The Reason Referrals are So PowerfulBy Matt ClausAccording to David Frey, the CEO of Marketing Best Practices, Inc.:"The reason referrals are so powerful is because they come from a credible third-party that has experienced first-hand the benefits of doing business with you. They are even more powerful when they come from a friend because they know a friend has no ulterior motivations but to do what's in your best interest."Another reason that referrals are so important is that the most of the time they are free!Let's start with some metrics as examples:According to LinkedIn, 84% of B2B buyers begin their purchasing process with a referral.Dropbox grew from 100,000 to 4,000,000 registered users in 15 months, with 35% of daily signups coming directly through their referral program.Research confirms that referred client retention rates surpass average retention rates by approximately 20%.Uber, a San Francisco lifestyle business in 2009, is now valued at nearly $41 billion. CEO Travis Kalanik, states "Uber spends virtually zero dollars on marketing, spreading almost exclusively via word of mouth. I'm talking old school word of mouth, you know at the water cooler in the office, at a restaurant when you're paying the bill, at a party with friends - "Who is Ubering home?" 95% of all our riders have heard about Uber from other Uber riders. Our virality is almost unprecedented. For every 7 rides we do, our users' big mouths generate a new rider. "Referrals are the best and most underutilized client acquisition channel. Referrals drive quicker cycle times from prospect to customer and these customers remain more loyal and stay longer. Given the facts and data and the above examples, shouldn't your growth strategy include a focused effort on driving referrals, or another form of inorganic sales?Here are 6 critical success factors to consider as you build or hone your program:Identify your advocates and why they are fans. Net Promoter Survey (NPS) scores are of the best indicators. High scores and segmentation analysis will help you hone in on the characteristics of your promoters. Also consider these additional methods of gaining insight and capturing what matters most to your customers:Blog postingCustomer discussionsDelivery partnersNew clientsCreate a relevant incentive/recognition structure that encourages referrals. Consider the Uber growth through word of mouth. This is not an accident, Uber has an extremely focused referral reward system, pushing out messages such as "Invite your friends to try Uber through January 20th, and for each friend that rides you'll receive $20 in free Uber CAD credit instead of the usual $10." How will you reward your referral sources? Keep this in mind, rewards and recognition do not have to be monetary.Make it easy for referrals to connect with your organization. Once you have been given a referral, be sure that your organization is prepared to act quickly upon the recommendation. Make the experience great for both the referring source and the new potential client. Set a goal for a frictionless referral experience. Do not let time lapse in this process for speed is the currency of today. Map your processes and test them prior to going live.Avoid channel conflict. You likely have a direct sales channel today and leads come in from a number of areas. Allow all sales channels to experience and be rewarded for driving referrals.Promote it through multiple avenues. Social media, marketing materials, webinars, etc. Go all-out on how you educate the market and your internal employees on the program.Provide visibility into your referral activity. Create a program that allows advocates to easily check referral and reward statuses, and find information about the program.On a closing note, one of the most compelling reasons that referrals are so important is that a referral creates loyalty in the customer giving the referral. Once someone takes a position and makes a public testimonial about you, the psychological impact is that strengthens the loyalty to your business.__________________________________________________________________About the AuthorMatt Claus is the M&A Group Practice Leader at McHenry Consulting, Inc. and is a leading industry authority on business transaction management, performance optimization, healthcare strategies and channel development. www.mchenryconsulting.net.
