How to Drive More Referrals and Why (it’s more than you think)
Warning: This blog will be part vent, part rant, and part how-to. As you grow your business, allocating your time becomes trickier and needs constant re-balancing. Chances are, as the business owner, you will be driving the majority of business development. Our goal is always to help our clients produce better results – do less, better, to completion.
But, we have to step back for a moment, there are few things you need to figure out before you decide how much time to spend on which business development activities (and why driving referrals needs to be at the top of the list)
- Client Acquisition Cost (CAC): How much, in total, does it cost you to bring in a new client. I’m guessing it’s a lot more than you think. I am not talking about “cost of leads” as in a digital campaign. That is only one small piece of the client acquisition cost.
The client acquisition cost (CAC) includes:
- All your marketing: website, branding, email marketing, digital marketing & all paid advertising, social media posting, association & networking dues, printed materials, etc.
- All your sales activities – networking dues, prospecting, trade shows, etc.
- All your time and your staff or partner’s time to execute on 1) and 2) – the big LABOR cost.
For demonstration purposes, let’s say all of the above is $100,000 per year:
- If you bring in 10 new clients per year, your CAC is $10,000 per client ($100,000 spent divided by 10 new clients)
- If you bring in 20 new client per year, your CAC is $5,000 per client ($100,000 spent divided by 20 new clients)
2. Lifetime Client Value (LCV): This is the total amount of income you expect to generate over the lifetime of a single client. This is how you monetize your CAC. To illustrate:
If your service is $100/month and your clients typically stay for 3 years, your LCV is $3,600 – $100/month x 36 months
If you’re doing a single project your LCV is the amount of that project, perhaps $10,000.
3. Do the math – How high, or low, is your CAC as a percent of your LCV.
|CAC||LCV||CAC as % of LCV|
|$5,000||$10,000||50% (out of Balance)|
|$5,000||$50,000||10% (well Balanced)|
Our marketing goal is to reduce our CAC (and increase our LCV, but that’s another blog). The greatest impact you can have on reducing your CAC is …. Drive More Warms Referrals to increase your conversion rates. If you double your conversion rate, you cut your CAC in HALF.
Which brings me to WHY you need to drive referrals. Referrals have a significantly higher close ratio. I am 100% sure that your close ratio on the right referrals is at least twice that of cold calls. So, if you are driving referrals, and doubling your close ration, your CAC will be cut in half.
Let me close with a few how-to’s on driving referrals:
- Get clear on what a good referral looks like for you and document it
- Give referrals – the more you give, the more you get. No math required here.
- Ask for referrals
- Teach your influencers how to identify opportunities and how to introduce you (refer to # 1)
- Acknowledge and thank people for referrals. Nurture those relationships and they may turn into strategic partners (that means streams of referrals)
That is a crazy over-simplified version of how to drive referrals. But bottom line: ASK, ASK, ASK.
So, in the spirit of modelling that behavior: if you know of any business owners of professional or creative service firms who aren’t get the results they want (either in revenue or work-life balance), we can help. We are business growth experts. We provide an expansive array of advisory services as well as administrative, marketing, and bookkeeping support. If we can’t do it, we can refer you to some who does.
BTW – I found this article particularly helpful when doing research for this blog.
About the Author
Donna Miller is a business and community leader, a speaker, an educator and an entrepreneur who is passionate about seeing small businesses thrive. Her team has helped thousands of companies to start and grow by providing office space, virtual assistance, bookkeeping, educational programs and advisory services. She believes in the power of collaboration (C3=Connect, Collaborate, Community) and that companies should be a force for good. She is the recipient of numerous awards, a sought-after speaker, and is grateful to be a servant leader in several volunteer roles. She is a regular blogger and can often be found on a beach writing.