We spend a lot of money on marketing to bring in one customer. If that customer then refers someone, the second customer costs nothing extra. That is the whole case for referrals - and it is why a business that depends only on marketing spend never becomes a business that can run without it. The customers keep coming, but so does the bill.
Businesses hire me to fix their marketing, so I am the last person who will tell you not to market. Aggressive marketing at the start is fine. But long term, if referrals are not bringing you people, the business cannot survive. So: why customers do not refer you even when they are happy, and the four things that fix it.
Why should you listen to me on referrals?
Because I learned this in the worst industry for it. I worked as a personal trainer for 4 years, and after that I worked with gyms on their marketing. Both sit inside the fitness industry, which is one of the highest-churn businesses there is - churn meaning customers who leave.
So I researched retention properly and worked hard at keeping my customers. The result: in the first months some clients stayed only one to three months, but after about a year most of my clients were long-term, and referrals came slowly.
Customer le referral kina dindainan?
There are several reasons a customer never refers you, and most owners only ever think about the last one.
They do not actually think your service is good. Then why is he still with me, you will ask. Because liking you and staying with you are two different things. Your product satisfies a need, leaving means finding someone new, and they have built a habit of using you. Staying is not a recommendation.
Referring you makes them insecure. My own example. As a personal trainer my time was limited, and when I was fully booked my own clients would say: "Prajwal, I will give you a referral - but you have to put that client in my slot." A new customer means less of my limited attention for the old one. To them, referring me was a loss. So they did not.
Their reputation is on the line. Say I tell you to go and eat at a certain restaurant. You go, and the food is bad. It is not only the restaurant that gets a bad name - you sit there thinking "that Prajwal sent us here", and the next time I recommend a place, you ignore me. That is what a customer weighs: if the person they send gets bad service, the referrer looks bad. Giving you a referral puts my own reputation at stake.
They simply did not remember you. When the moment came - a friend complaining about the exact problem you solve - you were not in front of them.
There is nothing in it for them. You have not incentivised it.
Every one of these has a fix. There are four.
1. Make the product genuinely good
This is number one, and it is the fix for the reputation problem. When your product is genuinely good, the person who referred you looks good to the person they sent.
Say you learned something from my videos, implemented it, and got a great result. Now you believe that whatever Prajwal teaches works. You see a friend struggling in their business and tell them: "There is a Prajwal Pant sir - go to him, he will help you grow." If I then do good work, your status with that friend goes up. You gained something by referring me.
That is the mechanism. Humans are selfish, and respect - izzat - is what they want most. A customer refers you when it earns them respect and refuses when it risks it. If I had bad manners, if I could not speak properly, if money disappeared with me, you would never send anyone my way. So the number one criterion for referrals is that the product is good.
A good product is itself marketing. But do not read that as "stop marketing". Organic growth is very slow: turning 1 customer into 2 took me six months to a year, and some customers never referred at all. Referrals come, but slowly. You still market.
2. Hold internal events and get-togethers
This is the fix for "they did not remember you". You create the moment instead of waiting for it.
At a gym I worked with, we held 1 event a month and told customers to bring their friends. Friends paid nothing. The pitch was simple: you are going to go out somewhere anyway, maybe go drinking - come and eat at the gym instead, sit with your friends here. It builds the habit of being at the gym.
One person would bring 2, sometimes 3 people - a husband, whoever. Once those people had come in and used the machines, they wanted to come back. Customers grew that way. Your version will look different, but the structure is the same: a reason for an existing customer to bring someone through the door, for free.
3. Run a referral programme - and size it from your CAC
This is the fix for "there is nothing in it for them".
The best example I can give you is WorldLink's refer-a-friend campaign. As I understand it: refer one person, and both of you get a month free. I refer you, we both get a month; I refer someone else, I get another.
The referral programme at the gym I worked with ran the same way. Bring 1 person and you get 1 month bonus - and the new person gets a month too. One customer who brought 12 people got 12 months free. Every business has that one customer who says "I brought you so many people and you gave me nothing." This is for them.
It depends on your industry. A clothes shop cannot give the product away every time - maybe one customer becomes a brand ambassador. A car dealer cannot hand over another car. So how do you work out what you can afford to give?
Calculate your CAC - cost of customer acquisition. How many rupees does it cost you to bring in one customer? That amount is what you can give a referrer.
In the gym context: the bonus goes on monthly membership only, never on personal training. Let's say - and this is only an example - a month of membership is Rs 5,000. On paper, a free month is a Rs 5,000 loss. But that person now stays: next month, next month, next month. And would the same Rs 5,000 in marketing have brought in one person? Not necessarily. So Rs 5,000 to bring in one customer is not much of a loss. Of course we gave it.
And it is not even Rs 5,000 of cash - it is Rs 5,000 of the business's own product. If the gym charges Rs 5,000, serving that customer does not cost Rs 5,000. That smaller number is the actual investment.
4. Collect testimony - at the happiest moment
Of the four, this is one of the two I would never drop.
Ask when the customer is happiest - satisfied, just got a result, or leaving your business happy. Say, purely as an example, a client comes to me to grow their business, and in the first 3 months their revenue goes from 1 lakh to 10 lakh. That is the moment. Not next quarter - right then.
Use every means you have to get it, because a testimony is worth more than gold in business. Without testimony, nobody buys and nobody trusts you. Whatever we say about ourselves, the customer does not believe. Whatever someone else says about us, they believe - even when it is bad.
- The first one matters most. The first testimony and the tenth are worth different amounts. Work for free if you have to in order to get the first 3 or 4 - that is your investment.
- Do not hoard. Beyond about 10, more testimonies add little. But keep collecting new ones.
- Make the customer the hero. Do not make your product the focus - make the customer the focus. The testimony is still about you.
- Put the reward in the offer. "If you give us a testimony, we do this for you." State it up front.
Here is how I ran that last one. In several places, to grow gyms, I ran a Six Week Free Challenge. Free - but with a safety deposit first, Rs 10,000, 15,000 or 30,000 depending on the place, because people treat free things carelessly and you do not want the equipment wrecked. We trained the customer for 6 weeks. Then: give us a testimony and we extend your free time. Where there were plenty of people, we said it directly at the start - it is free, but you have to give us a testimony. That is how we collected them.
Which of the four matters most?
They are not in order of importance. In my opinion, product and testimony matter most; the other two are equally important after that. There are other ways to get referrals - research them yourself - but these four are what I have found most effective, and I always use them.
Start with one number
Before you build any of this, work out your CAC - because until you know what one customer costs you, you cannot size the reward.
And tell me which of the four matters most in your business, and how you are going to implement it. I read every one.