How to build a successful referral program

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A referral program can help you turn your existing customers into active promoters of your business and partners in your success. Regardless of your type of business, every satisfied customer is a word-of-mouth campaign waiting to happen.
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Customer referral programs might also be known as a customer loyalty program, a customer incentive program, or a customer retention policy. The objective is still the same: keeping your local customers happy while also providing referral incentives to attract new customers.

Why should you offer a referral program?

A referral program is a cost-effective way of growing your business. Think of it as a highly targeted, low-cost advertising or word-of-mouth marketing campaign. Instead of buying ads or building a social media presence, you can get your customers to spread the word about your business.

After all, if a friend recommended a contractor or a trustworthy mechanic, most people would trust that referral much more than an anonymous review or an ad promotion.

A referral program can also help create a loyal customer base, especially if you offer incentives for your frequent customers or those who help you grow your business by spreading the word about what you have to offer.

Referrals can also help you build a social media presence by asking satisfied customers to vouch for you on Facebook, LinkedIn, and other platforms. You might also get a customer’s permission to post a review on your website and social media platforms.

Another benefit to a referral program is it reminds your customers of the relationship they have with your business. It incentivizes them to help you generate new leads while also improving your customer retention rate.

Even your best customers might not think of helping you spread the word about your business, though a referral marketing program with the right incentives can turn them into brand advocates for your company.

A successful referral program should make it easy for your clients and customers to help you promote your business.

What should a referral program have?

To make your referral program work, it should have something that maintains the retention rate of your existing customers, while giving them an incentive to help you connect with potential customers.

Your brand awareness and marketing strategy should make the referral process as easy as possible, with a clear call to action for your customers in promoting your business and steps for your employees to follow as they respond to new leads.

Whatever incentives you offer should also be something that you can afford to maintain as your business grows. You wouldn’t want your new customer acquisition costs to become so high that they undermine your profitability.

The key elements of an effective referral program include:

Customization

Before implementing a referral program, it’s important to consider the motivations of your customers. Would they prefer a discount for being a frequent customer, or for offering a referral?

Do they have a business or service that you can help them promote? You might consider different referral benefits, depending on what would motivate each customer.

You should also find out if any of your customers are social media influencers and the digital marketing channels they use.

If your business will be doing cross promotions with another company, you might offer each other examples of the kind of messaging you’d like to see and the type of high-quality customers you’re looking for.

Incentives

Simply asking your customers to help promote your business won’t be enough. Some of them might be so happy with your products or services that they’ll recommend your company to their friends and neighbors, although you’ll have much better results by offering something in return. It should be something they see as a win-win situation for both of you.

For example, if you focus on business-to-business relationships, such as consulting or IT services, you and your customers could help promote each other’s businesses.

Other incentives for your referral program might include:

  • A store credit, gift cards, or discount based on the number of referrals and new business that your current customers bring in.
  • A drawing for a free product or service among your customers, for those who give you a referral.
  • Joint promotions and recommendations between businesses, with reviews and social media posts.
  • Free merchandise featuring your company logo, such as hats, T-shirts, drink cozies, or other desirable merch.

Shareability

A successful referral program should make it easy for your clients and customers to help you promote your business.

One way to do this is to create a page on your website with information about your referral program and links to any platform where you'd like to promote your business. You might also offer templates for the kind of endorsements you’re looking for.

You could also list any positive referrals and reviews that you’ve received, which can encourage other people to get involved and give them an idea of the type of referrals you need.

Of course, a more proactive approach would be to send links via text or email to your customers "that either lead to your referral page or take them directly to your social media accounts.

A review system

As with all your business practices, it’s a good idea to review your referral program now and then to gauge how effective it is and see if you need to change anything.

You could start by tracking which referrals lead to a new customer, and which methods or platforms are the most effective. Are Google reviews more effective than Yelp? Do your customers prefer LinkedIn or Facebook? Are there other social media platforms that your targeted customers prefer?

Just as social media and online trends are in a state of flux, you’ll need to keep on top of where your target customers are getting their information and searching for new products or services. You could do this with an email or text survey, by posting a question on social media, or by casually asking your customers one-on-one.

What metrics will you use in evaluating your marketing tactics, and what’s your conversion rate for turning new leads into customers?

Key things to consider are:

  • Which type of customers bring the most referrals, and how do they interact with their business partners or friends?
  • What incentives do your clients and prospective customers prefer, and how can you improve on this?
  • How effective is the messaging you use in your referral program?
  • Can your most enthusiastic referrals offer advice on your messaging approach? What encouraged them to promote your business?
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How can I get more referrals?

The most obvious way of gaining referrals is to ask your satisfied customers if they’d like to participate in a referral program and explain the benefits. There are a few helpful methods you can use to get customers to "opt-in" and stay that way.

Stay in touch

If a customer is happy with your business, you could ask them to sign up for text or email alerts about new product or service offerings, and discount programs.

You should also get an idea of how often they would like to hear from you, as you’ll want to make sure that you don’t overwhelm your customers with too much information or too many requests.

Stay competitive

As you build your own referral program, you should consider the kind of programs your competitors and others in your industry are offering—and the type of messaging they use.

Is a competing restaurant offering a frequent diner discount, a birthday rewards program, or a free meal after so many visits? Does a competing retail store offer coupons based on how much each customer spends in a particular month or year? These are the kinds of things you’ll need to know.

Offering discounts and specials that are in-line with industry standards and expectations will help bring customers in and keep them coming back again and again.

Keep your program visible

You should have a landing page on your website or blog where you post these kinds of notifications. This way, you can keep your messaging short and include a link when you send a text, an email, or post something on social media.

Make them feel valued

As you gain referrals, make sure you reach out and thank each person or business that joins your referral program or helps you promote your business.

While you naturally want to put your best foot forward at all times, this is especially true when it involves a referral program.

Anyone who refers someone to your business will expect your new customer to be treated as well as they were, and a dissatisfied customer would be unlikely to offer any referrals in the future.

What are some referral program examples?

While these successful referral campaigns were done by large and well-financed companies, there’s no reason they couldn’t be scaled down for the average small business owner. Consider these examples as referral program ideas for your business.

Google Workspace

Those who sign up for Google Workspace can receive a promotion code and a unique referral link they can offer to anyone in their network who has a business or is thinking of starting one. In exchange, Google offers payouts of $15 to referrers for every new Workspace customer who signs up for 90 days or more, while the new customer receives a 10% discount for one year of Workspace service.

Uber

Every Uber customer receives a referral code when they sign up for this service. Every time a new Uber account is created using that code, both the new and existing customer can get their next trip for free.

PayPal

One of the most successful referral programs began in 2000 when PayPal offered its customers $10 for every new customer they brought in. The company saw rapid growth, growing from thousands of customers to more than 1 million in less than a year.

Today, PayPal offers customers up to $100 if an existing customer brings in 10 new customers. Both the existing and referred customers also receive a referral reward worth $10 if the new customer spends $5 within 10 days of signing up.

Dropbox

This file hosting service gives its existing customers upgrades of free extra storage if they refer two friends, family members, or coworkers who become new users of their service.

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Mike Mosser, Content Specialist

Mike spent several years as a reporter and editor covering politics, crime, and the world financial markets. He’s worked for several newspapers, a financial newswire, and a monthly magazine. As a copywriter, Mike has produced SEO-based content, marketing, public relations, and advertising work for a variety of companies.

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