The small business referral economy provides growth opportunities for companies with little cost but big potential gains.
Successful small business owners are often asked for advice and recommendations. Someone in their network may be looking for a new vendor, or a startup founder may need help getting their business off the ground.
Referring business to others – something 81 percent of small to medium-sized business executives do regularly – is good for the companies hired as a result of those recommendations.
By joining the referral economy, it can be good for the businesses making the recommendations as well.
If a neighbor asks you for help in finding an electrician, you might offer the name of someone you trust and who has done good work for you in the past.
Instead of electricians, business owners may be asked for shipping companies, packaging suppliers or other vendors.
Informal referrals become part of the formal referral economy when a mutually-beneficial financial arrangement is added. It works like this:
Company A is asked by Company B for a referral to a trusted warehouse supplier. Company A has a referral relationship with Company C, which it has used for years and trusts, and so refers Company B to Company C. When a deal is signed, Company C pays Company A for the referred new business.
That payment could take a number of forms, from a small standard payment to a percentage of the deal signed. It might even be a discount applied to an upcoming invoice.
In situations like this, everyone stands to benefit. Company A has generated revenue for itself, Company B has found a new partner and Company C has new business.
When two companies enter into a referral economy partnership it benefits all three parties involved.
Company A - Offering the Referral
There’s little to no out-of-pocket cost associated with offering referrals, but the return on that investment is substantial, including
All of those have the potential to turn into more business in the future.
Company B - Receiving the Referral
The business who has asked for or received a referral to a third party sees benefits that include
Company C - Being Referred
Obviously the biggest benefits come for the company being referred
It’s a situation offering advantages and benefits to everyone, all by doing what they’re already doing.
With so many benefits to be realized, it’s surprising how few businesses take advantage of the networks they’ve already established.
According to one study, only one-in-three B2B companies have a referral program in place, but over half of those that do have seen increased sales, more effective lead generation and more. They’re closing more deals and experiencing faster revenue growth through better referrals.
First and foremost, what’s required is a commitment to excellent work and great customer service. No company who has a bad experience with a business will refer them to someone else since it will hurt their own reputation.
Getting started in the referral economy is a relatively simple process:
For the most part, the referrals generated in this situation are organic. They would be happening anyway as networks of executives and others share recommendations and experiences.
Establishing and maintaining a referral program can be an important part of your company’s growth, especially in the long term. Turning your customers into part of your sales channel leads to consistent new business and scales well since little or no additional work is required when new ones are added.
Who could your business form referral partnerships with?
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