Building New Business Through Referrals

    November 6, 2003

One of the most effective ways to generate new business is to encourage customer referrals. That is, you can use the influence of happy customers to help your business continue to grow without having to rely on constant advertising.

This type of “word-of-mouth” advertising is well worth the time:

* Many people are so busy that they’re more than willing to depend on the opinions or advice of trusted friends, family, or other contacts. It saves them from spending more time in research.

* Referrals produce a ‘snowball’ effect. People often associate with those who are somewhat similar to themselves. Happy customers can refer others who they believe will appreciate your product or service. Those people, in turn, may refer others… and so forth.

* Referrals are easier to convert into customers. An enthusiastic endorsement of your product or service by a respected contact has far more impact than a sales letter. Your credibility and expertise have already been established by your customer when the referral visits your business.

Referrals, however, don’t just “happen”. Sure, customers may love your product or service — but that doesn’t necessarily mean they’ll tell you or tell their friends. Businesses can take a more active role to encourage referrals:

* Ask customers to mention your business to others. Leave a few extra business cards or brochures that they can pass on to their friends and colleagues.

You might also choose to offer a referral bonus or discount: free gifts, extra entries into a contest, whatever is appropriate for your business.

* Follow-up. Ask your customers whether there’s anything else you can help with, and whether they’re happy with their purchase. If so, let them know that you would welcome any referrals.

Sometimes customers will contact *you* with a positive comment or a question. That is also a good opportunity to ask them to pass along your name, number, or website URL.

Take opportunities to stay in touch with your customers. For instance, consider sending a physical thank-you card with their purchase, or a greeting card during the holidays. It will help your business stand out from the crowd.

* Build your credibility. For example, many business owners write articles and make them available for reprint in exchange for a small “resource box” or blurb about their business. If a reputable site or publication runs your article, you instantly have more credibility, based on *their* reputation.

Always thank the referrer, regardless of whether or not the person he referred becomes a customer. This will show that you appreciate him thinking of you. Reward his behavior and he’ll be more likely to repeat it in the future.

Encourage and reward referrals… and you’ll continue to build your business day after day, year after year.

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Angela is the editor of Online Business Basics, a practical, down-to-earth guide to building an Internet business on a beginner’s budget. If you enjoyed this article, you’ll love the book! Visit or request a series of 10 free reports to get you started.