If you’re involved at all in business, it’s probably nothing new to hear that referral marketing can be a great tool you can use to get more customers or clients. But do you know exactly how valuable referral marketing is? A recently released study gives some statistics about the power of referral marketing, and shows why your business should be paying more attention to it:
Higher Profit Margins
The study conducted with around 5,000 customers at a leading German bank shows that referred customers initially produce profit margins that are 25% higher than non-referred customers. Though in the study the margin decreased over 2-3 years, the lifetime customer value of a referred customer was still 16% higher than a non-referred customer.
The study also shows that referred customers are 18% less likely to leave than non-referred customers, showing that referrals can have a large impact on retention rates. These two factors are attributed to what the authors of this study call the “better-matching mechanism,” the main principle being that these customers are referred by friends who consider them to be a good fit for the business (and in many cases, they really are).
Additionally, in Tom Hopkins’ “Sales Prospecting for Dummies,” he states that referral customers also have a much closing ratio at 60% versus 10 percent with non-referral customers.
So how can you utilize this data?
If your business doesn’t have a solid referral program in place current, here are a few tips to make sure you’re getting the most out of your referral marketing potential.
1. Choose the Right Candidates
The best people to choose to ask to refer your business are those that are ecstatic about your service. Choose the customers who you know have had a great experience with your business to get your referral program going.
2. Offer an Incentive
In addition to providing great services, offering an extra incentive to your happy customers can make them more likely to tell their friends about you. Some businesses offer cash incentives or gifts while others offer discounts on future services or visits.
3. Keep Track
In order to improve on a referral program, you need to know how it’s currently performing. Make sure your business has a method in place to keep track of where your referrals come from, whether it’s on the initial phone call, on a new patient/customer form, etc.
4. Say Thank You
Make sure your happy customers know that you appreciate when they refer their friends. If you receive referrals from a particular customer, be sure to send them thank you letter to show your appreciation.