Creating a referral system is simply good business sense. Dalbar Associates, an independent research firm, found that referrals are seven times more likely to become clients than cold call prospects. Many business owners already know they should be asking for referrals, however they simply don't know how or where to begin.

While interviewing dozens of successful business owners for my book Start It, Sell It and Make a Mint, our research team found that the overwhelming majority of high-growth firms had implemented some form of ongoing referral system. Here are three time-tested ways to build a new stream of referrals for your business:

The Three Steps

Step One: Identify which of your good clients like to help.
One of the keys to generating referrals is to ask the right people. Bill, who runs a successful auctioneering company in the South, relies primarily on word-of-mouth to attract new customers. He has some simple guidelines for referral sources:

"The right people to ask for referrals typically have three traits: they are good clients, they are happy with the services we provide, and they like to help." This last trait is an important one. "Not everyone wants to go out of their way to help. When we have a helper client, they actually feel good about helping us," explained Bill.

To put this first step to work, identify your best, most satisfied clients. Asking your best clients for referrals is important because people tend to congregate with people similar to themselves. Chances are your best clients' associates will, in turn, make great clients for you. Then ask yourself which of these clients will go the extra mile when asked for some assistance.

"I have a simple test," said Bill. "I ask the person if they know of a restaurant they'd recommend for me to take my wife; a helper will immediately want to tell me about a great place. They might even tell me to use their name when I make the reservation, and afterwards, they always want to know if I had a good evening."

If your clients are in a different town, try asking where you should be staying when you visit their city. Helpers enjoy connecting and assisting others and make the best source of referrals because of the personal pleasure they derive from the exercise.

Step Two: Ask for referrals in the right way.
Sometimes referrals will happen even if you exert no effort, but most of the time you will have to let your clients know you want referrals. Making referrals conditional upon success is one way Joan, an accountant, has grown her business exclusively by word-of-mouth.

"Whenever I bring on a new client," she said, "I let them know that I grow my business only by word-of-mouth. That way, I can concentrate all of my energies on taking care of my clients. I ask them, if they are happy with the service we provide, to please think of us should they have associates who need an accountant. No one objects because what you are asking for is conditional upon their level of happiness with what you do for them."

Other business owners prefer a more subtle approach. They might place a simple statement on a business card, newsletter, or small sign in their reception area. The goal is to kindly let customers know that referrals are appreciated. Here is a great example of an annual thank you note sent by Mary, who owns a printing firm.

"As you know, we grow our business primarily by word-of-mouth, so I want to give special thanks to our dear clients who thought of us and sent us their friends and associates to help with their printing needs. We could not grow without your help. Have a wonderful Thanksgiving."

Step Three: Always give a personal thank you.
After someone has sent you a new client, take the time to show your appreciation. A handwritten note or a personal phone call can make a big difference to someone who likes to help. David, who runs a successful financial planning practice, finds personal calls most effective. "It's amazing what happens when I call to thank them," he said. "They love knowing that they helped their friend and that they helped me. The key is to make them feel good with what they did. I will often get another referral right there and then!"

It can also help to offer a discount to clients who provide a referral, though that sometimes provides mixed results. "My clients help me because they want to, not because they might get a discount," said Mary.

But, in more transactional businesses, giving a discount can be a nice incentive. Mark, who runs a yoga studio, gives a free class to anyone who brings a friend who hasn't come to the studio before. "It's a little extra incentive for somebody to tell their friends about our studio, and we know that most people who come once will come back," said Mark.

One of the keys to building and growing a great business is finding ways to attract the right kind of new clients on a regular basis. Implementing these steps is a relatively easy and rewarding way to grow your business.

Joe John Duran CFA works in the field of entrepreneurship. His book, Start It, Sell It and Make a Mint: 20 Wealth Creating Secrets for Business Owners and Web site, www.startitsellit.com, provide practical tips to help business owners.

Publication date: 06/27/2005