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One of the greatest sources of new business for any company is from referrals. They work because of the confidence your customers have in you. Typically most businesses don’t have a referral system to proactively ask for referrals — they simply rely on word-of-mouth from their customers to their friends, relying on chance.

The way a proactive referral system works is by getting your customers excited to give you their friends’ and associates’ names, addresses, email addresses and phone numbers so that you can build a referral database and contact the referrals directly.

You can use a simple three-step process to get these referrals. The first thing to do is to identify a free gift you can send to your customer. It should be something of high perceived value, but low cost to you. It can be something you sell in the form of a gift certificate. It can also be a gift from the “gifting strategy” discussed in my previous article on joint ventures. Next, identify a gift for the referral. It may be the same gift you send to your customer, but may be different if something that you sell has a higher value for a first-time buyer.

Step two is to create a letter to accompany the free gift you are sending to your customers that reinforces your most important selling points. You will thank them for being a loyal customer and will also tell them what you will be sending their friends and associates — on their behalf — for having referred them.

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Lastly, send the letter and the gift to your customers. I’ve seen offer letters that are not accompanied with a gift, and generally those fall in the recycle can. When you send the gift with the letter you initiate the law of reciprocity. You create a psychological obligation in their mind to send you the referrals rather than just toss it aside or quickly forget about it.

Let’s use a golf course as an example. You may send your customers two certificates for free cart rentals, free green fees or a large bucket of range balls. Whatever you choose you should test to make sure which one is most effective. Make the certificate look professional, not just a photocopied or poorly done piece. You then tell your customers you will send the same free premium to their friends and associates for completing the referral form and sending it back to you by mail or email. Don’t forget to tell them you’re sending the gift to the referral in your customer’s name.

Be creative and don’t be afraid to ask your customers what they would consider to be of high value so you can find those things that are lower cost to you. The value from the increased conversion ratio for referrals is almost always much greater than your cost to implement the system.

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Randy Martinsen is the president/CEO of BudgetWorks Inc., a full-service marketing and business operations consulting firm. He can be reached at 707-206-6443 or randym@budgetworks.net.

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