If you’re a business owner, you hear about metrics and key performance indicators (KPIs) all the time. Metrics are what we measure in our business. And KPIs are numbers we track over time that tell us about the health of our business. Each helps us be more profitable, productive, and successfully grow our business.
In finance, you might be using an accounting tool like Quickbooks and tracking every invoice and expense. Your KPIs could be revenue and profit, for example. In e-commerce, you’re likely studying conversion rates (how many website visitors became customers?) and seeking to grow your loyal customer base.
There’s one metric we believe every business, regardless of industry, ought to be measuring, if they want to grow. It’s how your customers first learned of your business, your product, or your services. Whether you’re a team of one with an excel spreadsheet, an eCommerce business using Klaviyo, or a B2B Business using a free tool like Hubspot, there’s a simple question to start asking customers.
How Did You Hear About Us?
We’ve all filled out an online form for a product or service that asks, usually toward the end of a form, “How did you hear about us?”. It’s typically coupled with a drop-down list of options to select: Online search. Facebook. Radio Advertisement. A Friend. An Employee. Other.
This is a simple technique used to capture some key information about where leads and interest in your product or services are coming from.
In marketing lingo, we call this your customers’ referral source.
What Tracking Referral Sources Tells You.
Simply put, tracking referral sources will tell you where your potential customers or leads and later on customers — are coming from. How did they hear about you?
Anyone who is a potential customer that’s considering purchasing from your business came from somewhere and you can learn a lot from keeping tracking of that information.
Once you start tracking referral source, you can start to see:
- which events, activities, or even networking groups are generating leads (and which ones are worthwhile)
- which marketing activities are generating leads (and which ones are worthwhile)
- which business activities are generating leads (and which ones are worthwhile)
- which people to thank!
- what’s not generating leads, i.e. reading between the lines
Increasing visibility will help you see what’s working and what’s not working, and both of these are insightful.
More Leads = More Money?
Any sales expert will tell you how important it is to have leads. More leads means more business, right? Well, in general — yes. All businesses have some kind of sales funnel, where prospective customers find out about your business, get convinced that your product/service can fix a problem they have, and decide to become a customer. This is a sales process, and while there are a lot of factors at play that can make your sales process convert higher, it’s true that without any incoming leads you won’t be getting sales. There’s a correlation.
Sidebar having more leads isn’t the only (or best) way to drive sales and revenue. You’ll want to look at other KPIs like conversion rate, average order value, and even things like lead qualification where you’re investing time in leads that are likely to become customers. We’ll write about these topics at another time.
When it comes to the referral source, however, let’s look at why it’s such a gem. It gives you a concrete way to measure the holy grail of business metrics — Return on Investment (ROI). Whether you’re spending money to be part of a networking group, on a service like SEO or advertisement, or spending time on social media or hosting free events or cold calling — these are all investments you are making to generate more revenue in your business. As a business owner, you want to be focusing on marketing activities that yield a high Return on Investment.
Tracking Referral Source gives you a way to measure Return on Investment. Without it, you simply won’t be able to tell what marketing activities are working. It’s a really good starting point, one that many business owners have the information for either in their teams or in their Google Analytics. It yields tremendous insight on its own, and can also pave the way for so much downstream high-ROI data-driven strategy.
When You Get A Customer — Say Thank You!
As a small business, good manners matter. Small businesses are rarely the cheapest, fastest business in the world, but we sure can be the nicest! In a world where Customer Service and good post-purchase manners are increasingly important, so is thanking for a referral part of good business etiquette. According to a recent Microsoft study, 90% of consumers globally believe customer service is important in the choice of a brand. And while many small businesses have customer service programs and plans, many forget to thank referrals for new business systematically. If new business comes from a friend, a client, or an acquaintance, say thank you at a minimum, and consider sending a small card or gift as a token. The details depend on your business and what makes sense. Whatever your method, how would you know who to thank if you don’t know where your leads and customers are coming from?
When someone refers to your business, that means they thought of you, helped you make a connection you might not otherwise make, and essentially did your marketing for you. That’s worth a thank you in my book!
When You Don’t Get Leads — Dig Deeper.
By tracking referral sources consistently, you’ll also start gaining insight from what’s not generating leads. Once you’re consistent with this, you’ll have visibility — and that means seeing where your leads are coming from, and also where your leads are not coming from.
- Did someone say they’d put you in touch with a friend, but they haven’t yet? Now you know to follow up.
- Did you expect to see lots of leads come in from a particular event or networking group, but you haven’t yet? Now you know it’s time to evaluate whether that’s worth your investment.
- Are your past clients not referring to your business? Were they not happy with the experience? Do they just not know how to refer you to others? Exploring these questions can be tough but it might just be the key you’re looking for to generate additional business. Maybe it’s time to re-evaluate some of your business practices, or service offerings.
While it’s true that some marketing initiatives take time and consistency, you might not immediately start seeing sales (for example paid advertisement, email marketing, list growth, SEO and time to get found). It is still reasonable to expect a return, even if we’re talking 1, 3, or 6 months out. There are lots of directions this exploration could take — but the take-home here is you won’t know where to dig unless you can see where your business is coming from.
How to Implement This in Your Business:
- Begin by defining your referral source categories. Start with your current clients: Where did they come from? Make a list. Add to that list any marketing initiative you tried over the past year — advertising, networking groups, events, etc. Make sure you give people a way to write in an answer or name. The last thing you want is to force a lead to select “any random choice” just to be able to submit a form.
- Now start collecting. A Customer Relationship Management (CRM) system is a tool designed to manage your contacts (leads, customers, partners). While I’d recommend a CRM to track referral sources, you can also just use a spreadsheet or a field in your Contact list, or a tag in your email marketing tool. However you are managing leads, add on this extra field and put it to use. Add it to any intake form or scheduling tool if you have one. Whatever your means, start collecting this information. “How did you hear about us?” or “How did you find out about us?” are good choices for wording the question.
- Here’s a pro tip: People can have more than one answer to this question. Make sure this is a multiple select answer, not a single select answer. This will help you get a more accurate picture.
- Be consistent. Get in the habit of asking or clarifying when you have a conversation with a new lead. If someone writes “my neighbor,” try to get a name. Try to get to a point where you are capturing this information for all customers.
- Maintain your answer choices. Your categories will change a little over time, and it’ll be your job to maintain this information. You might add in new referral sources over time, you might need to occasionally check and adjust for consistency. KPIs are as useful as their data is accurate.
- Make time to draw insights. You might have set this all up perfectly, but if you don’t look at it you won’t draw insight from it. Check-in on referral source quarterly, look at the data and make some time to evaluate what is driving new business for you. This is a good time to write thank you notes, send follow-up emails, and focus on business development initiatives with clear data-driven insight.
Referral Sources are a useful Key Performance Indicator for your business — and can be extremely insightful. Understanding where your leads and customers are coming from is a good idea for any business — and a precursor to any insight about Return on Investment (ROI).
What’s great is that you don’t need costly software to make use of this — you can start tracking this information immediately. Plus, it’s just a simple question — one most are answering when they contact you anyway, so it’s not invasive or complicated to set up. The benefits of tracking this KPI are both immediate (knowing who to thank, having immediate visibility on what’s generating leads) and long-term (being able to evaluate your business activities). In every possible way, tracking referral sources is a win for your small business. So, start asking!
Book a discovery call if you’re curious about the best way to implement this in your business. CRM and Automation are some of my favorite conversation topics, I kid you not! (I’m the real life of the party!)
Visit this blog to learn more about financial KPIs from Hannah Smolinski of Clara CFO.
Listen to this podcast episode: How To Get More Referrals. Natalie Eckdahl, CEO of BizChix, covers this topic best.