Imagine you’re looking for a house.
You contact a real estate agent and she shows you a few houses. One of them is perfect but it needs renovating. You decide to buy it anyway.
Then the agent gives you a business card of a contractor she trusts with renovations.
How likely are you to use that company? Unless you have serious trust issues, you’re likely to buy their services.
What’s in it for the agent?
She doesn’t get a commission, so nothing, right? Actually giving the referral has great marketing value to her.
In fact there are 5 reasons why you too should give as many referrals as possible…
The three requirements of giving a referral
When you find yourself giving a referral think about these three points first. If even one doesn’t apply, forget the referral. You’ll get the exact opposite result you’re looking for.
- The referral has to be relevant. Don’t give referrals just for the sake of giving referrals.
- The referral has to deliver. If the referred business screws up, they screw you up too.
- It has to feel authentic. The prospect cannot feel you’re giving the referral for your sake.
If all the above requirements are filled, give the referral. And get rewarded for doing so.
Before you can give referrals you need to build trust. You need to be seen as an expert. Or would you trust a vegetarian to recommend a steak restaurant?
1. Create expert status and trust
To be an expert you need to know your industry. Most people don’t realize this consciously, but when you demonstrate your knowledge they believe you’re an expert.
This works the other way around too; if you don’t know your competitors and other companies in your industry, you’re seen as a beginner.
Even when you’re just talking with friends you can showcase your expertise by noting what some author thinks about the topic. And the one person, who doesn’t recognize the well-known author, loses all credibility in the conversation.
Basically you’re saying, “I know what the other experts think. And because of that I have even more authority than those guys.” If you’d say that out loud you’d be seen as an idiot. But when it’s only implied it’s surprisingly effective.
When you recommend something as an expert, you transfer your credibility. But first you need to be trusted.
How much your customers trust you varies a lot. Real estate agents and used car salesmen are one of the least trusted ones. The expectation is that they’re dishonest to their own benefit, even if they’re experts.
That’s why referrals are so powerful. You don’t trust a used car salesman when he’s selling you a car. But if someone you trust recommended him to you, he seems trustworthier to you.
Unless something decreases his trustworthiness in your eyes, he’s an expert to you. He doesn’t have to work to gain your trust; he can only lose it.
But even if you don’t trust him when he’s selling you a car, you’re likely to trust his recommendation of a car stereo shop. You don’t expect him to benefit from lying. And you do expect him to know cars (and car stereos). The result: you believe with all your soul the car stereo shop is the best around.
How to showcase your expertise and build trust
Refer to related companies and services when you talk with your customers/prospects. Share your knowledge of the different options in the industry. Explain differences between opinions and what applies to the prospect’s situation.
If your competitors are brought up in the conversation, don’t disregard or dish them. That decreases your trustworthiness. Explain why your solution is better to the customer.
There’s a temptation to use professional language to convince the prospect of your expertise. As the Nobel-prize winning psychologist Daniel Kahneman explains, in his book “Thinking, Fast and Slow”, using complex language decreases perceived trustworthiness. So, don’t confuse your customers; it doesn’t make you an expert and it’s not cool to speak with fancy words.
Use professional language as much as the customer easily understands. Don’t underestimate them, don’t oversimplify, and don’t flood them with new information.
Now that you know how to build customer trust and create an expert status for yourself, you can start to give referrals in many ways. And get the rewards for doing so.
2. Increase Your Value to Your Customers
Finding a good tailor, barber, plumber, restaurant, or any other service is valuable. When someone recommends one to you and it turns out great, their value increases in your eyes.
They helped you, so you want to help them. And the most logical and simple way to do that is to refer them to your friends.
This is one of the main reasons giving referrals is so powerful. Whenever you give a referral that pays off, someone feels they owe you.
The human tendency to reciprocate is often used in negotiations; make a concession and wait for your opponent to reciprocate. But it’s often forgotten in other situations.
If it’s likely that your customers are looking for a related product, one that you don’t offer, mention that you can give good referrals. (For example a web hosting company that doesn’t provide email services.) It will put their mind at ease.
Leverage your ability to refer
Your referrals should entice prospects to contact and trust you. And make you a valuable source of information.
There’s a temptation to share your referrals only with buying customers. But you shouldn’t do that.
But you shouldn’t share referrals on your website either. Require contact with you, or you miss out on much of the rewards.
3. Create business relationships
Most business owners will find it hard to resist more customers. If you can provide that with referrals, you’re valuable to them.
There are many types of business relationships related to referrals. I’ve compiled the most important ones here. You need to remember one thing with all of them: never give referrals to companies that don’t deserve them. Even if they could generate more business for you, you’ll lose in the long run if your referrals aren’t trustworthy.
Referrals both ways
The key to getting referrals from the companies you refer to, is to ask for it. You’ll often miss out on referral opportunities just because the other company doesn’t know you.
Other than being noticed by the other company you need to fulfill the first two recommendations for giving referrals: you need to be relevant to their customers and you need to deliver a referral-worthy service.
If you were the company receiving referrals from another company, you’d like the prospects to turn into customers. Is there a better way to do that than to give a discount?
If you were giving a referral, you’d benefit from the opportunity to offer a discount of the service you referred. It would make you even more valuable to your customers. You could even advertise your ability to get discounts.
If the services are closely related you could also offer package deals. This would add value to the customer and generate more sales for both companies.
Content to your store
This is one of the most obvious and most overlooked possibilities business relationships provide.
You can often get content or products from your business partners. If you had a record store, you could get a CD-player and headphones (for customers’ use) from a hi-fi store. In return you could send some interesting albums to them for demo use.
A note would indicate the source of the products to the customers. You’d both get in front of your potential customers. In some situations you could even get paid for having a product displayed in your store.
How to create a relationship with a company you refer to
Creating a business relationship can be daunting. Contacting someone to ask for a “favor” takes courage. But if you do it well, you’ll almost always negotiate a deal.
Approach first by email, it’s non-intrusive, and then follow-up with a phone call. Here’s what you need to remember when making the first contact:
- Offer something first. If you receive an email asking you to do something, do you even read on to see if you could get something in return? Maybe, but it’s more compelling to first offer something for them before you ask for a favor.
- Give an example. Don’t expect them to think about how they can benefit from your offer. Do the thinking for them and explain how they will benefit.
- Make a call to action. Ask for a small commitment. And make it specific. Don’t give a lot of options, they’re confusing. Ask them to just answer your call the next day, or to think about how you could help them.
- Be extremely clear. People don’t like emails that require them to think much. At least not when they’re being asked for something. Spell out what you propose and why.
- Make the pitch short. There’s no such thing as a too short pitch.
4. Be remembered as a source of quality referrals
Referrals are memorable. You’re as likely to remember the source of a good referral as the referral itself.
If you can give quality referrals it’s a reason for your prospects to contact you. And that contact can lead to sales for you. For that to happen you need a reputation as a source for referrals.
Giving just one referral won’t do the trick. When you give two, you get closer to it. You need to tell your customers you have the ability to give referrals to all related situations.
If you’d hear from various sources that someone gives good referrals, you’d believe it even if you never met the source.
You should become that source.
How to create a reputation as a source for referrals
As I mentioned earlier you should advertise your knowledge. Sometimes you should give weight for one specific referral (like the web hosting company that doesn’t provide email).
But don’t give the impression that’s the only thing you can refer. You can say, “We can recommend good email services. And if you have other needs, don’t hesitate to ask. We have experience of working with various companies you may find useful.”
The only way you’ll create a reputation, as a source of referrals, is if you give them. Most of your customers are unlikely to ask for them, so give referrals whenever it’s appropriate.
5. Get your best customers
Studies of customer behavior suggest referred prospects are most likely to buy. They’re even easier to sell to then repeat customers. I know it sounds counter intuitive, but it does make sense when you think about it.
When you receive a referral from a source you trust, you transfer your trust of the source to the referred company. The referred company starts to build trust on top of the trust you already transferred to them. So, wouldn’t it be nice to get referrals?
How to get referrals
If you’re wondering how to get referrals, consider giving them. People talk about referrals and who made them.
But there are other things you should do to get more referrals yourself.
First step is to ask for it. Tell your customers you expect them to refer you to their friends and colleagues. You can mention it even before delivering anything. It creates an expectation that you’re great and they’ll want to refer you.
Next you need to give tools for referring you. Twitter, Facebook, LinkedIn, and social bookmarking sites have buttons you can use. There are other ways to give referrals, but the buttons require the least work.
Reward those who refer you. Other than affiliate programs, referring you may not have any obvious benefits to them (unless they’ve read this article).
You can reward people with small gifts. Anything from e-books to discounts and sample products will make it worth their effort. At least send an email where you thank them.
Most effective way to get more referrals is to over deliver. If you surprise people with your product quality, customer quality service, delivery time, or anything else, they’re likely to refer you.
No matter how much you ask for it and how easy you make it for them, people don’t talk about mediocrity.
I’d love to hear what you think about giving referrals. The question I really want you to answer is: Who do you refer people to? What did they do to get your referral? What do you get in return? Leave your answer in the comments below.
Peter Sandeen writes about Company Culture and Referral Marketing at Affect Selling.