Word-of-mouth referrals are one of the best ways to grow a small business. Eighty-two percent of people across 60 different countries say they check recommendations from family and friends before buying products or services, making them more powerful than any type of advertising out there.
While people close to them remain customers’ main source of recommendations, they aren’t the only source. Customers will also take into consideration the suggestions they receive from other companies they do business with. Since they trust these companies already, they are more prone to follow a recommendation from them. And a customer that finds your business via referral already has a head start in creating that bond of trust between brand and customer, which means having to spend less to procure them as a lead.
This is why establishing a referral network with companies in non-competing industries is a great lead-generating tool for your business.
Just like with your customers, entering into a referral agreement with another business requires a relationship built on trust. Asking another small business to risk its reputation (and risking yours in turn) by giving each other’s customers recommendations is no small feat for a small business.
You have to trust that the other business is going to uphold their end of the bargain and provide stellar service to the customer you’ve given the recommendation to. If the other business fails and the customer has a bad experience, it’s going to look bad for your business, too.
If you’re okay with taking on this risk, mutual referrals can lead to a steady flow of leads that are already primed to do business with your company.
The four main elements of building an effective referral network include:
- Qualified referral sources
- A long-term approach
- An understanding of the motives for businesses to make referrals
- Care for your referral sources
Let’s take a closer look at these elements.
Qualified Referral Sources
Look for businesses that your client base would visit prior to them visiting your company. They go to that other business because they require something it offers, but they also require something that you offer that is related.
For example, a web design business’ customers often need IT services right around the same time as they’re getting their business website created. For a physiotherapist, it might be a chiropractor or a medical facility that specializes in sports injuries.
How to Do It:
When approaching another business for referral purposes, you will want to see for yourself what the service is like. Put on your detective hat and do some undercover work, either posing as a customer or, even better, enlist the help of someone you know who can use the service and tell you how it is.
Read the online reviews of the other business to make sure they offer consistently good service and if they pass your scrutiny, reach out in person if you can or over the phone at least to schedule a meeting with the right person. Emails are far too easy to ignore.
Remember that you’re not trying to sell your business. Rather, you are trying to make a connection so you can build a network of referrals. Prepare what you’re going to say, but don’t be too scripted. The focus should always be on the benefits to the other business.
Trade-shows, conferences and community service clubs can be good places to find other businesses to network with.
A Long-Term Approach
A referral network doesn’t just pop up overnight, so you have to recognize that a long-term approach is necessary to developing a good one. It might take a long while to see it pay dividends and you may even end up sending more customers to the other business than you are getting in return for a while, but that’s why it’s important to think in terms of months and years rather than days and weeks.
How to Do It:
Don’t just rely on a handshake. Once you’ve come to a verbal agreement, have a written agreement drawn up that covers at least one year. That should be enough time ascertain whether your arrangement is working.
Things to include in the agreement:
- What each party receives for giving the other business a referral.
- How it will be determined if a referral comes from the other business.
- What constitutes a referred customer?
Motivation is often in the form of money. A 5% or 10% commission per referral can be a good enough motivator to get fellow business people saying your company’s name to their customers. It doesn’t need to be in the form of cash. If it’s a referral from a business that makes purchases from yours, it could take the shape of a discount.
Aside from money, another motivator for businesses to make recommendations to their customers is the trust building they are doing with those customers. If a business can make a suggestion to a customer that turns into a positive experience for that customer, the trust bond will be reinforced.
How to Do It:
You can hold a seminar for the other business so you can demonstrate your expertise to them and explain how you can help their clients. You could also offer to speak directly to their clients in a seminar or a business event they are hosting. The two businesses could also co-host a seminar or event together that would benefit customers who you are both targeting. This will allow you to demonstrate your expertise to the clients you are targeting, getting a jumpstart on building trust with them.
Writing an article for their blog or their newsletter that offers expert advice will also be good for relationship building with their audience. If the other business is comfortable with it, leaving some literature in their lobby for their customers to look at will at least give you a bit of presence in their office.
By acknowledging the need of the referring business to build and maintain relationships with their customers, and help them to build those relationships by offering your expertise, you give that business added motivation to refer you to their clients.
Care for Your Referral Sources
At the core of every referral network is reciprocation. If you give your partners referrals and they give you referrals, theoretically, the partnership should work well. But, there are other ways aside from just giving reciprocal referrals and commission to make your partnership lucrative.
How to Do It:
You could join their board of directors or support a charitable cause they are involved with. Doing some discounted work for them or for their clients might be a good idea. There’s no better way to find out what you can do to care for a referral partner than to talk with them and find out what they could use most and what you could provide.
Developing and maintaining a good referral partnership (and eventually a network) takes time and effort. When done right, though, it can also save you money when it comes to marketing. For small business owners, it’s also a superb way to get to know your fellow small business people in and around your neighborhood and throughout your industry while procuring a steady drip of lead generation from them.