Guest post written by Peter Sandeen.
The ability to give quality referrals has significant advantages. Not knowing whom to refer to an important contact can seriously undermine your credibility. The same applies to businesses and bloggers alike.
Creating a network, of referable businesses, creates the most value to you and your customers – even more than just giving random referrals. In a referral network businesses refer each other as long as there are no better options. It has the obvious benefit of keeping customers inside a circle, which you’re a part of. But that’s not the only benefit.
Why create a referral network?
The most obvious reason for giving referrals is the value it provides to your customers. If you can’t help a customer with a problem they have by selling the solution, at least you’re able to give a quality referral.
Another simple reason to give referrals is the status it creates for you. People expect you to know your industry and other services in your industry. If you don’t know where they can get something that they expected you to provide, you don’t appear professional. But if you know exactly where they can get what they need, you look like a true expert.
Creating a referral network has one especially enticing end result: the best leads you’ll ever get. You’ll end up getting referred customers. And referred customers are even easier to sell to than repeat customers (yeah, I was a bit surprised as well, but apparently if someone you trust recommends a company, you’re more likely to buy from them than if you’ve bought from them before). You’ll get “reciprocal” referrals even if you don’t create a referral network, but the network will increase that number significantly.
If you’re a blogger, than you’re probably interested in getting links to your blog. Well, creating a referral network might be the best way to do that. And I wouldn’t worry about the claimed SEO disadvantages, as long as you follow the “rules” (the three requirements for referrals).
There are more benefits to giving referrals than these three. But this post is about the referral network you’ll build around you.
The 3 requirements for referrals
Every referral you ever give needs to meet these three requirements. If any of these doesn’t apply, don’t give the recommendation.
- Relevance. Every referral you’ll ever give needs to be relevant for the customer, in that situation.
- Quality. If you refer something that doesn’t live up to high expectations, your credibility is gone.
- Authenticity. Don’t give referrals just for the sake of doing it. And don’t overvalue the businesses in your referral network; if there’s a better option for your customer, refer that business.
The 3 circles of a referral network
When you create your referral network, you can divide everyone in it in three circles. The first circle is the most important and has the greatest potential rewards. But it’s also something you’re likely to already have. The second circle often adds the most value to you, but businesses in the third circle can also be very valuable to your customers.
So, what are the 3 referral circles?
1. The ones your customers can’t live without
The first circle is the closest to you. You must know these. If you don’t, you’ll be seen as an amateur, and not trustworthy. For example a fabric store needs tailors/seamstresses and upholsterers.
These are businesses/products/services/people your customers will most likely need whenever they buy your products and vice versa. There’s no way to justify not knowing the best options for your customers. And there’s no reason why you couldn’t get them into your referral network.
Even if you already have referred certain businesses and received reciprocal referrals from them, you should talk with them about referrals. You can deepen your relationship and make it even more valuable. More about that later in this post…
2. Others in your industry and closely related to your business
The second circle is much larger than the first one. It consists of businesses/products that are related to you either because they’re in the same industry as you are or you have similar buyer personas. For example a hairdresser needs to know a good nail salon. But a stylist and a cosmetologist would also be highly relevant to their customers.
The second circle is usually the first you need to create from scratch (since you probably already have the first circle started). You might have some ideas about who to network with immediately, and maybe you’ve already sent customers their way. But have you contacted the companies? It’s difficult to have a relationship without personal contact.
3. Unrelated to you, but important to your customers
These are services everybody sometimes needs or wants to see. Referring restaurants, hotels, cafés, museums, galleries, etc. is more about creating a relationship with your customers than anything else.
You may wonder why these businesses would be relevant to have in your referral network. Most of their customers are unlikely to need your services and even less likely to ask for their referrals. It’s true, unless they’re in your network, you’ll never get any referrals from them.
But if you do create a referral network, there are ways they can refer you. Maybe they can offer your discount coupons for their customers. There are other ways, but none of them works every time (and it’s possible that the coupons won’t work for you). How you approach these businesses is more important than in the first two circles because they’re unlikely to understand why they would refer you.
Bonus: Irrelevant but fun or useful referrals
Sometimes you can just help your customers by giving a referral that has nothing to do with your business. For example a customer might say something about annoying allergies, and you could help by recommending a great allergy medicine. Or maybe there’s a wonderful ice cream shop right next to your store that you could recommend to families that come into your store. Or if you’re a blogger the occasional link to a funny video won’t hurt.
There’s probably no reason for including these types of businesses into your referral network, but you can still recommend them to your customers just to make their day a little happier.
Who to network with
The three circles only tell you the types of businesses you should network with, not who exactly should be in your network. There’s a pretty straightforward method of deciding whom to network with.
Answer these questions. Make a list of answers, and always start with the best answer.
- What kind of services your customers would benefit from the most? Divide the answers into the three circles.
- Who are the very best providers of those services? Preferably you’ll have more than one option for each service.
- Who are the best local ones? There’s no reason for you to refer someone on the other side of the planet, unless you still share customers (online businesses).
- What can you offer for their customers? If you can’t think of anything, find more answers to the previous questions.
Now you know the ideal businesses to have in your network and what you can offer for their customers. Start with the best option, even if it seems unlikely to work out (they’re a huge business and you’re a starting entrepreneur).
As I mentioned in the list, it’s possible to network with online businesses (if you run an offline business). Maybe they have customers from your region and they’ll be happy to be able to recommend you. If you have an online business, I’m sure you can think of some offline businesses to include in your network. But generally offline businesses will find most value in other offline businesses, and online businesses in other online businesses. Just don’t forget to think of every possibility.
How to approach potential members
When you’ve identified a business (or an expert or a blog) you’d like to include into your referral network, first assess who you are to them. In other words, what do they think of you. Do you represent a great opportunity, or do they think you’re trying to take advantage of them?
You need to offer value. There’s no way around it. Unless you’re valuable for them, they have no reason to be in your network. The least you can offer, are your referrals. If you can drive customers to them (and they believe that), you’re valuable and they have no reason not to join your network.
The other problem you’ll face is uncertainty. Generally people aren’t familiar with the idea of a referral network. They might’ve never even heard of it before. And even if they have, there’s a chance it has a different meaning for them. So, before you approach anyone, you need to make it clear for yourself what you envision the network to be like. And then you’ll need to sell that idea to others.
How to use the network
Congratulations for creating a referral network.
“But what am I supposed to do with it?!”
There’s no definitive answer to that, but only because there are so many opportunities. The smallest thing you can do is to refer the other businesses when your customers ask for it. At the other extreme you have joint marketing, where you create marketing campaigns together.
Ultimately you’ll have to come up with your own answers to how to use the network. There’s only one basic principal you’ll always have to follow: whatever you do, it has to be mutually beneficial to everyone involved (including customers).
But to give you some ideas, here are a few things you can do with your referral network.
- Give discount coupons to other businesses in your network. Your customer will be glad to get a discount for something, which makes you more valuable for them. And the other business will get more leads.
- Use products from the other businesses. This works best within an industry. A record store would get a CD-player from a hi-fi store. And the hi-fi store would get albums for demo use. Something (a sticker, small advertisements, etc.) would make it clear to your customers where you got the CD-player (or the albums).
- Shared marketing materials (a form of joint marketing). If your buyer personas are similar you can create brochures together. It makes the brochure more valuable to your customers, and gives you more reach when everyone involved shares it with their customers.
I hope you’re waiting to get started with your very own referral network. There’s a lot more things to think about in the process, so if you have any questions, just leave a comment.
Peter Sandeen writes about Company Culture and Referral Marketing at Affect Selling. Check out his FREE practical Guide to Premeditated Marketing, which explains how to create the most effective marketing stories. And DO NOT click this link.