10 Minute Book Summary: The Referral Engine

Your small business could be generating referrals like a well-oiled machine, says John Jantsch in his book The Referral Engine – Teaching Your Business to Market Itself. And such a “machine” would ensure your company a steady flow of new customers.  

The marketing consultant and author of Duct Tape Marketing explains the “science” of referrals and outlines steps for you to create a referral-generating machine – a systematic approach that if done right will function as part of your marketing plan to bring in new customers.

Jantsch warns his readers (or listeners) that building the “ultimate referral business” is not only work but may cause you to “rethink” how you see referrals, your marketing strategy and “possibly alter the foundations of your business model.”

What You’ll Learn

The power of word-of-mouth marketing was established even before social media. People have long trusted the recommendations of a friend, family member, co-worker, or even a stranger who has similar tastes and interests (think social media) to buy products and services from a company they don’t know. 

That’s why referrals remain a clear path to landing new business. Referral generation, Jantsch says, is one of the most effective forms of marketing. And Jantsch says, businesses have a physiological advantage for getting referrals.

“Human beings are physiologically wired to make referrals,” he writes.

The author explains the propensity to make referrals comes from the hypothalamus, the tiny part of our brain that regulates sexual urges, thirst and hunger, maternal behavior, aggression, and pleasure.

“The hypothalamus likes validation – it registers pleasure in doing good and being recognized for it and its home to the need to belong to something greater than ourselves. This is the social drive for making referrals,” Jantsch explains.

That said, companies can grow their business by learning how to tap into that hardwired desire, your customers’ natural drive to make referrals.

Make it a System

Jantsch believes that businesses have more control than they think over how and when they get referrals. He reminds owners that running a business, at its core, comes down to running a set of systems and processes, and that marketing is one of those systems, like finance and management are.

“If you follow this line of thinking, then referral generation is a set of processes within the overall marketing system,” Jantsch writes.

Guide Your Customers to Referrals

In his research for the book, Jantsch confirmed that small business owners are hesitant to ask customers for referrals. But that discomfort eases when referrals become part of a system designed for your company. 

The book provides strategies and methodology to build these processes – Jantsch wants you to find a “perfect culture of referrals.”  The ideal referral system, he says, is based on a strategy that gets people voluntarily talking about your business, eliminating the need to ever actually ask for referrals again.

Customers are on the ready (“wired”) to make referrals for you. It’s up to you to guide them to do so - teach your customers to be a key part of your marketing system. 

Be Referral-Worthy

Jantsch spends a few chapters of his 13-chapter book emphasizing the importance of shoring up your company as a business worthy of referrals. 

For one, keep those customers happy, he says. You want to make your business as referral as possible. Remember to talk with your customers, not at them. Take advantage of social media and other opportunities to engage in conversation. 

Jantsch writes about the importance of the 4Cs: content, context, connection and community – and explains the seven stages of referral development, and corresponding touchpoints. 

He developed what he called the Ideal Customer Lifecycle as a tool to demonstrate the way a prospect becomes a customer, and that customer becomes a referral source. 

The stages begin at Know, the first time someone is introduced to your company, and end with Refer, where customers become “such total advocates for your business they operate as a form of uncompensated sales staff.”

Understanding the customer referral cycle is a key step – learning how to move customers and prospects along the path of Know, Like, Trust, Try, Buy, Repeat, and Refer stages creates a system that sets up a healthy referral cycle. 

Partnering for Referrals

Jantsch also explains how creating partnerships can help you sustain a steady stream of referrals. These partners can include strategic partnerships with businesses or individuals who provide a good or service that is directly tied to your business’s product offering, or with content partners, such as bloggers.

Also, he advises, seek co-marketing partnerships with business owners whose business models have some sort of synergy with your own company. If you’re a plumber, this person might be an electrician or contractor. 

Also, you want to make it quick, easy, and beneficial for your existing clients to spread the word about your goods or services to their friends. A great way to encourage and gather referrals, either from existing customers or partner businesses, he says, is to create and implement a system that rewards customers for referring your business.

There are many kinds of referral rewards programs – your customers could get a discount or a gift card – but yours should reflect what your customers would appreciate the most in such a reward system. (He suggests doing a survey of your customers to find out before you start one).