How to build a successful referral program

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.

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.

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:

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

It's easier to build customer trust when you have the right business insurance. Complete Insureon’s easy online application today to compare quotes for general liability and other kinds of insurance from top-rated U.S. carriers. Once you find the right policy, you can get coverage in less than 24 hours.