What Ive 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. Lets 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 well get from asking for referrals. And Ive 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, How much are you willing to pay to acquire a customer? How much CAN you pay? How much is a customer worth on one purchase? How much is a customer worth to you over an entire year? 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 havent answered this question before, and most havent, I usually start my clients at somewhere around 15% of their gross profit for the product they are selling, but that isnt 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 customersSend 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 youand 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. Well pay you $__ [fill in the blank] for every new customer you generate for us. System #2Target 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. Lets look at some of the thought patterns that have held many of us back: Ive had customers tell me they cant afford to pay that much for a new customer. They are in the self-limiting mode of dont spend money rather than how much money can I generate for every dollar I spend. The thought patterns typical in the dont spend money mode go like this: If I do this I just might end up spending thousands of dollars this month alone. I cant do that. I dont have the money. Or, If someone sends me 10 customers Ill end up giving away my services for free. I cant afford to do that! The positive mode results in, "What happens if someone sends me 10 clients? Ill end up with 10 times more money than I have now. For every $1 I spend Ill generate $9 more. It isnt really costing my anything. It generates money. Put in a little, get out a lot. Its a cash machinewow! 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 companies and grow rapidly. |
