For most companies, referrals are the most cost-effective way to acquire new clients. Fearless Referrals, by Matt Anderson, cites a study by Sandler Sales Institute regarding how frequently different types of prospecting activities turned into business:
- 5% from cold calls.
- 15% when you use a colleague's name in the call – but your call is not expected.
- 50% when you have permission to call and your call is expected.
- 80% when you are personally introduced to a prospect—referral marketing!
OK, now we know that referrals are far more likely to turn into revenue than other prospect sources. But what makes a referral better?
- Transferred Trust: The first step to buying is for the buyer to trust the seller. It is very difficult to establish this trust with a cold lead. A referred lead is better because your service was referred to them by someone they already trust. Therefore, this trust is transferred from the referral source to you!
- Shorter Sales Cycle: Transferred trust will naturally shorten the sales cycle for a referred lead compared to a cold lead.
- Less Price Sensitivity: Referred clients are less sensitive about price. Because risk is reduced in the mind of the prospect, they can focus more on value of your product or service and less on price.
- Customized Offering: You can be more effective presenting your product or service to a referred prospect because you will generally have more background knowledge about them from the referrer. You can therefore customize the presentation of your product or services to address their specific needs and/or pain points.
Take a look at your sales pipeline and ask yourself: “How can I increase my ratio of referred leads to cold(er) prospects?”. By setting up a referral marketing system and sticking to it, you will find a significant increase in overall sales and customer lifetime value. At this point, you may be thinking, “How do I get started with a referral marketing system of my own?” Stay tuned for our next referral marketing blog post, 4 Referral Marketing Ideas to Jumpstart Your Referral Marketing System, by subscribing to our blog, or coming back to visit us!