IN THIS ISSUE
- Jay Abraham’s three ways to build a business
- The Power of the Parthenon and the pillar you need in your business
- The 5 reasons referrals help your business
- The surprise reason why people who make referrals become better customers
- One big referral idea to build into your newsletter or email list
After you’ve fenced in the herd, it’s time to milk the cows!
Remember, customers equals cows; metaphorically, of course.
But this time, we’re not milking for cash, we’re looking to expand the herd.
Jay Abraham’s Three Ways to Grow
I’m a huge Jay Abraham fan and you should be too.
He says there are three ways to build a business:
- Increase the number of Clients
- Increase the average transaction value
- Increase the frequency of purchase (get more residual value from each Client).
Jay lays it out here in this Power of the Parthenon presentation.
The presentation uses the term Parthenon to represent pillars of income streams and the idea that well-architected buildings (or businesses) stand on multiple pillars.
And look at the top of the list—referral systems—that’s the milk we’re looking for!
The Missing Pillar
Referral systems are an often ignored lead source category by a lot of businesses.
It becomes a legitimate parthenon pillar when referrals are converted into paying customers.
As I think back to my recent online product purchases, I cannot recall a referral system.
There are testimonial systems, but that’s more social proof versus a customer physically bringing another customer into the herd.
So why don’t we see referral systems more in the digital world?
Let’s learn more about referrals.
Only The Best Customers
Any business has its good customers and its not-so-good customers.
“Not so good” can be defined in any number of ways; the not so good don’t buy much or often and sometimes are assholes too.
Every notice that folks tend to hang out with those that are most like them?
If we believe that to be true even in the online world, then we probably don’t want as many referrals from our not so good customers.
Too many of the wrong kind and the quality of your customer list drops like a rock.
If you have a community site, this seems doubly important.
So what you really want to know is who your best customers are and then compel them to easily make referrals.
I won’t offer any advice on how you identify your best customers because it’s likely different for each of you.
You are on notice, don’t sour the milk!
Beneficial Qualities of the Right Referrals
Assume you get it right and attract the right referrals.
Here’s a lot of goodness that falls out of your hard work:
- A referral converts to a customer at a faster rate
- A referral spends more and with less price resistance
- A referral is less inclined to shop your competition
- A referral usually has an increased lifetime value
- A referral is more inclined to refer others because that’s how they found your business.
And there’s an amazing stealth benefit which takes us further toward that land of milk and honey:
Your original customer, the referring customer, is more committed to your business and their lifetime value actually goes up!
The Principle of Consistency
What gives with that original referring customer?
To understand that insight, you need to tap into Robert Cialdini’s book “Influence: The Psychology of Persuasion.”
Here’s the principle:
Once people make a decision, take a stand or perform an action, they will face an interpersonal pressure to behave in a consistent manner with what they have said or done previously.
In the book, an example is given for someone who speaks out on the importance of health and due to the principle of consistency, acts with the integrity of that recommendation by exercising regularly.
So any customer who makes a referral strengthens their commitment to the business.
Psychology is wild!
Read Cialdini’s book.
Referrals For Your Newsletter
On this newsletter, I’ve implemented SparkLoop, which enables subscribers to refer other subscribers.
The world’s best newsletter operators and media brands rely on SparkLoop to grow their audience faster and more affordably. You should too
At the moment, my implementation is pretty naive.
Finding the Ideal Referral Segment
Now some might debate this, but even among my subscribers, I might still be able to discern who are the better subscribers.
After all, the least valuable subscribers are those who routinely don’t open their emails and/or never click any links.
There’s no guarantee their referrals will be this same way, but it makes me want to do an A/B test somehow and test my hypothesis.
Unfortunately, there is no native support for A/B testing outside of subject lines in ConvertKit, so I’d probably have to define segments for my referral and non-referral subscribers and manually conduct the experiment. I might do that, but I do not have enough subscribers to get a reliable signal.
Whatever the case, implementing in ConvertKit would be as easy as putting an if/then clause around the display of the SparkLoop widget; using my segmentation logic.
If I do it, I’ll find a way to detail how I set up the test, what I learned, and how I integrated the learnings here.
Partnering With Other Creators
SparkLoop also offers the possibility for paid referrals from their partner network, but requires a $2,000 per month minimum spend.
Essentially, you pick partners whose subscribers may be a good fit for your newsletter and you can assign a portion of your monthly budget to paying for those referrals. The partner integrates a widget on their site which recommends your newsletter.
Obviously this works for some newsletter creators, but you need to be prepared to spend a decent amount of money and trust SparkLoop’s vetting process and quality control.
It makes no sense for me to try it because my newsletter has no proven back-end offer to justify the expense; someday maybe.
My question is who transfers the biggest halo effect: your engaged subscriber or a paid partner?
Referrals as Affiliates
But what would happen if your referring subscribers automatically became affiliates?
And you had an attractive back-end suite of high-ticket offers?
Referring subscribers suddenly have a big incentive to make pretty qualified referrals—buyers—to get a piece of the pie through affiliate commissions.
This seems like a big idea?
If you did something like this, you’ve built a mechanism to accelerate the growth of your key asset—your subscriber list—which is future cash flow and equity.
And you’ve increased the possibility of cash flow now.
That sounds like whole milk to me!
Easily create, track and grow your own affiliate marketing programs. Affiliate tracking software for E-Commerce and SaaS that integrates seamlessly with your site in just minutes. Begin affiliate marketing to reward loyal brand ambassadors and boost sales.
I hope you enjoyed this riff on referral systems and will consider focusing on this part of your online business.
Most online businesses focus nearly exclusively on attracting new customers from the front-end, but now you have a few ideas on how to do it on the back-end.
If you get inspired to build this, let me know how it works.
Live long and prosper.
P.S. If you liked this newsletter, please consider leaving me a testimonial to help me spread the word.