Referral basically makes use of word of mouth, a highly effective method of advertising and promotion. It is a three-way process. A customer can refer an acquaintance to a business or product. A customer can refer the business to another company that can use its services. The company can give a referral to customers to use a product or business that meets their specific needs.

The entire process is called “the referral marketing system.” A system thrives on the seamless participation of each factor in the entire process. This means, without the word of mouth, there is no potential new customer which may most likely be from a referral. In short – every part should be working, in order for the “machinery” to work.

What are the advantages of a referral marketing system in place?

You spend less for advertising and promotions

Customers can be generally impressed by the product which leads them to spread the word willingly to others. All you need to do is make your product or service speak for itself – and the rest of the wheel will continue turning. No need for expensive ads – your products do the talking.

You get access to your ideal clients’ contact information

A business owner asks the customer whether they know anyone or company that could use their product or service. Customers are often willing to share such information because it initiates and maintains a conversation, which in turn promotes customer loyalty. Referrals from other customers are also reliable as you can get contact details of potential clients in the area that you may not have known about.

Reduce your sales budget by focusing on customers who are satisfied with your products and services

This is one of the biggest problems associated with advertising – it is mostly blind promotion, airing television commercials and publishing ads, and just hoping it reaches your target. Referral marketing eliminates this unnecessary step in the system by zeroing in on your exact audience – your market, in your niche. Someone who refers your business will only recommend you to someone whom they think would need your services – with full trust that you will take care of them; while a lead you are given is most likely filtered and tested to be the type of client you would need.

You widen your circle of contacts

Ever get intimidated by the competition? Well then, kiss those days goodbye, because with a good referral marketing system, you and your competitors can work together to help each other out. There is need for a good relationship between businesses in the area and within and across industries. For example, a small restaurant owner should establish a connection with bigger restaurants, farmers, grocery stores within the food industry, as well as with electricians, plumbers, health professionals and other businesses. This way, should a customer in the restaurant require any of the listed services, they can get a referral from the restaurant. It may seem like losing customers in a way, but this is one of the long-term goals of word-of-mouth marketing, which is to build a better network of contacts when running the business.

Will most likely keep the wheel turning

If you ever feel that selling seems to be a non-stop and tiring process, then you badly need to have a referral marketing system in place. Why, because it quickly helps generate more satisfied customers, ensuring a continuous cycle of repeat customers and referrals. You not only conserve on money, you conserve on time and energy. Plant a good number of seeds, and you allow them to blossom on their own.