Word of Mouth to Referrals Means 5X Increase in Sales

‐ November 11, 2013

bigstock-Network-Of-People--Communicat-25265636Ask almost anyone you meet in the business world today, “What is the most effective form of advertising?” and they will tell you word-of-mouth. Yet, very few business people have a program in place to get more referrals.

I am going to use two terms that are similar but actually are different, however they complement each other and work together. The terms are word-of-mouth and referrals:

1. Word-of-mouth – happens when a customer is so happy about the service he received, he refers people to your business. Word-of-Mouth happens pretty much on its own and without much prodding.

2. Referrals – happen when you ask a happy customer to refer people he knows who would also benefit from your service. When you ask for a referral, often it is just enough of a push that the customer will actually start calling his friends and referring you, which turns into word-of-mouth.

We recently had our marketing department conduct surveys of 750 businesses in 15 different business categories and a whopping 98% said that word-of-mouth was their best form of advertising. Yet, less than 5% had an active program in place to generate more referrals. The other 94% sort of just let word-of-mouth and referrals happen.

Here are the facts about word-of-mouth advertising:

  • It is highly effective. Most people who are referred buy. For those of you who keep track of the closing ratio of referrals, it is usually in the 60% – 75% range.
  • People who are referred are less likely to shop around before they purchase, which usually means higher profit margins due to less competitive pressures.
  • Word-of-mouth is the slowest form of advertising.
  • Word-of-mouth is a double edge sword that can cut both ways. People who are happy usually tell 2 to 5 people about their experience. Unhappy people tell 15 to 20 people about their bad experience.
  • Word-of-mouth accounts for less than 1% of most business’s overall sales and 10- 20% of sales for businesses that have an active referral program. Which means there is room to expand this form of advertising.

Click Here for Referral Program Pricing

If you don’t already have a referral program, below are some simple things you can do to increase the amount of referrals you are getting:

  • Ask happy customers to refer friends and family. The best time to ask is after you have provided your service and the customer is happy. If you ask before you deliver your service people are usually hesitant to give you names. Asking for a referral after you deliver your service generates a higher quality referral.
  • Use some sort of a referral card. We offer a Care To Share Referral Card that doubles as a business card to help you generate more word-of-mouth business.
  • Make sure you get the name, address and phone number of the referral and send them an introduction letter and information pack.
  • Call the referral and name-drop AND offer them some sort of special because they were referred by “Joe”.
  • Offer a reward for referrals. Paying a commission, bonus or some other sort of incentive to the person for referring his friends and family. We offer 10% commission for referrals when they buy. We have professional service type businesses that offer gift cards at restaurants or other stores. Others offer free services in exchange for a referral.
  • Offer an incentive or some sort of deal to the people who are being referred. Usually a discount or some other sort of value added incentive works.
  • Promote your referral in your newsletter. I have seen dental offices and chiropractors make a game of this and award the patient who refers the most new patients a gift certificate.
  • If you have sales people, start a game with your sales team to get them asking for and getting more referrals. *Hint: you have to promote this program on a daily basis since most sales people will forget to ask for referrals unless they are reminded on a daily basis.
  • Promote your referral program with statement stuffers you insert in your invoices.
  • Print a blurb about your referral program on your business envelopes.

If you have a retail storefront, print large posters and put them in the lobby.

Word-of-mouth is simple, just do a good job and take care of the customer. Do that and your referral program will take off like wild fire.

If you are spending money doing other forms of advertising like postcards or direct mail, Google ads or some other form of electronic advertising and you do not have a referral program in place, you are losing sales. The reason is you have made an investment to get a new customer in your door. This customer comes in and you provide an excellent service to them and they are very happy. You let them leave without asking them for a referral, you factually just lost at least one, maybe two more sales from people he knew and would have referred to you.

Multilevel marketing companies have understood the principle of referrals and have made millions on referral business. It is similar to a pyramid. One person refers one person, who refers one person, who refers one person, who refers one person, and so on. You made the investment to get person number one in and ended up with 4 more new customers from your original investment. I don’t care who you are, that is an excellent return on your original investment simply because you did a good job and asked for the referral.

All of the above tips are inexpensive and easy to do. We offer some basic tools you can use to generate more referrals: Care To Share Referral Cards, statement stuffers, business envelopes or simple flyers. The point is you have to take action and put a program in place.

Our direct mail programs, postcards or letter mailers will allow you to target exactly who is the best prospect for your business. We can help you craft the message that will generate results from your direct mail program. If you take it one step further and implement a referral program you can easily and quickly 5x your company’s sales.

If you would like our assistance please call me at 727-536-4173.

Mark Hale

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