Most sales organizations have highly structured methods in place to prospect and sell to new customers. And plenty have heard the good news and turned their attention to retention too. But there’s a group that doesn’t really get represented in this, and it doesn’t show up in most people’s thinking about sales either. In fact, the only place this group shows up is your bottom line.
I’m talking about referrals.
Referrals: More Conversions, More Loyalty, More Value
A study published in 2011 by a group of researchers from Frankfurt’s Goethe University monitored the customer-referral program of a major German bank over the course of three years. The bank paid existing customers €25 for each new customer they referred.
The researchers looked at three main aspects:
- Did referred customers have higher margins than other customers?
- Were referred customers more loyal to the company?
- Did referred customers have a higher lifetime value (CLV)?
The study showed that referred customers did indeed generate higher margins than other customers. They were also 18% more likely to stay with the bank. The researchers found that these two aspects combined to make referred customers 9% more valuable over their lifetime.
'That’s not only a sizeable chunk of money,' Christophe Van den Bulte, one of the study’s co-authors, told Forbes. 'It also amounts to a 60% ROI over six years on the 25 euros that the bank paid for every referral.'
How effective is referral selling in the B2B marketplace, though? We’re not consumer banks. Does it work for us?
Yes. 84% of B2B decision-makers begin their buying processes with a referral, and 73% of executives prefer to work with sales professionals who have been referred to them by someone they know.
Referred leads convert better too - up to 30% better than leads generated from other marketing channels.
Infographic Source: 17 Stats on the Power of Proactive Prospecting by OpenView
The evidence is unequivocal: referrals work. But why?
Why Are Referrals So Successful?
Why do referrals work so well? Geoffrey James of Inc.com lays it out in plain terms:
‘The reason is simple. The greatest hurdle that every sales pro faces is TRUST. Rightly or wrongly, most people are predisposed to mistrust sales pros and see them as time-wasters. When you enter a sales situation with a referral, your current customer is saying to his or her colleagues that YOU can be trusted and won’t waste their time.’
Referrals convert so well because the trust relationship—the hardest thing to establish between salesperson and prospect—is already there. But that’s not the only aspect that differentiates referrals from cold prospects. James adds that there’s an element of 'keeping up with the Joneses' to prospects that have been referred by someone they know.
'A referral also creates "social pressure" to buy,' he writes. 'Because your customer bought from you, the prospect naturally wants to follow suit.' James also notes that referrals are particularly good for startups, being 'the one lead-generation technique where smaller firms have the advantage over larger ones.’
There are a number of other benefits. For example, you don’t need to waste time trying to sweet-talk the gatekeeper into letting you pass, a referral puts you straight in contact with the decision-maker. You also get more new clients from far fewer leads because every single referral is already qualified.
It’s easy to see why salespeople love referrals. So why don’t we effectively exploit them?
Lack Of Established Strategy
As Black notes, there’s not really any controversy about referrals being the best strategy: 'Every seller agrees that referral selling is, hands down, the most effective prospecting strategy,' she notes. And yet she also points out that '95% of companies do not have a written referral-selling strategy, written weekly referral goals, referral-selling skills, accountability for results, or a system to track and measure referrals'.
Why are so few companies failing to wring the maximum from referrals?
In part, it could well be down to the fact that, before the modern sales stack, referrals were done on a more ad-hoc basis. Sales was done on a ‘go get ‘em’ basis: salespeople were given a patch, a pitch and a pat on the back. Referrals were naturally fewer in a more connected age. And while each referral is high-value, when the number is relatively low, they’re the last thing to get priority. Funnel-stuffing took center stage.
Unfortunately we’ve carried these attitudes intact into a new era with different rules. Referrals are now high in number, at least potentially, as well as being high value. They’re the last leads that should get the old, unstructured treatment - and yet, they’re the only leads that still get it.
'You have incredible connections… You have built up trust, and people know and like you,' writes Lori Richardson of Score More Sales. 'However, you don’t follow up with them in a planned manner. You run into these folks sometimes at an industry conference—you might drop a note if you see something they said in a social community you’re in online. There is no rhyme or reason as to when you connect. BAD business strategy, folks!'
Another reason for a reluctance to develop a referral strategy is because salespeople perhaps don’t want to be perceived as badgering existing customers. In this case, you need to change your thinking. 'Don’t feel sheepish about asking for referrals,' writes Ray Silverstein of Enterpreneur.com. 'People won’t give you referrals unless you deserve them. In fact, getting a referral is the highest compliment you can receive.'
Designing A Referral Selling Structure
The first thing you need to do is to make referral sales a priority. 'Rather than [being] a supporting sales tactic, referral selling should be the primary method of business development,' writes Megan Totka of JillKonrath.com.
That means you should take all the standard rules of sales structure design and apply them rigorously to referral selling. If you’ve never had a referral selling plan before you might not have any data to go on. If that’s the case, do what starting sales teams do: make some goals up, and see what happens. Set minimums and try to surpass them.
But if you have good record keeping your CRM data might yield information about the structure you’re already using to sell to referrals without any centralized planning. Comb your CRM for leads that are tagged as referrals (you’re tracking lead sources, right?) and read the notes, listen to the calls if you can, figure out what worked for those referrals, then apply it across the board.
Cast your net wide: opportunities are everywhere and not just limited to existing customers. 'You don’t need to limit your requests to clients,' writes Silverstein. 'You can also ask business associates, acquaintances and prospects.'
Remember that selling using social media isn’t much different to the traditional practices salespeople have used for decades. 'All selling is social,' writes Kathi Kruse of social media strategy company Kruse Control. 'Always has been. Always will be.'
'Before social media, people bought from people in social ways. Today, we have Facebook, Twitter, LinkedIn and more to connect with prospects and customers during each stage of the buying process.'
Managing social media can be done via CRM and if you’re not already doing that, you absolutely should be. Social media has an undeserved reputation as a fluffy, noisy mess - but for business purposes, social channels are like one long after-convention get-together: the perfect environment to sell. B2B sellers LinkedIn and Twitter are likely to be your star performers.
Lori Richardson suggests making a list of potential partners and referrers. 'Go through your LinkedIn contacts, your CRM, Twitter, and any other “container” you have where potential partners and referrers are,' she writes. 'Create ONE list in one place that will be the best from here on out… Think about who is missing. Who are the thought leaders in your industry or in business in general that eventually could be a mutual referral partner? Add them in.'
It’s then a matter of working through these contacts in an orderly fashion—10 a week, 30 every two weeks, however you like to divide it up. Look for like-minded individuals and groups, share blogs and comments that you like and make sure you post a lot of content. In short, be a storyteller.
'Storytelling makes your…networking come alive,' says Kruse. 'You can be like everyone else…or you can figure out what you do better than anyone else and tell your story.'
Selling In Person
Everyone wants to play with the new toy. It’s tempting to focus on referrals from digital channels. But getting referrals in person still works, especially if you can position yourself as a thought leader in your area. Lois Geller explains how giving speeches at various events led to a number of referral clients for her agency:
'Some of the best [referrals] came from Nora Nealis, President of the National Cleaners Association, after I gave several speeches for her. Also, I was guest speaker at a Luxury Marketing Council meeting in Miami and, afterwards, met Robin Katz, a real-estate agent, who introduced me to a South Florida couple who were starting a new business.'
If you can, offer to provide expert insight and analysis at events like these. Being invited to give a talk as a thought leader by an institution that has the trust of its clients is a ringing endorsement of your capabilities.
Get With The Program
Consider a referral program similar to the one outlined in the Goethe University study above. As the Forbes article notes: 'If your hair stylist gave you $10 every time you sent one of your friends her way, you might be more tempted to tell all of your buddies what a fabulous stylist she was—or you might even try to make new friends to refer.'
You’re not a consumer bank or a hair stylist. But you can use incentivized referrals too. Offering entries into prize drawings, access to additional, high-value content, a place on a course that unlocks the power-user functionality of your product, or some other appropriate incentive, can have a powerful effect on your customers.
B2B buyers are people. They’ll respond like anyone else if you offer them something that’s really of value, come clean about what you want and why, and respect their time and the value of their word and reputation.
Make Referral Selling Habitual
Much of the trick of referral selling lies in making it habitual. By contacting a set number of people per week or per month, you’re slowly laying the foundations for years of prosperity, fleshing out your network and reaching more and more people as the weeks and months go by.
Silverstein suggests a number of actions that, when made habitual, can be greatly effective. 'When you begin working with a customer, make referrals part of your initial agreement,' he writes, suggesting saying something like this: 'If I do a great job for you—and I will—you agree to give me X number of referrals.'
He also suggests requesting a referral whenever a customer compliments you, using every client meeting as an opportunity to collect referrals and being specific when asking for a referral:
'Looking for high-net-worth individuals? Say so. Interested in midsize companies? Let them know.'
Introductions Are Vital
There is a difference between a referral and simply getting a prospect’s contact details from a customer. For it to properly be considered a referral, you need to be formally introduced to the prospect. 'Rather than asking for a name and number, ask the referrer to call and explain who you are and why you are worth having a conversation with,' writes James.
This is a true referral and means that you have that sacred thing - the prospect’s trust - before you begin.
But… Be Careful When You Ask
When it comes to referrals, timing is everything. Don’t jump the gun. As James points out, many salespeople pick the worst possible moment to ask for a referral: the instant they close the deal.
Put yourself in the client’s shoes: They don’t know whether or not they’re satisfied yet. They want to find out. They’re not going to refer to you as someone they like and respect unless they believe in your product 100%. Instead, take the approach suggested by Silverstein: ask the client if they will give you a referral if they are satisfied with the product.
A well-planned, thorough referral system gives you access to higher volumes of higher-converting leads. Trust is already established, social proof is baked in, and you’re dealing with qualified leads from the start. Additionally, most B2B organizations exploit referral selling in a disorganized way, meaning that stepping up with a solid plan offers a clear competitive advantage. You’d be crazy to leave that on the table, right?
About the AuthorMore Content by Geoffrey Walters