New studies demonstrate the benefits of referral marketing. In his book The New Art and Science of Referral Marketing, Scott Degraffenreid explains how the science of social network analysis has been used to help companies effectively utilize referral marketing.

Recent advances in mathematics made possible by new computer technology now enable experts to precisely quantify the impact of referrals. In his book, Degraffenreid describes a research study on physicians’ referral patterns for a pharmaceutical company. In this example, millions of dollars had been spent marketing certain drugs, with very slow market penetration due to few peer endorsements, while others with minimal marketing exposure sold well because of high referral incidence, making them far more profitable. By testing behaviors in several different ways, results showed that the primary reason we make referrals is to enhance our standing with the people we refer. We want to look good!

He explains that because we’re bombarded daily with so many marketing messages, our brains have developed methods to filter these out. This, combined with rising costs, makes ‘traditional media’ a less effective way to communicate your message. People are the new media! Referral marketing is a viable, cost-effective alternative.

The Benefits of Referral Marketing

	Consumers today have developed cynicism and distrust of advertising messages. When considering a purchase, we’re now much more likely to ask a trusted friend or acquaintance for a recommendation.
	We listen to those we know and trust. When a friend of theirs has referred a potential client to you, a level of credibility and trust has already been established. They are more open to hear what you have to say.
	Most likely, the person referring someone has already described your service or product and you need to spend less time and energy educating them on the value you offer. These leads generally turn into sales much more quickly.
	Referral marketing is more profitable. To generate a steady stream of referrals will take effort but may cost little or nothing at all.

When a company’s printed materials, website and signage send a consistent message with similar text, graphics and colors, it conveys a solid, professional image. It provides the level of comfort a potential client may need to do business with that company. Check to see if you are communicating a mixed or confusing message that might undermine your credibility and professionalism. Perhaps use a focus group to give you objective feedback.

Steps to Create Your Referral Marketing Plan

A Key Component

Your services or products must be top notch. In today’s competitive marketplace, simply meeting your clients’ expectations isn’t enough. Aim to exceed expectations – underpromise and overdeliver.

Remember: the person referring you is putting his or her reputation is on the line. They must have confidence in you!

Who will refer you?

	Happy, satisfied clients who already know, understand and appreciate what you offer.
	Businesses that sell to the same target market.
	Friends and family are often eager to help. If someone asks what he or she can do to help your business, don’t waste the opportunity. Be ready to tell them how.

Ask for referrals! If you don’t ask, people may assume that you have all the clients you can handle.

Make a list of those you can ask for referrals, and keep in touch with them regularly to maintain top-of-the-mind awareness.

Make it Easy to Refer Your Services or Products
Educate and equip potential referrers with the tools they need. Keep it clear and simple. If telling someone about your services seems complicated, and there is a possibility they might appear foolish, they probably won’t refer you.

Be crystal clear about:

	Who your “ideal client” is
	The benefits and value of your product or service
	How to contact you

Follow up on referrals promptly, expressing your sincere thanks. If appropriate, include a gift as a token of appreciation. Always keep your referrer in the loop. Let him or her know what’s happening, even if it’s nothing and you’re still playing phone tag.

Create a form to track referral leads and measure the results and corresponding costs.

It takes time and thought to actively seek out and educate potential referrers, to help them look good by referring you, but the results can prove well worth the effort. Put your plan in place now, follow it faithfully and take advantage of this profitable marketing method!

About the Author: Victoria Munro is co-founder (along with husband Dave Block) of Make-it-Fly® LLC, a company dedicated to creating success for small-business owners through creatively designed programs and tools. Victoria has started and run nine different businesses. To receive FREE business success articles with tips to help you with your business, sign up for their award-winning ezine, “In-Flight Refueling,” at: www.Make-it-Fly.com, and receive a free copy of the eBook, Get More Done in Less Time: 101 Quick and Easy Time Tactics & Tips.

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