If you provide a product or service that delivers value and customers find the experience of obtaining those products or services is at least satisfactory, there’s a good chance you are receiving some quantity of leads by way of referral or word of mouth.

hannes.a.schwetz via Flickr

It’s a simple reality of business – if people need what you sell, they are more confident about purchasing it if they get a vote of approval from someone they already trust.

Most businesses realize this and put some energy into generating referral leads, but my belief is that firms that also put energy into act of converting referral leads can dramatically amplify the power of referral.

The funny thing about this is that the more referrals you convert to customers the more referrals you’ll receive from customers.

Below are the elements of the system you must put in place in order to convert more referrals to customers.

A special lead

A referred lead is different than a lead that found you online and moved through your education system. Some folks make the mistake of lumping referrals in with every other lead in the sales funnel. I believe that you owe it to your referral source to make big deal about the fact that this lead was referred. Go out of your way to let them know they are special. Acknowledge the fact that you are going to honor the referral by giving them access to something special, invite them to a unique event or assign them to your referral specialist.

The impact of this step is two-fold. First, the lead is different and likely does need some special handling to become a customer. And, imagine the message this treatment sends when they consider referring their friends at some point.

Close the cycle

The dangerous assumption some people make about referred leads is that they have done all their research, are ready to buy, and understand how you work. The problem with thinking is that in some cases they don’t even know they need what you offer. In some cases their friend recognizes they need your help, before they do and this calls for special handling.

Now, there certainly are instances in which a referred lead shows up at your door ready to buy, but you should have a process that allow you to discover where your lead is in their thinking and motivation and employ one of several education tracks to gently bring them up to speed on how you work, why you charge a premium and how they will receive the most value from becoming your customer.

Appreciate and communicate

The final step in effectively receiving leads is to develop a way to shower appreciation on your lead sources. If you make some sort of offer to incentivize referral sources you certainly need to honor that, but I find that a little token of appreciation such as a handwritten thank you, flowers or fruit goes a long way towards letting them know you appreciate the effort and support.

In addition to simply thanking your sources, you should also develop a path of communication that helps them know the impact their referrals have on your business and on those that they refer. If your referral sources learn that many of the leads they send your way enjoy the process so much that they become customers, this fact alone will often motivate them to continue sending referrals.

If you’re already receiving a steady stream of referrals, focusing on improving your referral conversion rate by 5 or 10% could dramatically impact your bottom line.

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John Jantsch

John Jantsch is a marketing consultant, speaker and author of Duct Tape Marketing, Duct Tape Selling, The Commitment Engine and The Referral Engine and the founder of the Duct Tape Marketing Consultant Network.
  • Great reminder how important referral marketing is to one’s business.  I think many entrepreneurs get “seduced” into sitting behind a computer doing a lot of internet marketing, but many times, having a good referral marketing system is the best way to tap into “low hanging fruit.”

    Great post!

  • Good point on closing the cycle. I made the mistake of assuming a referral was a done deal only to find they went with someone else. Now I make sure I beginning building the relationship as early on as possible. 

  • I have been thinking of doing some sort of reward system for the entrepreneur business forum as it is easy to track referrals but I am unsure of what type of reward to offer. I think the thank you idea could work for me but do you find it is enough to encourage referrals and do you let customers know they will get a think you beforehand?   

  • Great post, John! Good point about “special lead”. I also believe it is very important to incentivize not just the referral source, but also the “lead”. First, it will really make that lead feel “special”. Second, it will empower the referral source even more. It will increase the power of word of mouth tremendously.