One of the most powerful forms of marketing is word-of-mouth. Setting up a referral program for your small business allows you to leverage fans who already love what you do to spread the word about your company and bring in new leads.
Average referral rates vary by industry. According to a Referral Candy study, the average referral rate for apparel is around 2.23%, while it reaches 3.4% for electronics. After about six months, you should have a clear idea of your average cost of acquisition and how successful your program is. There are many benefits to a referral program.
Here are some things to be aware of before adding one to your own marketing lineup. Cover photo by: Kristin Hardwick
1. Create Loyal Customers
People who come to you via referral are more likely to remain your customers. Not only that, but the person referring will probably stay with you if things remain steady. No one wants to be seen as recommending a friend to a service or product they wouldn’t use themselves. You should also reward your customers for their referrals with credits or dollars to spend. By keeping the reward tied to your company, you maintain a connection with your army of supporters.
Greats offers credits both to the person referring friends and family and the individual being referred. By giving a credit to spend, it encourages repeat business and keeps customers with the brand. It’s only good with the company, so you can’t use it elsewhere. This brings people back again and again.
2. Consider Customer Experience First
When it comes to developing a loyal street team who will recommend your company to others, you must first create an excellent customer experience (CX). Don’t try to add a referral program until your service is stellar. The interactions your users have on your website and when calling your company need to be top-notch before you ask anyone to talk you up.
Once your CX is the best it can be, it’s much more likely your customers will want to share what you do with others. The way you handle customer relationship management (CRM) directly impacts how successful your referral program might be.
3. Offer a Reward
Companies offering higher cost point products may want to sweeten referrals with gifts. For example, if you work with businesses or homeowners, offer a gift card or free extra for recommendations resulting in a sale. The reward should match the amount the sale is worth. So, if you sell a $10 item, the reward will be far less than if you sell a $1,000 item due to a referral. Crunch the numbers to figure out what you can afford but is still attractive to the target audience. Keep in mind if you plan to reward both parties, you’ll need to half the amount for each.
RoofClaim offers a $150 Visa gift card if you register for an account and submit a successful referral. This allows anyone to take advantage of the offer. With enough referrals, you could even pay for your own roof replacement by referring enough people to the service.
4. Save Money on Marketing
Referral marketing is one of the most cost-effective forms of promotion you can utilize. It only costs you a bit of time to create the program and promote it to your current customers. They only get rewarded if their referral results in a sale. The closest promotional method would be pay-per-click, but now you only pay if you bring in revenue. It’s the perfect way to grow your business on a shoestring.
5. Offer Premium Services
One way for companies providing services to start a referral program and also up your revenue in the process is offering time for a premium service. Your plan can be tied into upgrading your current customers’ accounts as well as letting new referrals try out premium services at no charge for a set amount of time. Not all will stay with the premium service. Some will remain, some will go to basic and some will refer others so they can get more free upgrade time.
Skillshare offers any new customer seven free days on a Premium account. Current clients can earn and give free time as premium members. The model works well to reward loyal fans while attracting new ones.
6. Improve Your Odds
You may be in an industry where there is a lot of competition. People are much more likely to go with a brand someone recommended to them. By creating a referral program, you put yourself in the running for their business. If they know someone who already is your customer and thinks enough of your business to recommend it, they’re much more likely to give you a chance. Once they buy from you, you can easily prove yourself to new customers through your service models and excellent product quality.
Should You Start a Referral Program?
As a small-business owner, you best understand where you’re at and if your customer service is where it should be. Once you feel you’re ready to take on new clients, it’s probably time to implement a referral program and start gathering new leads. Never start a program because your competition has one. Make sure you understand your audience, what they want and what you have to offer. If you pay attention to these elements, you should get more recommendations than you can imagine and scale your business up quickly.