Every time we create a small business marketing strategy for a client, the one tactic that we recommend across the board is to create a formal referral program. The power of referrals for small business owners can’t be emphasized enough: referrals are one of the best ways small business owners can grow their business.

Why referrals are so important

We work with a lot of clients that are hesitant to ask for referrals, so we do our best to explain that if you don’t ask for referrals, you’re missing out on a LOT of potential business. A Huffington Post article does a good job providing reasons for referrals:

They don’t cost anything – it doesn’t cost anything to ask for referrals (though we suggest rewarding the referrer; more on that later). You’ll increase your closing ratio – “warm” leads close at a higher ratio than cold ones. A referred business will be more open to working with you than someone who found you online. You’ll make larger sales – there is a level of trust established when someone is referred. That can lead to a larger sale. Referrals bring in more referrals – if those who are referred to you do business with you and are happy, they’ll refer others.

Small business owners do a lot of networking to connect to their target audience. Why not take that opportunity to tell people you appreciate referrals? People are more than happy to help others out if they believe in the company they’re referring.

How can I make my business worthy of referrals?

Chances are, people won’t refer your business just because they met you once at a networking event and were handed over a business card. If you want to get more referrals for your business, you need to put in some effort to encourage people to refer you. First, take the time to really connect with people and explain your business. Don’t give them a list of features about your company; instead, give them the benefits of working with you. Tell them how your business offers value to its clients, how it solves clients’ problems, and what makes your company different than the rest out there (your unique value proposition). People will then have an idea of who you are, what you offer, and how you can benefit the people they’re referring.

By the way, referring is not a one-way street. Want to get more referrals? Start giving them out! You know what they say: what goes around comes around. Get to know a few key business owners who have products or services you find interesting and valuable, and make an effort to send legitimate referrals their way. Get to know them so your referral doesn’t come back to haunt you, of course! Do your homework.

Create a formal referral program

A referral program for your small business doesn’t have to be complicated, and it doesn’t have to break the bank. A well-organized referral program can help any small or mid-size business get new, loyal customers at a very low price. These programs encourage people (like happy customers) to share their feelings in exchange for a gift, spiff or referral fee. To make it work, you need to know a few things:

Where did your referral come from? Find a way to keep track, like documenting the lead source in your CRM or keep a spreadsheet. Understand what your CPA is (that’s cost per acquisition). If your typical cost per acquisition is about $100, you likely want to provide a spiff, gift or referral fee that’s below that.

There are a few ways to create a referral program. One way is to spiff the referrer when the lead becomes a client and has paid. Others offer something to both the referrer AND the company being referred. Still others send out a small spiff for referrals, regardless of whether they turn into a client or not. Take a look at your true marketing costs and CPA (and cost per lead or CPL if you’re going to reward for leads that don’t turn into clients) and decide what works best for you. Regardless of what you do, be sure to thank the person who referred you by dropping them a small note (or email!) of appreciation. Remember, each time they refer someone to you, they put their reputation on the line, so show your gratitude. And of course, really take care of that referral. We’ve heard numerous stories of people who referred someone to a company, never to hear back from that company. Getting a referral is a gift; don’t throw it away.

Referrals for small business owners can help them grow and should not be overlooked in your overall marketing efforts. Whatever you choose to do for your small business, make sure a referral program is part of your overall marketing tactics.