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Networking and referrals are good, cheap marketing

July 07, 2009|Karen E. Klein

Dear Karen: I need to generate new business on a tiny marketing budget. Any advice?

Answer: Networking, word-of-mouth and referrals are cost-effective techniques that many entrepreneurs overlook.

Great customer service alone will not generate referrals these days, said Court Cunningham, chief executive of Yodle Inc., an online lead-generation firm based in New York.

"Constantly ask for referrals and educate those close to you on how to look for referral opportunities," Cunningham said.

If you're timid about asking directly, start by asking clients to provide testimonials or write reviews of your business online. "If you're proud of what your business is offering, you'll want to help others take advantage of your good service or product," he said.

Also, give service credits or discounts to clients who review or refer you, Cunningham said. "People want to help. They identify with small-business owners and they want the underdog to win."

Once you have established a referral program, send a description of it to all of your satisfied clients. Don't forget to send it to past clients, because it could be a way to rekindle old relationships, he noted.

You can also ask for referrals from companies that perform services that are complementary to yours.

"People like to help friends in related businesses, so long as they're not competitors," he said. "It's a win-win."

It's also helpful to provide clients and colleagues with literature that describes everything you do.

"Make sure there's a leave-behind. We recommend a one-page glossy summary of your services," Cunningham said. "Make sure it lists what areas you serve."

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Work with clients to lower prices

Dear Karen: I'm holding off on lowering prices on my service business, but as my clients cut costs, I may need to. How do I do it?

Answer: Work with your clients to arrive at terms, said Terri Coffel, a CPA and partner at Citrin Cooperman & Co. in New York.

Talk to your suppliers and subcontractors to find out whether they can share in cutting costs and help you maintain profitability. If you must, consider discounts for customers who sign long-term contracts and pay upfront.

"Discount long-term clients who value your service and don't view it as a commodity. They're the ones most likely to help you survive this current economy," Coffel said.

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Franchises offer more, at a cost

Dear Karen: I'm considering buying a franchise. Are there advantages?

Answer: Opening a franchise outlet offers marketing advantages as well as support, expertise and training. But it can be more costly than going into business on your own.

Catherine Fox-Simpson, a tax partner in the retail and consumer product practice at accounting firm BDO Seidman, said a top franchise such as McDonald's can cost several million dollars.

Entry into lesser-known service brands may be as low as $50,000, she said.

Along with initial franchise fees and annual service fees, you'll pay a percentage of gross revenue, between 3% and 10%, to your franchiser, she said. In many franchise operations you'll also be required to buy all your equipment and supplies from the franchiser.

"There are thousands of franchisers, including many most people have never heard of," Fox-Simpson said.

To get a sense of the opportunities, attend a franchise convention, such as the one put on by the International Franchise Assn. ( www.franchise.org).

Make sure to talk to actual owners of any franchise you consider, including those not on the list provided to you by the franchisers.

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Got a question about running or starting a small enterprise? E-mail it to inbox.business@latimes.com or mail it to In Box, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012.

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