Even if your business is just getting off the ground, you should be thinking about customer referrals. But generating them is not merely a result of inducing customers to sign up their friends in exchange for coupons and gift certificates; at its root, encouraging customer referrals begins with providing a product or service that people feel compelled to recommend to others. And, aside from retaining current clients, referrals can be one of the most cost-effective ways to generate business.

“It’s all about end impact. If you have to make 100 cold calls to get meetings with three or four potential clients, that’s a lot of effort,” says Tasha Mazza-Kelton, partner at Toronto-based consulting agency Torque Customer Strategy. “If you invest the time and make the [referral requests] of your network and get meetings with 10 or 12 prospective clients, the payoff is much higher.” She adds that one of the biggest hurdles businesses have to overcome when wooing prospective customers is the trust factor—something a positive referral could help you bypass.

Daryl Logullo, founder and lead strategist at Vero Beach, Fla.-based business consultancy Strategic Impact and author of Maximum Referrals, says many businesses are lazy when it comes to developing proper strategies, and expect referrals to generate themselves. A recent survey by his firm found business owners rated their ability to generate referrals at an average of just 3.8/ 10, yet they predicted an average of 4.9 referrals from each client a year. “Referrals become an expectation—if I do good work, people are going to refer business to me,” says Logullo. “That’s not the case. People are busy. Building your business is not top-of-mind for them.”

Not sure where to start with your customer-referral strategy? Here are the top tips of marketing specialists consulted by PROFIT:

• Provide an exceptional product or service. “Whatever you’re doing, it has to be outstanding,” says Mazza-Kelton. “It’s about the customer experience. Differentiate. If you can’t offer a differentiated customer experience, there is no way you’re going to get a referral out of it.” Logullo points to a small U.S. bank that goes above and beyond for clients who open new chequing accounts by giving them extras such as relevant magazine subscriptions and binders for archiving their bank statements. “So every month, they’re reminded this is a gift from my local friendly banker,” says Logullo. “It doesn’t ask for a referral, but it gets people talking.”

• Expand your network and improve your credibility by partnering with other companies, organizations and associations. When Mazza-Kelton and her partners launched Torque in 2007, one of the first things they did was partner with the Canadian Marketing Association to deliver seminars. The link to the respected, well-known organization helped give the company credibility even in its early days. Plus, it opened the door to a plethora of networking opportunities.

• Confirm value. Before you ask clients to recommend you, make sure they’re satisfied to avoid lukewarm endorsements. “There’s nothing wrong with asking for referrals, but how you go about it is absolutely crucial. You can just blindside them. You have to confirm value,” says Logullo. “One of the simplest ways to do so is having a very candid conversation. Ask, ‘How am I doing?’ and then listen.”

• Share your goals. “Just say, ‘I want to grow, can you help me grow?’” suggests Logullo. Give your client examples of your ideal prospects to get them thinking about possibilities within their own network. The client will feel flattered that you’re asking for their guidance and expertise, and feel compelled to help. “Studies we’ve done show that people aren’t referring for the money—they genuinely want to help.”

• Be direct and specific with your referral requests. “For example, say ‘I would like you to introduce me to the marketing VP at Company X’,” says Mazza-Kelton. And be clear about the actionable items; for instance, state specifically that you’d like your client to introduce you, or that you’d like permission to drop the client’s name as leverage.

• Make it easy to refer you. Give clients the tools they need to make a recommendation or introduction, such as ready-made blurbs that describe your product accurately and with the same brand language you would use if you were in front of potential customer.

• Show appreciation for the referral. Loop back in with the original client and thank them, perhaps with a small gift.

• Continue to go above and beyond to retain your clients. Logullo suggests companies radically overhaul their marketing budgets, and spend 40% on client retention, 40% on referrals and just 20% on above-the-line advertising. For example, have regular client appreciation events such as golf tournaments or spa days, and invite them to bring like-minded business associates. —By Annette Bourdeau

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