Is your business the best it can be? Are you maximizing your resources? If you are like most businesses, the answer is “No.”

Why? Your greatest opportunity to generate new customers lies with your existing clientele. The average business spends seven times as much to attract a new customer than it does to retain an existing customer. Calculate further that 30 percent of current customers are lost every year and it is pretty easy to see that most businesses operate on the losing end of the 80/20 paradigm, meaning that they focus on the 20 percent of business that comes from 80 percent of customers rather than the other way around.

Customer retention is extremely important. Full stop. Not only does it cost less to keep a customer than attract a new one, happy customers are happy to refer. Referrals are the best sort of free advertising you can get and the sooner your business begins to recognize how customer referrals can play an important role in its business strategy, the better off you will be.

The following is a list of referral opportunities. Ask yourself, “Is my business maximizing these situations?”

• A customer complains.
• A new customer comes back to place a second order.
• A customer thanks you.
• One of your customers has been through a hard time due to a foul up.
• A customer needs a favor from you.
• You see your customer in public.
• Your customer brings in a referral.
  

You can turn each of these situations into a positive, customer-retaining situation with good customer service. Think about it; customer service has gotten so bad and communication so impersonal that you begin to expect it. By making outstanding customer service a rule rather than the exception, you set yourself apart. So how does one get referrals from this?

The first step in getting customer referrals is simply to earn them. Even simply retaining your customers is a step in the right direction. If you retained all new customers this year, your profits would go up 30 percent.

Of course, simply retaining customers is not enough; just because a customer returns, it does not mean he is happy enough to refer a friend. Make it your imperative to delight your customer. By keeping your customers happy, you cause them to become advocates. If you can get someone to advocate for your company, you have already won half the battle. Research shows that people who have advocated for something tend to strengthen their own perception, becoming more loyal to you and the business.

Other ways of generating customer referrals include:

Be personal

For example, if a current customer hands you a business card of someone they think may be interested in your products or services do not take it. Instead, ask your current customer if he could arrange drinks/coffee/lunch with you and the prospective client.

Be consistent

A referral is a demonstration of trust.

Provide personalized follow-up

When you do so, you provide a new customer an incentive to become a repeat customer and you have an opening to ask your newly loyal customer whether he knows of anyone else who may benefits from your services, which in turn lets you explain the variety of services or products that you offer.

Rewards

Encourage referrals by offering a reward of some sort, such as a discount or a complimentary service.

Explain yourself

Explain what you and your company provide, why you are the best at it and the type of follow-up you provide to the various people in your life, business, social and otherwise. The people you know likely do not have a clear conception of what it is you actually do and that frame of reference is equally narrow for a one-off customer who only knows you through one product or service.

Complimentary producers and mutual referrals

For example, if you own a wine shop, consider a referral partnership with a gourmet foods or cheese shop - you can host tastings with the products of the other store and they can refer business to you through the advertising of a discount and/or products you sell. Make sure that your business and the complimentary business have similar competitive advantage, such as a particular location, a well-established niche market or a unique value proposition.

Whatever method you use to generate referrals, keep in mind that your methods should focus on your core strengths rather than something transient like price. Just as your business strategy itself should keep focus on what you do best so too should the basis of your referral.

Renee O'Farrell