Customer referrals are one of the most powerful selling and marketing tools available. In fact, the best source of new business is a referral from a satisfied customer. According to Forrester Research, 71 percent of online shoppers read reviews before buying. Other studies also show that customers also say that referrals are of the utmost importance in determining who they buy from and what they buy.
Given the business potential from garnering customer referrals, it's important to know how to get good word of mouth from your regulars. Being able to build a high percentage of business from customers, and even prospects, through referrals is an enviable characteristic of exceptional sales professionals. There is an art to asking for referrals – and getting them.
The sections below will outline how to satisfy a customer so they will make referrals, when to ask for customer referrals, and the right way to ask for them.
The first rule of generating customer referrals is quite basic: make your customer happy. "The very first thing you have to do is provide a great product or service," says Whitney Wood, managing partner of the Phelon Group, a consultancy based in Palo Alto, California, which focuses on helping companies develop better relations with customers. "You shouldn't be trying to get customers who aren't happy with you to give you referrals. First give them something they love."
Encouraging referrals begins with your very first contact and continues throughout the entire selling and serving process, says Jeff Thull, president and CEO of Prime Resource Group, a strategy and consulting group that advises companies large and small. Thull recommends that you ask yourself the following questions:
"All of these questions are within your control and should be guiding your conversation," Thull says.
Keep in mind the importance of word of mouth as you focus on making the buying process effective and enjoyable – before, during, and even after the sale.
"Make sure you understand expectations in great detail and follow up after the sale to ensure that your customers are seeing the results they should expect," Thull says. "If the customer is pleased with how they have been treated and served, and with the value they've received, they certainly will be more willing to attach their name to you and your solution. They will be proud to be seen as the source of a great idea."
There is a right time and a wrong time to ask your customers to help you market your product or service. If your business is one where a customer can quickly see the benefit of what they bought from you, then you should ask for a referral soon after the purchase, when they are still excited about the product. On the other hand, if you sell a product or service and the benefit of that is not clear for some time – say enterprise software – then the customer is not necessarily in a position to give you a referral immediately. It may take a long time for the product to be implemented and benefits realized.
"When you deliver the value your customers expect and you've verified that they recognize it, they see you as a very credible, valued resource," Thull says. "For those customers, a referral is a very logical and comfortable next step in the relationship."
Due to advancements in technology, there are ways to ask for customer referrals beyond face-to-face or telephone conversations. If you have a customer's e-mail address, you can follow up in an e-mail to make sure that they are satisfied and, in the process, ask if they would refer your business to others. There are third-party websites such as Yelp and Insider Pages that aggregate customer reviews. But new online tools allow you to incorporate customer feedback or testimonials onto your website, where potential customers can read those reviews before they purchase.
"In today's world, if you have a Web presence, you can ask on your website for testimonials or reviews from your customers after every transaction," says Neal Creighton, CEO and co-founder of RatePoint, which provides online review tools to businesses. "When people come into your business or at the end of a job, if you ask for a referral you just give them a link to a webpage or Web form. If you ask, a good percentage of customers will write a referral if they are happy about your business."
Creighton advises asking every customer to write a review – whether they had a good experience or not. "We've found that 90 percent of unhappy customers, if you interact with them and try to resolve their problem, can be turned around," he says. "Word of mouth can work both ways. If you're angry, you're more likely to leave feedback." It's important to catch those first and resolve the customers problem before they leave negative feedback.
Dig Deeper: How Businesses Can Respond to Criticism on Yelp
First, let's go over the wrong ways to ask for a customer referral.
"One of the most important conversations we can have is the referral conversation, but most salespeople pay little attention to it and miss valuable opportunities," says Thull. "If they do ask for a referral, they most often simply ask for a name. 'Do you know anyone else who would be interested in or could use our solution?' or worse, 'Do you know anyone else thinking of buying something like this?'"
These are both demanding requests, Thull says. When you ask for referrals in this way, you are asking your customer to speculate about another person and their situation, their level of interest, and predict whether that individual will want to buy from you. "We don't think we're asking for all that information, but we are, and that doesn't encourage referrals," Thull says. "If the customer doesn't do all three of those successfully, they will fail at providing a successful referral, and no one wants to fail. The proof is in the response to the request, which frequently sounds something like, 'Not off the top of my head, but if I think of anyone I'll let you know.'"
If you make a poorly defined, unrealistic request, one that carries a high risk of failure, you shouldn't expect much more in a response. Strong referrals can be gotten through other means, though.
The right way to ask for a customer referral is a genuine and natural way.
Online tools allow you to automatically follow up customer transactions through your website with an e-mail directing them to a survey on your website. "After the transaction, say to them, 'Tell us what you think. We'd like to have your review,'" says Creighton.
While some websites offer customers incentives -- such as discounts or coupons -- for reviews, you need to be careful not to appear that you are trying to buy their review. "Sometimes it's natural and makes sense and sometimes it doesn't," Creighton says. "You need to think about how it appears and what you're giving away and why. That's an area where it's questionable."
When asking in person or over the phone for a referral, frame your questions to help people bring into focus specific individuals that match their profile with similar businesses and responsibilities, Thull says. Here are two questions he believes work:
"The only thing we are asking the customer or prospect to think about is an individual who shares their business and job characteristics and may be experiencing some or all of the indicators we just discussed with them," Thull says. "It is much easier for someone to bring to mind a referral based on a focused question rather than a question asking them to consider the entire universe."
Dig Deeper: How to Craft a Customer Survey
Giving referrals is a very generous gesture on a customer's part and you need to take the time to thank the individual who provided it. "The appreciation should be unconditional, that is, thank them for the referral, not the sale," Thull says. "Sending a quick thank you note should not be dependent on or wait until the referral leads to a successful sale. I suggest a handwritten note, not an e-mail. Our fast paced world has gotten a little less personal. Providing a referral is a very personal gesture and it deserves a very personal acknowledgement."
Always remember to treat the referral with the value it deserves. The worst thing you can do is get a referral and let it slip through the cracks. You could lose a great opportunity, but worse, you will lose the respect of your customer or prospect who put their trust in you. "When showing respect by handling the lead professionally, you will gain respect from your new lead," Thull says. "You are starting at step one, building credibility and trust with the referred prospect. You should have a set process in place for how you will work with and communicate with them from the time you received their contact information on through the life of your relationship."
After you make a sale to this new customer, remember to send another thank you note to the customer who referred you. "The customer or prospect will be glad for you and feel good about being a part of your new customer's success," Thull says. "That good feeling, and keeping connected, will encourage more referrals and more business success."
How to Generate Customer Referrals
Marketing guru Seth Godin addresses this topic in his blog.
Evolving to True Customer Loyalty
White paper from Maritz about generating lasting customer loyalty.
Ten Steps to Generating More Referrals
Yahoo Small Business article on what you need to know to get customers to do word-of-mouth marketing.