Saturday, July 7, 2012

Referral Business

11:21 AM Comments 1

Last November I wrote about our foray into the cabinetry market by focusing on drumming up business by pulling building permits and cold calling the builder or remodeler. In this entry, I want to focus on the long-term result of one of those cold calls made back in November of 2010.

We have all heard the adage that word-of-mouth marketing and referral business is the most important form of advertising a small business can have. I am in complete agreement.

I want to dig into a few reasons why this form of advertising is so powerful, and then show a real-world example of a stream of jobs resulting from this type of advertising.

Customer As Spokesperson

Having a former client act as a spokesperson for your company is incredibly powerful. They grow your potential client base by advertising your business to their friends, family, co-workers, and circle of influence, which these days can be huge when you bring Facebook and Twitter into the mix.

We have received three jobs in the past three years, two of which were quite large, from someone who recommended us via social media. The best part is that the person who recommended us was not even a former client, but simply a connection we had made via social media. Their recommendation still carried weight, even though they themselves had never done business with us.

The recommendations provided by former clients brings with it a certain level of trust, confidence, and influence that no direct mailer, print ad, or search result can. This is also why word-of-mouth marketing can be just as damaging to future business as beneficial. If a former client can brag about your company to a dozen people, they can just as easily trash your company’s image to a dozen people.

Targeted Marketing

Referral business from former clients is usually very targeted, something traditional advertising could only dream of. Former clients, if you did your job right, will want to show everyone they know their recently completed project, which is great because that may mean your company’s name is mentioned far and wide. The client will also spend the most time talking up your company to people who are themselves looking to embark on a similar project. People love to help others, and one easy way for us to do that is to imparting the knowledge we have gained to those who are going through a similar experience.


The final benefit to referral business is the fact that it is free. You are not paying for an ad, a click, a radio spot, an booth, or a flyer. That is priceless!


The flowchart below shows the progression of business we have received from one word-of-mouth channel.

The sales above all began with a cold call that I made to a home builder in November of 2010. I pulled the active building permits from my city’s web site, tossed out the ones that did not match certain criteria, and called on the ones that did match.

We finished up that initial house of cabinets in January of 2011, and in the 18 months since, we have closed on six more jobs for three new clients, with close to $42,000 worth of business directly attributed that first client. That’s a $42,000:$0 return on my advertising investment. I understand that not every client will result in this kind of repeat business. This revenue stream is my company’s largest example, but we have three other referral streams that I know of that have resulted in one to two more additional jobs.

The key to making referral business and word-of-mouth marketing work for you is simple, but takes sustained and consistent effort over the long term. The key is to provide a great product, at a fair price, with great customer service. It is not rocket science, but constantly keeping those three balls in the air, year in and year out, can at times be incredibly difficult.

Good luck.