I try to believe that people are default good and will try to be helpful if it is 1) easy and 2) doesn’t negatively impact their lives. When you give them an incentive to care they care even more.
This is why I’m constantly surprised how few businesses fully leverage the power of getting new customers from existing customers.
I notice two recurring problems:
Lack of system
If you have a personal relationship with your customer (think B2B or Services) and you have provided them a tremendous amount of value just asking them for referrals without an incentive should generally work. If they don’t like you enough to make a referral you should get better at business.
The catch is it needs to be as easy as possible for them to make the referral and the asker must do a ton of work upfront to ensure this.
A good test for this is can they make a referral from their mobile phone. The more work on the referrer the less likely they are to follow through.
Roy Bahat has a very good formula that is used for intros but can easily be repurposed for referrals.
The key is highlighting the wins you put together for your client or customer.
- a short summary of the project and more importantly the successful output
- a link to your site or sales page where they can learn more
- Bonus points for an attachment or one sheet or unique proposal
At a minimum reviewing your customer list quarterly and asking for referrals is a great way to get started.
Lack of carrot or undersized carrot
If you don’t have a 1:1 relationship with your customer because you are selling a branded good, commodity, or high volume product they still likely care enough if they have the right incentive. The key is the incentive has to be meaningful to the consumer and commensurate with the value of the referral.
The annual or lifetime customer value is a good benchmark for how much you can spend or discount to make it worthwhile.
That can come in the form of a one-off gift card with an ambassador or refer a friend model all the way up to a % of the sale for affiliates. The key is making it matter to the customer
I see so many companies giving a token gift instead of a meaningful carrot.
For example, I have been an OrangeTheory Fitness customer for nearly a year. I pay $200 a month happily. The carrot is an entry to a raffle for an Amazon gift card. With a few hundred members I have a sub 1% chance of getting anything at all and nowhere near the value I will bring if a friend joins.
The holy grail is an affiliate relationship. The customer gets a % of the sale either one time or recurring.
It gets a little complicated with accounting and 10-99s but can be lucrative for everyone involved. A majority of Smart Passive Income’s funds come from affiliate deals.
From what I’ve seen most businesses can profitably give away 10% of the sale for a reliable channel or source. Some SaaS products do 30+%.
I’d be hard-pressed to find a business beyond groceries that couldn’t benefit from investing more in this area. I would venture to guess that this channel is low hanging fruit for at least half the businesses I come across
My dream portfolio in 2019
Each of the past few years I’ve made a list
Updates since the last post:
- All companies are still alive and most are thriving.
- Clearfactr was acquired by Goldman Sachs
- Upgraded was acquired by Ticketmaster
- Lambda School raised a mega-round and is disrupting education
Bedrock Ocean Exploration: I have been an Anthony DiMare fan since we both went through the same accelerator program with our companies back in 2013.
Kloke.ai – met the founder of Kloke when he was my Uber driver in the fall and instantly knew that he is a star. an industry veteran with deep expertise solving a problem he is knowledgeable about.
Evamore – booking tool shaping up the music and entertainment industry
Aspiring Renaissance man
🌃: @andrewyang2020 volunteer lead
❤️: underdogs, the sport of business, fitness and travel