Dan Kennedy argues most businesses waste money on customer acquisition because they fail to systematize referrals. A single $1,000 customer who generates ten low-cost referrals pays for itself. The main problems: assuming good service alone creates referrals, not tracking which customers refer, poor communication about referrals, and making the process too hard.
Questions this video answers
An example that it costs $1,000 to acquire a customer and that customer produces 10 referrals, which greatly reduces acquisition cost.
Chapters
If you start asking, almost no business owner can give you mathematical answers about their performance, their efficacy at getting referrals. Secondly, it's not communicated well. So the customers themselves are not communicated with effectively in a way that causes them to actively refer.
Hello, and welcome to this month's masterclass. My name is Darcy Juarez. I'm here with Dan Kennedy. And Dan, I've heard you say that if you spend money marketing and advertising without having your act together to stimulate maximum referrals, you are actually wasting the lion's share of your marketing dollars. And so, with so many things, business owners leave referrals up to chance with no real thought or strategy going into developing a system. So I'm excited for today's masterclass on creating a magnetic referral system. You've said often that most businesses underperform in obtaining referrals. Can you kind of explain why?
Most businesses underperform enormously and to the point that you just made. All of your customer acquisition costs are front end loaded in the customer you acquired from advertising and marketing. The cost then of referrals from that person are very, very low. So if it costs you $1,000 to acquire a customer and you get 10 referrals that cost you very little, you essentially erased the original acquisition cost altogether. Which means from a competitive standpoint, you could be much more financially aggressive in acquiring customers in the first place. Your financial ability to competitively acquire can be largely affected, positively or negatively, by how good you are at securing referrals from the customers that you do obtain. Now, most businesses underperform, and they underperform for several reasons. One, they are operating under the assumption that if they just do their job, if they deliver what they promised and they deliver it when they promised or close to it, and you're satisfied that not only will you refer, you should refer, there's some sort of obligation that doesn't exist and that whatever referrals they get from that are all the referrals that they could get. So there's an assumption, largely because of that assumption, this is not managed. So few business owners track the referral performance overall, the referral performance of each customer. Does Darcy refer? Does Darcy not refer? Why the hell not? Does Darcy does Darcy refer? Three a year and our average is five, whereas the other two. So there's not. They're not tracking and they're not managing it as a. It as a process, as a meaningful statistic in their business at all. If you start asking, almost no business owner can give you mathematical answers about their performance, their efficacy at getting referrals. Secondly, it's not communicated well. So the customers themselves are not communicated with effectively in a way that causes them to actively refer. It's very random. It's very vague. It's, gee, it'd be nice, Mary, if you referred. But it's not communicated well. And then, third, it's definitely not facilitated. So the customer is asked to refer. Like, there'll be a little sign on the counter, right? We love referrals. A little heart sign. That's somebody's idea of asking. But they'll be asked. But they will not then be equipped or assisted in any way with referring.
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