Business Referrals: Two Birds with One Stone

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  • About 60% of all referrals to your business will result in a sale.
  • It costs less (5 to 10 times less) to retain a customer than find a new one.

Both of these statements are true. While the statistics may vary, you will close more sales on prospects that have been referred to you than those who are not referred, and it definitely is less expensive and therefore more profitable to retain existing customers. So it only makes good business sense to make garnering referrals and retaining customers a high priority.

First let’s talk a bit about why it is that you’ll close more referrals than prospects you’ve harvested yourself. The short answer is that prospects are further along in their buying cycle. In his book Customer Centered Selling Robert L. Jolles provides an excellent explanation of the different stages a customer cycles through when making a buying decision:

Satisfaction. This is the starting point which Jolles describes as “customers are convinced…everything is perfect.”

Acknowledgement. This second stage is when “the customer will readily admit that…he does have particular problems that could be addressed with your solution…he will just as readily state that, no, he does not want to do anything about these problems at this time.”

Decision. The decision stage is when “something does happen” that “wakes the customer up” and the customer decides they need to fix the problem (we’d add “or fill their desire or need”.) Jolles notes that you’ll rarely locate a customer at this stage, he calls it a “flash point” that all customers go through.

Criteria Stage. It isn’t surprising that customers who’ve made a decision to fix their problem or fill a desire or need “immediately move into the criteria stage’ which is when people “begin to figure out what is” they are looking for before they “start looking for it.”

Measurement Stage. Jolles points out that this is a stage that not all “all of them (customers) consciously experience” but it is the stage where the customer has the opportunity “to move from the vague to the specific” and that they do this by asking “What is it going to take to fix the situation?”

Investigation Stage. This is usually when a customer will take the leap and come “looking for the salesperson.” The question the customer is asking themselves now is “Who am I going to trust to make this decision with?”

Selection Stage. This is when the customer is “ready to commit.” In the selection stage it is the salesperson’s job to convince the customer that choosing their solution (product or service) “in fact addresses all his needs.”

Reconsideration Stage. We’ve all experienced to some degree “buyer’s remorse” and your customer is no different once they’ve purchased from you. The emphasis here is to check back with your customer. Most cases of buyer’s remorse aren’t “serious” and can be easily overcome. For instance, a customer who isn’t completely comfortable operating a piece of machinery you sold them will jump right back into the Satisfaction Stage once you provide them with a bit more training.

The point in going through this entire cycle here is to be able to point out that prospects referred to you have almost always already gone through the Satisfaction, Acknowledgement, and Decision stages. You can almost be guaranteed that they are already at least at the Measurement stage and many will have already performed at least some investigation and many (about 60%) are actually ready to make a Selection. In other words, the prospect has already done half of sales’ job before the salesperson shakes their hand for the first time.

Repetition is a Beautiful (and Profitable) Thing
Now let’s talk a bit about customer retention or “keeping existing customers.” It is really a no-brainer as to why it costs so much less to retain a customer than harvest a new one. We can use Jolles’ cycles again to illustrate why this is so. An existing customer is either in the Satisfaction Stage (they are perfectly happy with their purchase and your service) or ready to make another selection – and they know and trust that your solution “in fact, addresses all his needs.”

However, retaining a customer doesn’t just mean that they haven’t yet opted out of your online newsletter or have asked to be taken off your email list. Retaining a customer involves tactics that close repeat purchases. If a retained customer is in the Satisfaction Stage (and this is most likely where they’re at if they aren’t currently placing a repeat order) there is work to be done to close a repeat purchase.

In both of these cases, garnering referrals or repeat purchases, the good news is that it’s possible to combine the two. Yes Virginia, it is possible to retain repeat customers and garner referrals at the same time.

A good example of this is provided on Inc.com in response to the question “We want more referrals. What can we do?” where Stephanie Gruner provides a pretty succinct one word answer “Ask.” She goes on to say that you can take things a step further by combining asking for referrals and retaining repeat customers at the same time and gives the example of Chorus Communications’ “R&R Tuesday” (Referral and Retention Tuesday.) Every Tuesday Chorus Communications has a large number of their sales and customer service teams call past customers for a two hour period of time. The purpose of R&R Tuesday is to “make sure that customers are happy and to ask for referrals.” But you still need a few tricks up your sleeve to encourage a repeat purchase as well as obtain those referrals. Here are a couple suggestions:

Incentivize referrals. This is most usually done via providing discounts to customers who provide you with referrals that result in a purchase.

Let your customers know about products and/or services you offer that they haven’t purchased. This is also a dual-action tactic. When you tell a past customer about these products you may just hit them at a time where they’ve acknowledged a problem or need and are ready to start figuring out what will fix or fill it. They’ve already been satisfied with your prior solution, so there’s a very good chance you can initiate and then close a sale. On the other hand, if the retained customer isn’t interested in those products or service es, that’s a perfect time to ask if they know of anyone who is.

Last modified: June 21, 2013
Annie Kile


This story is part of our Small Business Corner, a peek into the life and trials of small business owners.

Category: MPR Authored, sales, Small Business, Small Business Corner, small business owners, tips

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