Without a customer referral program, your small business is missing out on one of the most vibrant and highest ROI-producing marketing channels there is. Think of it as the 21st century version of word of mouth.
The big players across virtually every industry have launched some sort of referral program. In fact, companies like Dropbox, Slack, Airbnb, and Uber, attribute a significant portion of their growth and success to customer referrals.
You can transform your happiest and most loyal customers into brand ambassadors by incentivizing them to recommend your products or services to family and friends (or the world at large via online reviews or social media). Whether you are a traditional retailer, run an online store, or both, you can reach a surprising number of people. And the leads that come from customer referral programs—also known as word-of-mouth marketing—are more likely to convert to sales. Your business can grow and scale significantly with such a program.
A landmark 2010 study published in the McKinsey Quarterly found that word-of-mouth recommendations were the primary factor for up to half of purchase decisions throughout the customer journey. The study revealed that these referrals were much more impactful on sales than traditional advertising and were the most “disruptive” force on consumer decisions at the actual point of purchase. Another study found a full 18% of Gen X consumers use word of mouth as their primary way to discover brands—more than newspapers, magazines, or blogs.
To illustrate how customer referral programs can work for small businesses, let’s use the hypothetical example of Martha’s Cleaning Service, based in the Midwest. Customers who visit the website find a friendly, low-key request to “tell a friend” if they’re pleased with Martha’s service. If the friend becomes a customer, both referrer and friend get $50 each. A win-win referral program like that is proven to be more effective than one-sided programs in which either the referrer or referee receives a reward—but not both.
How to do it: Customer referral program best practices
Here are eight steps to help you start your small business customer referral program.
1. Hone your product or service to a level of excellence
Customer referral programs only work if your customers genuinely appreciate your product or service. No one wants to sell out friends and family for a small reward, and then be blamed for poor results. Their reputation will suffer. A referral program won’t work unless your product or service solves a real problem or generates real excitement among customers. So, having quality standards worth talking about is Job Number One.
2. Set measurable goals
The next step is to clarify what you hope to achieve with your customer referral program. Usually, the end goal is to increase revenue in some way. But can you be more specific than that? The more precise your vision, the more successful your program will become. Try to pin down a quantifiable objective you can strive for:
- More subscribers to your newsletter
- Higher traffic to your website, or even to a particular page
- Increased sales of one specific product
- Upgrades from an existing program or product to a new or premium version
- Increased net promoter score (NPS)
This kind of focus can also help you design the right referral program to reach your specific goal. For instance, if your goal is to increase newsletter subscribers, rewarding customer referrals for a particular product may not make sense. Instead, you may want to reward customers who share your newsletter with their friends.
3. Offer rewards of real value to both customers and potential customers
This doesn’t necessarily mean awarding cash back, although a discount on the regular price of a product or service is the single most-used incentive in customer referral programs. Small businesses with tight margins may not be able to afford this option. So, find out what motivates your customers? What gets them excited? Maybe more of what you sell? Dropbox, widely considered to have one of the most successful customer referral programs, offers more online storage space for successful referrals. If your brand has a certain caché, offer business-branded swag—hats, t-shirts, or bumper stickers. Look through your inventory for slow-selling items or consider which of your services can be provided relatively economically. Offer a sneak peek at new products, participation in an exclusive online event, or a Q&A with a local celebrity. Your incentives don’t have to break the bank to be attractive.
4. Carefully time your request for referrals
Although some word of mouth happens naturally, you’ll usually have to ask your customers to spread the word about your products or services. Timing is important. It all depends on what you sell. For relatively low-ticket items, you can ask immediately after the sale is concluded. For more personal, or large-ticket sales, you may need to wait until your customer has had more time and experience with whatever you’ve sold them.
Once you’ve asked, don’t pester your customers. Nothing is more annoying than a brand that constantly pings you to rate them or make recommendations to others. Referral fatigue is real, so make sure you don’t trigger it.
5. Make it easy
People are busy and easily distracted. They don’t need to do you a favor—and that’s essentially what you’re asking. Keep it simple. If they must fill out a multifaceted form, or provide you with too much sensitive data, they won’t do it. The most successful customer referral programs are built around:
- Easy-to-understand rules
- Rewards for both the referrer and the referee (see #1, above)
- Simple sign-up process
- Immediate (or as soon as possible) reward receipt
6. Take a close look at your website
Don’t think that just because a potential customer has received a recommendation from a friend that they’ll immediately (and blindly) get on board. Most will research your brand. If your website isn’t up to standards, you’ll lose a lot of potential business. Make sure it’s professional, pleasing, and free of typos or broken links. If you’ve got excellent ratings on a local or national ranking service, link to them. The referral may cause new customers to knock on your door, but your website or landing page is what invites them in.
7. Advertise your customer referral program
Your customer referral program must be easy for people to find. All potential touchpoints customers have with your brand—your website (especially your home page), email signatures, blogs, newsletters, and social media—should have prominent references to your program. If you have a customer-facing location, don’t forget in-person touchpoints. Everything from printed receipts to brochures to signs on the wall or near the cash register can be used to inform customers of your program.
8. Automate as much as possible
You’ve got a lot on your plate running a small business. So, the more streamlined you can make your program, the more likely you’ll be able to support it over the long haul. You can deploy referral software that does everything from tracking referrals to providing analytics of how well your program is doing. If you use an online shopping platform like Shopify, you can easily find compatible referral programs. Referral Candy, Referrals & Abandoned Cart, and Talkable Referrals are three popular programs that allow you to focus on your business instead of managing referrals.
Conclusion: Set your expectations
You naturally want to see immediate results from your referral marketing program. But be patient—and realistic. Although you might fantasize about your customer referral program going viral in your market, chances are it will take a little while to become known and catch on. Until it does, concentrate on providing the best possible product or service and the most memorable customer and referral experiences.