Referral Marketing System For Small Businesses

Word of Mouth is the Cheapest, yet most effective Marketing in the World

The idea is that you should be generating a large portion of your new customers by marketing to existing customers.

There are several reasons why this is smart to do. First, quality attracts quality. Psychologists say that you are basically a combination of your five closest friends. In other words, people will refer people who are similar to them.

So if you have a big spender, then guess what? They’ll probably refer other big spenders. Every good customer should be actively pursued for a referral because they’ll usually generate another customers of equal quality and value.

Also, marketing is usually met with skepticism. That’s because you are often tooting your horn. But what if some one else was tooting your horn for you?

Know this – people are more likely to believe in your if someone else endorses your quality than if you yourself brag about your own qualities.

What you’re really doing is leveraging off of someone else’s credibility. People who take the recommendations of their friends are now coming to you with a preconceived notion that you’re already quality – before you even have to open your mouth.

Finally word of mouth marketing is target marketing. Basically, you’re only going to be getting people who already are in the market for what you’re offering. Mass marketing does not have this effect. If you run an ad on television, you’re getting everybody who watches TV.

But with referral marketing, you’re pretty much only getting people who are already great matches to your products or services. This means your closing rate will go up without having to learn one single bit of salesmanship. You’re just getting people who are already more likely to say “yes” before they even enter into the store.

Okay, now my rule of thumb when it comes to referral marketing – every good customer should get three direct chances to refer someone else to you.

I have found in order to get the best results, you have to ask someone three times to make a referral on your behalf. If you do nothing else, you should do this.

However, to really make it effective, there are two more things you need to do: Make it easy for them to refer, and make it worthwhile to refer. I’m going to show you how to do all of this and more, as I outline to you what I have found time and time again to be a profit pulling monster when it comes to referral systems.

The Referral System, step by step

First, get your metrics in order. How much money can you afford to spend on marketing for next month. Whatever it is, devote the largest portion of it to your referral marketing. So step one, find your budget.

Now, the specific plan I’m going to lay out to you is going to cost around $8 per person to perform. So if you have a budget of $800 for marketing, then you can reach 100 people.

Start small and scale up – that’s my advice. Don’t spend too much upfront until you get back some reliable figures, and you can do some testing. Since this is a system, every dollar you spend will be tracked and traced back to determine the return on investment.

Here’s how it works. Someone comes in and buys from you. Immediately the next day, you send them out a letter in the mail. You thank them, ask for the referral, make it easy for them to refer, and then make it worth their while.

The most important part here is that it’s in their best interest to refer others to you. For that to happen, first and foremost you must have provided quality and value. So I’m going to assume you’re performing good service and living up to your end of the deal.

Second, gifts work wonders. My favorite kind of gifts are those that either cost me nothing or very little, but have a huge perception of value. Without a doubt, there is one gift I can consistently create for basically nothing, and it always does the trick.

Coupon books

It works like this – you go around to different business owners and tell them that you want to make sure your customers shop locally. As a thank you gift for your customers, you’d like to give them coupons or special offers from other local merchants, so you’re providing your customers with values, and also keeping business local.

Then you simply ask them if they have any coupons or anything they’d like to contribute to your “customer gift book”.

Almost every business owner you talk to will take you up on this. Why? Well, most businesses are not good at marketing, and to make up for it they always have a special going on, or are willing to do anything if it means getting a few more customers in the store.

Besides, you only need to get like 15 or 20 different coupons anyway to make a great gift book. You can get this all done in a few hours.

So now you have a great gift that you can give to anybody who sends a referral your way. How much did it costs you? Just the cost to print up the coupons and mail them. So you just made a gift of high perceived value (everybody loves coupons!) that costs you about a $1 to create and a few hours of sweat equity.

So it’s worth their while. Now let’s take a look at what the first referral letter should look like:

“Dear Jane Customer,

The other day you made a purchase from our store, and we just wanted to say thank you from the bottom of our hearts for doing business with us. If there is anything you ever need in the future, please do not hesitate to call us up and ask. We’ll see what we can do!

You may not know it, but the lifeline of our business comes from referrals. If you happen to know anyone else who could use our services, I’d be extremely happy to sit down and talk with them to see if we might be able to help them in any way.

And, if it so happens that the person you refer becomes our customer, then as a token of my appreciation I’m going to send you my special “valued customer gift book”, which has a total of over $250 off of discounts from local business of all sorts!

I’ll give the same gift to your friend as well.

It’s really easy to refer someone to us. I’ve enclosed two of my business cards with your name written on the back of them. Just give them to anyone who you think could use your services. Just have them present the business card when they come in, so we know it was you!

Anyway, I just wanted to say thanks again for deciding to go with us!

Thanks,

Joe Business Owner

There is a lot of psychology that is going on in this first letter that I don’t want you to miss.

First, it’s personal and it’s sincere. How many businesses have you bought something from in the last sixty days that sent you a personal thank you letter in the mail.

Hmmm… maybe 1 or 2 you say?

So imagine what kind of impact that has when it lands in the customer’s mailbox. Big impact. It says you care. Do you know why most people leave a service provider?

A few die. Some move away. Others leave because of an unresolved complaint. A handful will be stolen away by a competitor. Now add all those up, and guess it…

It usually only comes to 32% of all total customers who leave you. So what about the other 68%?

They leave simply because you never taken the time to recognize them as something more than a customer.

Pop quiz – If you had an unresolved complain, a direct competitor in your store trying to steal your customer, or the opportunity to let someone who purchased from you know you care… and you can only choose one option… which one should you choose?

You better choose the third option. Because roughly only 9% leave because of competition, and only 14% leave because of unresolved complaints.

If you do nothing else but keep in contact with your past customers and treat them as your friends and acknowledge them once in a while, you’ll be putting the “golden handcuffs” on 2/3 of your customers, so you can keep selling to them again and again.

If you get nothing out of the referral letter, you get that personal communication that will separate you from 90% of all businesses, and almost every single one of your competitors.

The second thing that letter does is conveys your expectations – you expect all of your customers to refer. Most people don’t refer simply because they don’t know you want them to refer. In fact, I’ve had customers come up and tell my clients — “Heck, I thought you already had enough customers… I didn’t know you could take on more…”

You should’ve seen this business owner slap his forehead.

Once people know that you want them to refer, you automatically increase the chances they will refer. Even if it isn’t immediately. Again, I’ve had people hold on to business cards for two or three years before they gave it to someone else.

Also, notice the casual tone of the letter. People prefer doing business with friends, and not faceless corporations.

Finally, it shows you care. The above letter basically says, “Hey, I know you’re busy and I know you got to look out for your own self interests. That’s why I’ve went the extra mile to make it in your self interest to refer to me.”

Ideally, you don’t want to take the above letter word for word. You want to fill in “our services” with your actual services and so forth. But I give you permission to take most of the above verbatim and use it.

But don’t stop there. After letter one is sent out… wait 10-15 days. If you hadn’t gotten a referral from them yet, then send them letter two:

Dear Jane Customer,

A few weeks ago I had sent you a letter thanking you for your purchase. I hope you got everything you wanted out of it and more. Remember – if you ever need help with anything, I’m only a phone call away.

We’ve also sent out several “customer gift books” in the last few weeks to our valued customers who referred one of their friends to us.

I know things can get busy, and sometimes stuff can get misplaced in the shuffle. To make sure you don’t miss out on your own special customer gift book, I’ve sent you two more business cards with your name on the back – just in case you misplaced the last two I sent you.

Just give those to a friend in need, if you think we can help them, and we’ll mail you your customer gift book pronto!

Once again, I just wanted to say thanking for being our customer, and we hope that we can continue to provide you with more service in the years to come.

Thanks,

Joe Businessowner

Here’s what I know about marketing – one-shot advertising is not very effective. It’s not that people don’t want to act on your offers. A lot of them do. What happens is that the day to day details take over, and what they intend on doing ends up getting pushed to the back of their mind.

What this letter does is thank them again, puts you in front of them again, and basically let’s them off the hook – hey, it wasn’t their fault. You know they’re busy people!

Also, it gives you another excuse to send them two more business cards. It also offers some social proof “hey, everybody else is referring”.

Every time we track these campaigns, we usually find something like this – we get 3% to refer off the first letter. We get 4% to refer off the second letter, and we get 2% to refer off the third. In any case, all mailings all profitable.

Now think – if we just stopped after the first time, we’d get a 3% response. But instead we got a 9% response! It most scenarios, it almost always plays out that the second letter will work the best. Who knows why – it just does.

Now those who didn’t respond to letter number one, and don’t respond to letter number two, will get, after 10-15 more days, the third and last letter:

Dear Jane Customer,

Hope everything is going great for you! The reason I’m writing to you today is because I had a few “customer gift books” left over and didn’t want them to go to waste.

I had one specifically set aside for you, so I have enclosed it with this letter. It is just our way of saying thanks for being a great customer.

Also, just in case you lost the last cards in the laundry or something, I’ve put in two more business cards with your name on the back.

Just pass them on to a friend if they ever in need of any services our products we offer. We’ll make sure to treat them right.

Thanks!

Joe Businessman

Now, I don’t want you to confuse the technique with the strategy. This works because:
It puts you in front of them 3 times
It conveys the expectation that they will refer
It is personal and friendly
It is easy to do
It is in their own best interest.

You don’t have to do the coupon gift book. Sometimes I’ll just purchase tickets for a special upcoming local event, or event complimentary dinners at a good restaurant.

Lastly, a few more pointers – make your letters look like personal letters. This means, when you design the layout, don’t put some fancy “brochure” feel into it. Just picture how you’d design the letter if you were going to sit down and write someone a personal note from a type writer.

We can set up the whole system for you. Contact us.

Also, when you get this system in place, you’ll get some numbers. You might find for every 5 customers you do this for, you get 1 referral in the next 30 days. Okay, do that math – let’s say your average sale netted you $600 in profit.

And let’s say when you deduct all marketing expenses for creating and mailing the letters, it cost you $100. That’s a 6 to 1 return on investment! Try getting that with other types of advertising.

This type of marketing also allows you to test. What would happen if you altered the gift. You can literally test every element you want, and know what is working and what isn’t working. This means you can figure out the exact combination of sequences for getting the greatest return on investment.

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