Five Reasons Why You Need to Create a Business Referral Economy

New sales don’t just fall out of the sky (well, fair enough, occasionally they do just fall in your lap, but such sales are flukes.) In the digital age we live in, sales come often come from maintaining top-of-mind status in the eyes of your audience. For most businesses, this presence of mind comes through well-established channels like inbound and/or email marketing. But what if you are overlooking one of the most lucrative sales channels – one that is as old as business itself.

I’m referring to business referrals, of course. I was researching another topic recently, when I came across an article outlining a “referral economy” for professional recruiters. That got me to thinking “Hmm isn’t business always engaged in a different kind of referral economy?” The old-fashioned business referral is something often overlooked in the modern, always-on, all-digital state-of-play in business. How many businesses would stand to increase sales if they were to engage in actively building a referral economy?

Business referrals often result from total happenstance, but you can help them along if you understand what makes them tick. Here are five reasons why you should consider creating a living, breathing referral economy for your business.

#1: Referrals are good – and cheap!

When I say that “referrals are cheap,” I am talking in terms of return on investment. Business referrals hit your cost column very little, but the sales they generate are just as valuable as those funneling in through costlier marketing channels. What’s more, peer-to-peer referrals are actually among the most valuable sales channels because they are fully fortified with the social currency on which Web 2.0 is built. Word-of-mouth earns more attention than blatant advertisement these days, and, in an era where “user-generated” content often carries a premium, referrals are among the few truly free sales tools available today.

#2: Referrals build businesses; businesses build referrals

A referral economy is smart because, at the most basic level, the referral stems from having done a good job. No one will refer a business that has done a poor job. Referrals are the on-going residual side effect of delivering good service to your existing customers. When you go the extra mile for them, you will not only enjoy repeat business from them, but they will also tell their friends, thereby expanding your customer-base.

#3: Referrals – the original way to “go viral”

Referrals have a tendency to build upon themselves. If one satisfied customer refers a new one to you, that person is all the more inclined to refer someone else. This information may seem compulsory at first, but the prospect of viral referrals becomes more intriguing if you manage the process a little.

To do that, try these tips:

There’s no harm in concluding a project by asking your customer to tell their friends.
Ask them if there are any companies they think you should be talking to.
Consider offering a small commission for direct referrals. (Or a discount on future services.)
Whether you offer a commission or not, thank the referrer, either in conversation or in the form of a thank you card. (Preferably a real, hand-written one.)
If the referral is business-to-business, return the favor only when it does not compromise the involved businesses, and when the referral is meaningful to the third party. Keep referrals on the level. (For the right way to incentivize referrals, see our bonus tip.)
Whether they offer you a referral or not, if you liked working with them, feel free to start building up karma points by referring them, when appropriate. (It also makes them be sure to choose you the next time.)

As I mentioned, referrals are infused with the social currency — trust, reliability, believability — that matters most in the Web 2.0 world. By engaging in the right kind of interactions, you’ll help your business to be able to rake in the benefits of going viral in a fully functioning referral economy.

#4: Referrals are for real

So, I’ve talked about online channels and Web 2.0 above, but referrals are not confined to the digital space. In fact, referrals transcend media altogether, and tend to thrive in interpersonal settings. Word of mouth can take flight from an online channel, like social media, only to wind up drawing a sale from a person-to-person chat, even when those two people happen to be conducting a business-to-business transaction.

That is where the rubber meets the road in the world of business, because behind all those “followers” are people. Leads don’t spend money, people do – and that’s why referrals are really so valuable – they open up sales channels between people. Referrals remind us that there is a world outside the web, and it’s full of opportunities, too.

Five: Referrals are teachable

Many people think referrals are relegated to dependence on luck and circumstance. That assumption is not correct, because referrals are actually teachable. As I mentioned above, you start teaching your clientele to refer your business by simply asking them to do so when you wrap up doing a great job for them. This will start them on the path of thinking about referrals. When someone mentions they need whatever it is you offer, the listening client will think to mention you, especially after you’ve treated them so well.

The business referral economy does not stop with your clients, though. You can harness the power of referrals through teaching and sharing with business people you know, or whom you do business as a customer. Tell them that you’ll offer them commission and reciprocal referrals when appropriate. Through our affiliate and value-added reseller programs, Quote Roller now has about 400 customers who benefit from actively promoting us. They earn a little extra cash while we gain customers based on their word of mouth.

Bonus Tip: Incentivize the right way

Some people have the wrong impression about incentivized business referrals. The very idea of “incentive,” mentioned in the same breathe as “referrals,” conjures up images of shady back-room handshake deals and unscrupulous backscratching. Fact is, those unsavory notions once played a role in business-to-business transactions, leading many to abandon or ban such practices, but you can still ethically incentivize rewarding business referrers.

ReferralKey is a service that connects business leads with an incentive program on the back end, with payouts through PayPal for successful referrals. While that service streamlines the process and even brings the beef (uh, so to speak), it does have a cost associated with it. You can perform much of the same function by organizing your email contacts and establishing your own referral network that might include your accountant, your IT consultant, and your freelance writer, among others. Let them know that you’ll offer them a slice of the pie, how much that will be, and when they will receive it, and voila – your incentivized referral network is born.

Referral economy for the win(s)!

So there you have it, five compelling reason and one bonus tip to help you get started with creating a referral economy of your own. You’ve probably seen business referrals work beautifully, so give some consideration to honing and refining the role referrals play in your business. You just might be pleasantly surprised by the result.

How do you use the referral economy to grow your business?

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