One of the easiest yet most overlooked sources of new business for small businesses is referrals. While many small business owners are hesitant to ask for referrals, if they better understood the value of word-of-mouth advertising or referrals, they’d see how impactful the effort can be. Let’s look at several ways small businesses benefit from referrals.

Cost-effective

Referral marketing is often more cost-effective than traditional advertising and other marketing methods. When satisfied customers refer friends, family, or colleagues to your business, you don’t need to spend money on advertising, which can be expensive. Referrals essentially serve as free word-of-mouth marketing. The largest investment in referral or word-of-mouth marketing is time. While some companies may opt to provide a “spiff” or other acknowledgment to those who refer new business, it’s not always necessary. Other companies might choose to reward both the referrer and the referred; a great idea that’s very effective but not necessary for a company to benefit from referrals.

Marketing a targeted audience

Referrals tend to bring in potential customers who are a better fit for your business overall and therefore have a higher chance of converting from a prospect to a sale. When someone refers your business to others, they often do so because they believe those individuals have a genuine need for your products or services. This results in a more targeted and potentially higher-converting audience. Just like any other small business marketing effort, marketing to a targeted audience provides better results by getting your messaging to the most appropriate audience. Word-of-mouth marketing all but guarantees that!

Increased credibility and trust

Recommendations come with a high level of trust and credibility. When a friend, colleague, neighbor or family member recommends a product or service, people are more likely to trust that recommendation than they would from other marketing efforts. This trust can make potential clients more inclined to engage with your small business. When customers refer others to your business, it can boost their own loyalty as well. They become invested in the success of the referral, which can lead to them being more dedicated to your business as well. Let your clients help you market your small business!

Higher conversion rates and lower turnover

Referred clients tend to have higher conversion rates because they are already predisposed to trust your business and are more likely to make a purchase. This can lead to increased revenue per lead. They also have a lower turnover rate because they come in with a positive impression of your small business. This means they are less likely to switch to a competitor, leading to more recurring revenue. This can significantly help the cost per lead and cost per acquisition for small business owners.

Ability to scale business in a controlled fashion

As your business grows, a well-executed referral program can scale easily yet be controlled so that you have a better grasp on how fast you can grow your business. With each new satisfied customer, you have the potential to generate more referrals, leading to continued revenue growth. A proactive approach to referrals can help you generate business at a pace your small business can handle.

Valuable feedback through personal relationships

Referred customers often provide feedback and reviews, which can help your business improve and build on existing products and services as well as your overall business reputation. This can attract more customers and drive revenue. Referrals often come from personal relationships, which can create emotional connections between customers and your business. Emotional connections can lead to stronger customer loyalty and higher revenue.

To leverage the power of referrals, business owners can implement referral programs as part of their overall small business marketing strategy, encourage satisfied customers to refer friends, offer incentives for referrals, and actively engage with their customer base. Building a strong referral network can be an essential part of a small business’s growth strategy and revenue generation efforts. Your company should benefit from referrals! Not sure where to start? Reach out to Strategic Marketing Services to see how we can help!

Patty Hughes
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