New business from old customers
By Dana Dratch • Bankrate.com

Want to boost your business without spending a cent on advertising? Think referrals.

Referrals are plain, old-fashioned good business. Every customer has friends, neighbors and co-workers with similar interests, incomes and backgrounds, in other words, ideal customers for you.

By building solid relationships with and catering to current customers' needs, you can turn them into walking, talking advertisements for your business. Here's how:

1. Ask for referrals.
Sounds simple, right? But most business owners don't do it enough. "Sometimes this can be the most valuable part of the business transaction, even more important than taking the order," says Norman Scarborough, co-author of The Essentials of Entrepreneurship and Small Business Management.

"A lot of people are not comfortable coming out and asking for referrals," says Kim T. Gordon, author of Bringing Home the Business. "If you're providing great service, you should be able to ask."

It also helps to couch the request in terms of helping the potential new customer, not the business. "You have to pitch it so that it's a win-win-win for everyone," says Alan Weiss, president of East Greenwich, R.I.-based Summit Consulting Group Inc. "That will get you a much higher rate of referral."

2. Take the quiet approach.
Many business owners don't know how to ask for referrals. They don't want to appear to need the business and don't want to put a damper on the sale by pushing for yet one more thing, says Bob Burg, author of Endless Referrals. The key, says Burg, is to care without being too needy.

But there's more than one way to ask. And the more things you try, the more likely you are to succeed. Gerry Goldsholle, founder of ExpertPages.com, an online witness directory, remembers the polite, almost unnoticed sign in a dry-cleaning business he patronized: "We would appreciate your referrals."

Sound too low-key to be effective? Just the opposite, says Goldsholle. "It creates a subliminal message that people remember."

3. Offer incentives.
In many industries, it's routine to offer discounts, free services or samples to someone who refers a customer. In others, a small token to say thank you is acceptable, but anything more might be perceived as a bribe. And, as Goldsholle points out, some customers could refrain from referring friends if they fear they are doing it to benefit themselves.

Gordon's test: If you wouldn't say to a person, "send me your friend and I'll give you $25," don't do it.

If an incentive is appropriate, consider offering it to both the customer and the referral. That way, says Goldsholle, the customer comes away feeling that they've done a good thing for their friend.

In some instances, incentives are not only appropriate, they're smart. Scarborough, an assistant professor of economics and business administration at Presbyterian College in Clinton, S.C., remembers a custom-clothing salesman who started a referral contest. Everyone who referred five friends was entered in a drawing to win a free suit. At the end of the contest, the salesman sent out an e-mail announcing the winner and thanking everyone for the help.

4. Tell your customers everything you can do for them.
If you want to create interest in your business, alert people to the full range of value you bring, says Weiss, who wrote Million Dollar Consulting. If your customers don't know everything you can do for them, they can't take advantage of your services or refer friends with similar needs.

This lesson was driven home to Weiss when he called his insurance agent, a terrific networker who never left without asking for a couple of referrals, and asked if the agent knew anyone who sold long-term care insurance. "I do," was the reply.

5. Remind customers of how your company is special.
"Keep them continually updated on what's new and tantalizing about your company," says Gordon. Whether you're offering something new or have received a recent honor, tell your customers.

6. Recognize good customers.
Goldsholle still remembers the letter he received years ago from a Texaco executive, thanking him for years of patronage without ever making a late payment. "I must have told 10, 20 people," he says. "It was such an unexpected thing."

7. Cater to customers who create a buzz.
Some customers will generate more referrals than others. "You really need to nurture these relationships," says Gordon. While you never want to treat one customer better than another, recognizing which ones can be more referral-valuable will help you prioritize who to approach first when you have exciting news.

8. Talk to your customers.
You can use e-mail, snail mail, the phone or a combination to keep up with your customers and let them know you're looking out for their interests. "Don't ignore your customers for a whole year while you're out looking for new customers," says Barry C. Picker, a CPA and certified financial planner based in New York. When a recent change in the laws affected his clients' annual income, Picker made sure they understood it and what it would mean to their bottom line. "Let them know that you're thinking about them," he says.

9. Listen to your customers.
If they don't tell you what they think about your business, ask. If you already conduct a follow-up survey with your customers, include a place for referrals, says Gordon. Do the same thing on your Web site.

10. Build a network.
If a customer has a business with a clientele similar to yours, don't be afraid to refer people to him. Ask him to do the same in return.

11. Become an expert.
"The thing that I personally use more than anything else is my writing, which gets me noticed," says Picker, author of Barry Picker's Guide to Retirement Distribution Planning. Earlier in his career, he discovered a Web site that specialized in Roth IRAs, a new concept at the time, and started contributing content. "The feedback was instantaneous and amazing," he recalls. Picker suggests that would-be-experts and entrepreneurs "find a well-traveled Web site and see if you can get something on there."

Deborah Smith, president of Smith Club & Spa Specialists, a resort, hotel and spa consulting firm located in Basalt, Colo., takes another, equally effective approach. She speaks regularly at industry events and conferences. This has increased her network of contacts and earned extra points with her clients, who like dealing with a recognized industry expert.

12. Give it away.
You work hard to build your business, so why would you offer anything for free? Because it's smart business. Giving away a few choice tidbits or products is a great way to get customers and their friends talking. Remember the cookie vendor who hands out samples one day and has customers lined up the next. Whether you offer a free seminar in your area of specialty, give away a trial size new product or take a few minutes at no charge to help a client with a problem, you'll likely find these giveaways returned in additional business many times over.

13. Courtesy counts.
Thank your customer for the referral. It can be a simple verbal thank you when they come back into your store or a more formal acknowledgment. The favorite method for many successful entrepreneurs? A handwritten note.

If the referral turns into a regular customer, you need to do something more for that original customer, says Weiss. A dentist he knows sends a red rose. "There needs to be a gesture" to show appreciation, Weiss says.

14. Close the loop.
Tell the customer who made the referral what happened. "If you're a kitchen remodeler," says Gordon, "when you finish the neighbor's remodel, send [the referring customer] some nice pictures of the job with a note that says, 'Thought you'd like to see the beautiful work that came out of your referral.'"

Dana Dratch is a freelance writer based in Georgia.

-- Posted: May 8, 2002