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How Referral Marketing Can Grow Your Profits


The Lifetime Market Value (LMV) of each customer is based on the amount of money they will spend with you during their relationship with your company. The only thing standing in the way of a high LMV, is if the customer decides not to use your services again. The number one reason a customer will not use a service more than once, is because of ‘no customer contact strategy’ (about 67% of customers). About another 15% will not use a service again because they were ‘dissatisfied with the service’, and another 9% will ‘use a competitor’s service’. With this knowledge, it should be evident that reaching out to past customers is an excellent strategy for developing new business.

What is the most common challenge?

For most companies, the immediate challenge is to find clients that are willing to use their products or services without an extended delay between contact and purchase (i.e., a long sales cycle). For most companies, waiting 3-6 months to close a cycle is too long.

How can this challenge be overcome?

Any clever marketing should make the selling unnecessary, at least in theory. The only way to achieve this is to ensure the message will reach pre-qualified people with a desire to use the product or service in question.

How is this done?

Clearly, most small businesses, or any other businesses these days, do not have the luxury of embarking on a marketing strategy that follows traditional conversion cycles. The suggestion is to employ a more simple, and, ironically, more effective, marketing strategy based on referrals. This will entail sourcing, organizing, and contacting a customer list of clients who have used the product or service before.

This is not about asking our friends, “Do you know anyone who you can refer me to?” This is a sophisticated plan, aimed at creating reciprocal interest in referral-making. By pursuing referrals in an organized and structured way, we can turn our existing networks into active referral networks. Referrals offer significant advantages over cold-calling and direct marketing leads. For example, referrals:

  1. Are always more cost effective
  2. Generally make decisions about purchasing more quickly.
  3. Are likely to purchase more often (returning customers).
  4. Require less negotiation or convincing.
  5. Will be more willing to make further referrals.

What structure does this referral marketing have?

The formula for referral marketing is as follows:

  1. Identify the ideal referral candidates.
  2. Articulate the Unique Selling Proposition (USP) of the product or service and how it relates to their network.
  3. Create the ideal environment for referrals.
  4. Thank the referrers for their help and participation.

Thus, an active referral system will look something like this:

  1. Identify targets and referrers based on specific criteria.
  2. Educate and enable referrers to communicate effectively.
  3. Actively trade referrals.
  4. Be present and available (commonly called top-of-mind awareness).
  5. Offer incentives when appropriate (commissions and intro fees, etc.).
  6. Make referrals a condition of doing business.

What kind of results can we expect?

By creating appointments to meet and educate others in our network, we can develop numerous ‘pots on the stove’. Additionally, each educated referrer becomes an evangelist for our services. It is important to realize that it is not the referrer that offers the opportunity, but rather their network of potential clients. So, we can expect to see the number of referrals increase exponentially with the number of referrers we have ‘activated’ in our network.

Can you give me examples of how this works?

Absolutely! I Recently observed how when two people sat down and systematically went through their rolodexes, they were able to generate over 50 potential referrals for one another. When these two were initially introduced, they tried to find ways to work directly with each other, but came up with nothing. In response to this, they decided to try linking their networks together to create opportunities.

Another great example was when a client of mine hosted a cocktail party to ‘enlighten’ a group of carefully selected, well-connected people in their network. The cocktail party aimed to educate attendees, making them better informed about the host’s professional services and, therefore, more likely to see potential referral opportunities. A short presentation that clearly articulated their USP gave the audience improved insight into a complex service offering, accomplishing the host’s goals. The event was attractive because of the good food, good company, and not-so-serious approach. Over 35 people attended the party, and many of them evangelized the host’s services to their respective networks. The host also held one-on-one sessions with each of the guests in the weeks following the party to ‘work the rolodex’ of each guest. Great idea!

Further creative ideas for active referrals come to mind: seminars, educational workshops, letters of introduction, brain trust meetings, developing an advisory board of well-connected people, sporting events, and partnerships, etc. Less formal engagements are also a fun way of meeting new people and building a referral base. Consider hosting a party in a unique location, a business breakfast with an enlightened guest, or simply have a few friends over for coffee and a discussion about how you can help one another professionally.

What will the plan look like when it’s complete?

Although this is just one example, it is a typical format for a referral-marketing plan. The plan will typically have three stages:

Stage One:

  • Create a list of potential referrers.
  • Set up referrer education meetings.
  • Attend networking meetings to ‘enroll’ potential referrers.
  • Identify future events and meetings that provide networking opportunities.

Stage Two:

  • Host one-on-one meetings with referrers.
  • Exchange Rolodex opportunities.
  • Discuss referral incentives and partnerships.

Stage Three:

    • Provide support to referrers with access to business cards, website, and materials.


  • Follow-up calls and meetings.
  • Write ‘thank you’ notes.

Is there a standard timeline for a referral marketing campaign?

Not really…in fact, it is impossible to say exactly how soon actual referrals would result from this type of campaign. In my own experience, the sales cycle of a referral is about half that of a traditional cold-call cycle. It is also important to remember that this is an ongoing process and not a one-time campaign. You should seriously consider investing a few hours each week to developing this channel of new business. Block off a few hours on your slowest day and start to treat it like a sacred part of your business development process. Arrange a meeting and arrive early, because, in the words of Edward Tufte, Professor Emeritus at Yale University, “If you show up early, something good happens.”

Author Richard Banfield

As CEO, Richard leads Fresh Tilled Soil’s strategic vision. He’s a mentor at TechStars and BluePrintHealth, an advisor and lecturer at the Boston Startup School, and serves on the executive committees of TEDxBoston, the AdClub’s Edge Conference, and Boston Regional Entrepreneurship Week.

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