Do you have such a system?
Don't forget, you will have to track the results so that your referral
partners are properly compensated. You'll find that once they've seen some
results they'll probably refer even more.
These two figures set the lower and upper limits for any marketing system
whether it is direct mail or the referral system that follows.
System #1, target your existing customers--Send a postcard to all of your
existing clients, telling them, "We appreciate you and your business. To
thank you we are offering 10% [you decide on the percentage here that works
for you] off of your next visit for referrals you make to us when that
referral becomes a new client. You could actually have our services for FREE
for referring 10 people that buy from us." NOTE: I will occasionally go up
to 25% or even 50% with a special thank you--and the referrals go through
the roof!! Why would I be willing to spend THAT much to acquire a customer?
Because I expect that customer to become a repeat customer and buy a
considerable amount over time. You can also change the offer to be cash.
"We'll pay you $__ [fill in the blank] for every new customer you generate
for us."
System #2--Target the neighborhood, or businesses in the chamber, etc. "A
special offer to our friends at [the chamber, on our block, etc.] [make them
the same offer as above]
System #3--Put the referral cards out on your counter where every
customer can pick up more to refer more.
System #4--Send the referral cards to the local business owners,
encouraging them to pass them out to every employee as an added benefit for
their employees.
Let's look at some of the thought patterns that have held many of us
back:
I've had customers tell me they can't afford to pay that much for a new
customer. They are in the self-limiting mode of "don't spend money" rather
than how much money can I generate for every dollar I spend. The thought
patterns typical in the "don't spend money" mode go like this: o "If I do
this I just might end up spending thousands of dollars this month alone. I
can't do that. I don't have the money." o Or, "If someone sends me 10
customers I'll end up giving away my services for free. I can't afford to do
that!"
The positive mode results in, o "What happens if someone sends me 10
clients? I'll end up with 10 times more money than I have now." o "For every
$1 I spend I'll generate $9 more. It isn't really costing my anything. It
generates money. Put in a little, get out a lot. It's a cash machine--wow!"
One is placing limits on us rather than trying to find how big we can
grow for every dollar spent. The first will seal your coffin. The 2nd helps
you think like the successful
