As a business owner, doesn’t it give you a lift when the phone rings and the caller says something like “My friend John suggested I give you a call”.

Blog: Investing in a referral program can pay off your business

As a business owner, doesn’t it give you a lift when the phone rings and the caller says something like “My friend John suggested I give you a call”.

You’ve had a win on two levels because you have confirmation John is impressed with your work/product and you now have a potential new customer who didn’t “cost” you anything to acquire.

Unfortunately, treating referrals as a low-cost lead generation method is dangerous for your business.

To ensure that you have a steady stream of suitable leads for your business you are going to incur costs.

The first cost is compulsory – the cost of providing excellent customer service to John. Unless John is more than just “satisfied” with his experience as a customer, his recommendation may be “Oh they’re ok”. Hardly the ringing endorsement you’d hope for and unlikely to inspire his friend to call your business.

So, the foundation for any successful referral program is providing excellent service to existing customers and, if you’ve been in business for any length of time, you know how hard (and expensive) that can be.

The other costs are more discretionary but you will incur more costs if you want to succeed.

The cost of saying “Thank you”. Depending on the circumstances, a thank you may cost you a certain percentage of the revenue generated; a voluntary, ad hoc cash reward; a thoughtful gift or a simple card or hand-written note. Whatever is appropriate, there is a cost.

The cost of reminding. Unfortunately, you can’t assume that your referral sources are a “set and forget” proposition. You have to make the effort to maintain the relationship. Whether it is the time taken to make a “How’s everything going” phone call or a “Join me for lunch” invitation, you are investing in your referral program.

The cost of being clear. Unless you have a clear idea of your ideal client and you convey this to your referrers, the likelihood of “John’s friend” being a good fit for your business is not very high. In this respect, you have a quantity/quality trade off. Being clear with your criteria will mean you receive less referrals but you won’t have the costs of talking to unsuitable leads and then having to explain to John why you couldn’t help his friend!

Just remember, while referrals are a low-cost way to obtain potential customers for your business, don’t fall into the trap of thinking they are free. If you are not investing time and some money into your referral program, chances are that it’s not working as effectively for your business as it should and you will be still relying on more expensive options for lead generation.