Ahhh, customer referrals. As you know, customer referrals are the best type of marketing there is. A few delighted customers singing your praises can get you more business than thousands of dollars spent on ads.

In the marketing biz, customer referrals and online reviews fall under “Word of Mouth” marketing. This process is well documented as one of the most effective kinds of marketing around. The chart below is from one of the recent studies supporting this fact. The American Marketing Association: has also done research that showed word of mouth marketing is 2.5 times more effective than average advertising leads.

From: BrightLocal’s 2015 survey of small businesses.
From: BrightLocal’s 2015 survey of small businesses.

Word of mouth is the oldest form of advertising

Before the rise of the Internet, word of mouth was just people talking to people. We had TV, radio, print, and billboard advertising. You couldn’t refer or recommend a company to someone via a billboard or a radio spot.

Now, of course, we have the Internet with its social media hot spots that contain dozens of review sites. I’m including review sites as a kind of referral marketing, because depending on what an online reviewer says about your company, you may or may not get business from these sites.

People can now recommend other people to you and your business through all of these channels: your website, social media, and third party review sites.

The best free advertising there is

One of the most attractive things about getting referrals is that they’re free advertising. For those of you with a super-tight marketing budget, this free advertising, alone, makes referral marketing a number one priority.

Actually, according to our 2015 State of Small Business Report, most of you have a tight, to super tight, marketing budget. Here’s what we found when we asked small business owners what percent of their revenue they spent on marketing.

From the WASP Barcode Technologies 2015 State of Small Business Report

56% of us spend less than 3% of revenue on marketing. Fortunately, referral marketing fits within even that tight of a budget.

Before we jump into specific tactics for how to get more referrals, let’s look at what’s going on behind the scenes, what motivates people to refer other people to a business. The website SoftwareAdvice.com surveyed consumers about what motivated them to refer someone, just last year.

Here are some key takeaways of what they found.

  • Only 74% of those they surveyed were willing to give a referral under any circumstance. Only 63% would ever consider writing a review or testimonial.
  • Of those 74% who might refer a customer, here’s how they say different referral incentives could motivate them:Percent of Sample

“Direct incentives” in this chart are monetary incentives.

How to get more referrals through incentives

None of the three approaches is totally ineffective, but clearly incentives come in first. Okay. So what kind of incentives could you offer?

Wait a sec…. if you offer an incentive, are you “buying” the referral?

Well, in a sense, yes. You need to offer something good enough to overcome your existing customers’ resistance to doing anything, yet keep the incentive small enough, you won’t make people feel like they’re getting bribed. Make it too small and they won’t have enough incentive to act.

On the other side of this, if you make the incentive too large, you may start getting a lot of referrals, but consider that these referrals are most likely very low quality referrals. People will start trying to game your system.

Finding the sweet spot between too much of an incentive and too little of an incentive is going to be a bit different for every business. 10% on high-ticket items (like $100+) is probably a good target to shoot for. 10% off on a cup of coffee won’t help much.

To add an extra lift to these kinds of referral promotions, you may have to make them time-sensitive. This is especially true of high-ticket transactions. Requiring people to make the referral within a month, for instance, may help to keep your referral incentive at the top of someone’s mind.

More referrals through recognition

The next best motivation is recognition. Social media is tailor-made for this. If you’ve got a clientele that likes fame, you could do a little showcase of whoever shares your content the most that week or month. Announce it on your Facebook page and other social media channels, in addition to an announcement or poster in your store.

If you happen to have a large segment of millennials in your customer base, getting referrals through recognition is definitely the way to go. According to the Software Advice survey, millennials are more motivated to give referrals than other age groups.

Impact of Recognition on Likelihood to Refer by Customer Age

For those of you watching every dollar of your marketing spend, this is even better news. Unlike financial incentives, giving people recognition is often completely free or nearly free.

More referrals through loyalty programs

Customer Age

For many small businesses, a loyalty program means a punch card. Low-tech, punch cards are very affordable to create and manage and they’re easy to keep track of.

More sophisticated loyalty programs certainly will help, but I always worry they will become more of a hassle than a benefit for the company. You may find your consumers also find loyalty programs to be far more of a hassle than a benefit.

How to ask for more referrals

The classic bit of advice for getting referrals is to just ask for them. Ever heard the story of the young salesman who generated all his business from referrals? His first boss taught him that every time he checked his watch, he should ask for a referral.

This story worries me, mostly because when you ask for a referral, it is critical. If the young man asked for the referral after checking his watch, it suggests he was only asking when he was becoming disengaged. This is probably not a good time to ask for a referral.

The best time to ask for a referral is when your customer or client is at their happiest. When your customer is in a state of “Oh wow, you’ve really helped me,” and they are so happy with your services that paying you barely seems like enough. This is when to ask for the coveted referral. Say something like, “Well, we sure do appreciate referrals. They help our business a lot.”

Then your customer feels like:

  1. They have a way to thank you.
  2. They have a way to help you.
  3. They have a way to help someone else by pointing them to your terrific company.

This situation is just a win-win-win all around.

Referrals from the jaws of death

When you can demonstrate to a customer that you have just moved heaven and earth for them, sometimes, if they are truly satisfied with the outcome, you might mention, “We appreciate referrals.”

Tread with caution here. It may be better to not say anything at all. That’s especially true if the client or customer you’re talking to might not be 100% happy with their experience.

Referrals locked into a contract

Some companies will put a clause in their contract or have a verbal agreement that if they do a great job, the person has to give them a set number of referrals. Personally, I avoid companies like this.

The pushy process may work, but it will make your customer feel uncomfortable. Especially if they are among the group of consumers who just don’t generally give referrals.

This technique has worked for some businesses. It can be an excellent price negotiation tool. “Ok, we can shave $1,000 off this job. In exchange for that, I want you to give us three referrals.”

Do onto others

Some of you may still be uncomfortable with asking for referrals. Maybe it just feels too “salesy” and inauthentic. For you, the biggest barrier to getting referrals is just to feel comfortable asking for them.

There’s a great way to get comfortable asking. Start giving referrals for other businesses. Aim to refer up to ten people a week to different businesses and services you think are great. After most people do this for a week or two suddenly it becomes far easier to ask for referrals for themselves.

Are you asking for referrals for your business? Do you get much referral business? If you’ve had any successes you’d like to share, we’d love to hear from you in the comments.