Referrals are a powerful way to create business opportunities as the leads generated are already qualified and more likely to become customers. Leveraging your personal and professional networks expands your lead generation sources to anyone you know or do business with. Maximize your ability to get referrals and convert them to leads and customers by using these tactics, best practices, and tools.
Tactics for Developing Referral Lead Sources
A referral is any potential business opportunity that comes in as a result of a word-of-mouth recommendation by someone else. They can come from current or former customers, other businesses, peers and colleagues, or someone you know personally. While referrals may occur spontaneously from delighted customers or friends, there are several tactics you can proactively use as part of this lead generation strategy to produce a constant flow of new leads.
For example, there are multiple approaches you can take to bring in high-quality referral leads depending on your industry, skill set, and the time you want to spend developing referral sources. Keep in mind that the tactics that require organization support, such as reward and incentive programs, will need to be incorporated by your sales management team into your overall strategy and sales operation.
Leadshare groups are networking associations where members meet weekly or monthly to network, develop professionally, and pass leads. There is usually only one vertical per group, giving that member exclusivity when it comes to referrals made from other group members.
For example, if your business is an information technology (IT) company and you join a leadshare group, you would be the only IT business in that group. The understanding is that when other group members have a chance to refer tech business, that referral would come to you.
Likewise, when the occasion to make a recommendation arises, you will refer customers or clients to the appropriate member (or business) of the group. For accountability, most leadshare groups use a point system to remain eligible in the group. Members typically earn points for things like passing referrals, bringing guests to meetings, and having one-on-one meetings with other members.
Business Network International (BNI) is one of the largest leadshare groups in the world with chapters worldwide. You can also find regional ones, such as NeXco, which is specifically for the Virginia, D.C., and Maryland area. Local Chambers of Commerce throughout the country may also have leadshare chapters within their organizations.
Generating referral leads through strategic partnerships is especially useful when businesses are complementary. For instance, if you are a website developer, you can partner with commercial photographers and videographers to pass leads back and forth since many aspects of a client’s project may overlap.
It’s especially common to see strategic partnerships in real estate, where groups are formed between a real estate agent, mortgage broker, title company, and insurance agent, since all of their services are needed to close a real estate transaction. Though it makes sense to form these arrangements in complementary businesses, it can be done with anyone in a less formal way.
For example, if you meet another business owner who is well-networked, you can simply have a phone call with them to go over what each business does and what a good referral looks like. Your businesses don’t necessarily need to have any compatibility—just a solid connection between the owners or sales reps of that business.
Use customer relationship management (CRM) software to organize information about your referral sources as well as your leads and customers. Salesforce, for instance, lets you organize referral partner information like you would any lead or contact. You can also store this information in a lead’s records to streamline referral rewards and track lead sources or when the source will be involved in the same sales opportunity.
Requests From Sales Reps
A simple way to bring in new leads is by having your sales team request referrals from new and existing customers. This process is as easy as just stating “If you’ve been happy with your service, we are always looking to do the same for your friends and family, so please pass along my information to them.”
Did you know? The highest-performing sales reps routinely ask customers for referrals. However, only 18.6% of sales reps ask every current customer for referrals.
Obviously, this may not be appropriate or possible to do with every customer. We recommend using the Net Promoter Score (NPS) method to identify which customers to ask for referrals. NPS classifies your customers into three categories based on a score of 1 to 10, depending on their satisfaction with your business:
- Promoter: Customer is likely to recommend, especially when given the opportunity to do so
- Passive: Customer is not likely to recommend but also not likely to give a poor review
- Detractor: Customer is likely to share a negative review
When selecting which customers you want to ask for referrals, ask those who rate their satisfaction with your business as 9 or 10 out of 10. These highly satisfied individuals are considered “Promoters” and they are the best customer sources for referral lead generation.
A referral program is a promotional marketing method where the referrer receives something of value in return for sending business your way. For example, your customer referral program could offer 20% off their next purchase when someone refers a new customer to your business. Sometimes the referrer and the newly referred customer are both rewarded, such as offering “$50 gift card for you and $50 gift card for anyone you refer over the next 30 days.”
A referral program also doesn’t necessarily need to be for current customers or only for retail businesses. For instance, if you are an IT consultant, you could reward referrers with $150 cash, a gift card, or even a tech gadget, such as an iPad or smartwatch for anyone who sends leads to you that become paying clients.
Pro tip: Use point-of-sales (POS) and customer loyalty tools like Lightspeed to handle transactions and manage customer relationships. Lightspeed allows you to create loyalty and referral programs that automatically awards points or rewards to customers who share a referral code with their friends.
Best Practices for Generating More Referrals
In addition to leveraging one or more of the referral tactics above, there are other things you can do to optimize the tactics, make your business more referable, and generate more referrals. Here are seven best practices for creating more referral opportunities:
1. Go Above & Beyond for Your Customers
Make your business naturally more referable by exceeding the expectations of your customers and referred leads. Going above and beyond consists of things like providing fast response times, giving customers a shoutout on social media, or adding a supplemental product or service at no extra charge. When you get the customer’s attention through exceptional aspects of doing business with you, they’re more likely to share their great experience with others.
2. Share an Ideal Referral Archetype
Sometimes it can be tough for a strategic partner, leadshare group members, or even your customers to fully understand what a good referral looks like. Just as you might define an ideal buyer type for your business, outline an archetype that shows a perfect example of a referral. You can easily do this by telling a real-life story about how you helped a specific customer.
Hone in on the qualities of an ideal referral. For instance, saying “A great referral right now would be any local tax preparer, accountant, or solopreneur looking to cut costs on invoicing” is more descriptive than “Any business that wants to cut invoicing costs.” This type of specificity helps your referral sources narrow down referral candidates and may bring an ideal referral to mind more readily.
Pro tip: Use customer personas to design referral archetypes. Our how-to guide for creating customer personas outlines the five-step process to designing detailed sales and marketing profiles for ideal buyer types and provides a free customer persona template to get you started.
3. Create Referral Email Templates
Often, a referral source may have a good lead for you but not know how to make the introduction. Fix this issue by creating an email message template they can use to make the introduction. This should be a simple, text-based script they can easily use to plug in the relevant contact and contextual information, and then send the email to the recipient lead while cc:ing you.
Pro tip: Use your CRM software to organize referral email templates for your sales team to access. CRMs like Pipedrive store email templates and let you share them with other sales reps to send to their network for referral opportunities.
4. Incentivize Referrals
Rewarding a referrer with cash incentives, gifts, gift cards, or promotional deals is a solid way to create referrals and works well with all of the referral tactics above. However, it’s important to check the scope to which your industry legally allows referral incentives.
For instance, in the insurance industry, to receive monetary compensation, a referrer must also be licensed in insurance. Other industries, like real estate, prohibit reciprocal rewards between lenders and any other involved parties, such as realtors and title companies.
5. Recognize Your Referral Sources
Make sure you are showing gratitude to your referral sources by recognizing them for what they do. A “thank-you” card goes a long way to making sure those who send you business feel valued. Public recognition, such as a shoutout on social media, can also encourage more referrals from them as well as others who see the post. Show your appreciation either after every referral given or periodically, such as every year during the winter holiday season.
6. Take Advantage of a Positive Review
The best time to ask customers for a referral is immediately after they’ve expressed gratitude or left your business a great review. Keep that positive experience fresh in their minds so they instantly think of their friends, family, or work colleagues they can send over to get the same positive experience with your business.
Pro tip: Platforms like Podium let you manage your business’ reputation with review deployment automation. Businesses can see the satisfaction levels of their customers by auto-sending links to leave a review after delivery of the product or service.
7. Refer Other Businesses
If you don’t join a leadshare group or develop a strategic partnership with another business, you can still create an environment of reciprocity by referring your customers or people in your network to other businesses. Even without the formality of referral arrangements, if you refer business to them, they are more likely to tell others about your business in return.
8 Stats About Generating Leads Through Referrals
Don’t just take our word for it when it comes to how great referrals are for your business. Here are eight stats to back it up. For instance, did you know that:
Referred customers are more profitable for your business:
- Referred customers spend 13.2% more and offer a 16% higher lifetime value compared to non-referred customers
- Referred customers are on average 18% more loyal than non-referred customers
Referred leads are more likely to convert:
- Word-of-mouth represents $6 trillion in annual sales and produces five times more sales than paid ads
- Referred leads convert 30% better than leads from other sources
Referred customers are more likely to multiply:
- Customers referred by other customers are 4x more likely to refer others to your business
- 29% of satisfied customers end up referring customers to a business while 83% of satisfied customers are willing to
When it comes to most referral programs or the platforms where they’re shared:
- 90% of referral programs are double-sided in that both the referrer and the person they referred get rewarded
- 80.4% of ecommerce referrals are made on Facebook
Referrals are one of the best sources of sales opportunities, and many businesses rely on recommendations from others as their main source of lead generation. Combining these referral generation tactics with our expert tips and recommended tools will help you fully leverage your network of customers, friends, family, and fellow businesses to keep your sales pipeline full of qualified sales opportunities.