Grow Your Business With a Referral Program

Referral marketing is a cost-effective way of introducing new customers to your product or service. It is an excellent opportunity to leverage happy customers as brand ambassadors for the business. However, it is possible to make some missteps. Let’s look at how to build a referral program for business success.

Understanding Today’s Referral Process

Back in the day, word-of-mouth marketing referred to happy customers who told their friends and family about their great experiences with your company, product, or customer service. While happy customers are still at the center of the process, there are no additional elements to consider when courting word-of-mouth referrals .

• Referral incentives. What incentive is there for the referring customer to spread the word to as many other consumers as possible?
• Ease of participation. How easy is it for the referring customer to bring prospective new customers?
• Level of trust. How many happy customers with their names will vouch for your product or service?

Who is a Happy Customer?

Anyone with a good experience using your product, service, or employee interaction could be a happy customer. However, asking a new customer to participate in a referral program may be too soon. A better option is to work with a customer who has been a repeat customer. That said, some products are not suited for repeat customer interactions (think pianos), and the first-time customer may be the only audience you can select. Carefully gauge the right happy customer to be your brand’s ambassador.

Define Your Referral Program’s Objectives

What are you looking to accomplish? Sure, you want new customers to interact with your brand. However, what other goals do you have for taking this step? (Goals are directly related to metrics measuring the return on investment. It is critical to spell out your goals as soon as possible.)

Building the Brand’s Popularity

Brand building is a driving factor for many small business owners determining how to build a referral program for business success. Even if the person who was referred to the company does not convert to become a customer, the business’s brand awareness has grown. Best of all, you accomplished this feat without spending additional advertising dollars.

Increasing Sales

For others, the driving factor is an increase in sales. If you want to convert newcomers to the brand, you will likely design a referral program differently from one that only focuses on brand building.

Another consideration is whether you want to boost newsletter signups among existing or new customers. Moreover, you may have products or services that would benefit first-time customers, and you are targeting a marketing campaign to reach out to them. As a result, your referral program’s objective would be to increase the number of converting customers.

Targeting the Right Audience

Defining your referral program’s objectives also requires focusing on your targeted audience. Are you looking to reach existing customers who might not have purchased in a while? Maybe you are looking to connect with social media influencers. Other audiences may include employees and even customers of competing businesses.

Counteracting the Churn Rate

Churn measures customer attrition. These customers unsubscribe from the newsletter, no longer do business with you, and do not interact with your brand. Some companies design their referral program to counteract churn rates by replacing customers who leave with new ones. After you establish the likely reasons for customer attrition, bringing in new customers could stabilize your monthly recurring revenue.

Design the Referral Program’s Blueprint

Incentives are a big deal for the referring customers. However, far more significant than the freebies they receive is the opportunity to build a genuine relationship with the company and its operators. Something as simple as a “thank you for your referral” email from the company’s owner or manager is as unexpected as welcome. The referring customer feels “seen,” which will significantly impact their brand loyalty.

To be effective, you must have a product or service your customers love and like discussing. Besides that, your customer service must be on point. One bad experience is enough for even the most loyal brand ambassador to stop referring new customers to you.

Choosing Referral Incentives Your Customers Will Appreciate

The person referring a new customer and the new customer usually receive an incentive. Examples include:

• Discounts on future purchases.
• Points rewards that add up to free merchandise or services.
• Exclusive deals, access to new products, or bonuses for referring a certain number of new customers.
• Product or service upgrades.
• Invitations to tour the business and have lunch with the owner.

One-Sided or Two-Sided Incentive Structures?

The one-sided incentive model rewards only the person making the referral or the new customer. In a two-sided referral structure, both parties receive rewards. Because it means everyone gets something, the two-sided model is a favorite.

Another referral setup that takes its functionality from the old multi-level marketing days introduces tiered incentives. Benefiting the customer making the referral, those with more referrals or conversions receive better rewards. Since it has an element of competition built in, some brand ambassadors work harder to meet specific referral quotas.

Defining the Actual Referral Process

How will you structure your referral process? Because happy customers refer your products or services to friends and family, there has to be a mechanism for making this connection. Examples of the most effective methods include shareable links, unique referral codes, or direct invitations displaying the referrer’s name. These are easy to track, meaning referral rewards are accurately awarded.

An outcropping of referral program work is the affiliate marketing network. In this setting, you pay people who may or may not be your customers to act as brand ambassadors. It differs from a bona fide customer referral program. Even so, it may be a type of referral program to consider for a new brand. (Some brands try to bridge this gap by providing free products for affiliates to try out and discuss.)

A Caveat

Tread lightly if your referral program takes customers to sites such as Yelp!. They typically do not allow incentivized reviews that tie into referral schemes.

Should You Create the Referral Program Mechanism In-House or Outsource It?

Plenty of referral system software packages are available. They allow users to track the referred customers with unique or QR codes. Tracking translates into analytics, which enables you to see what each referred customer is doing.

• Measure how many customers are participating in the referral program.
• Determine how much website traffic comes from referrals.
• Find out how many referrals are converting into customers.

Concurrently, the software lets you send rewards to those who have earned them.

Some software programs allow you to put the program on autopilot. In this scenario, the reward is a discount code awarded instantly. You frequently see this as pop-ups on a retailer’s website for those new customers who will give the company an email address and cell phone number.

It is important to note that tracking the program's success is critical for its long-term viability. Many small business owners do not have the time to oversee a referral program in-house. Unless you can commit to managing it from start to finish, it is better to allow a third party to handle the process for you.

Another consideration is the implementation of legal and operational guidelines. Sure, you want happy customers to be your brand ambassadors. But even in the best of circumstances, there can be differences in interpretation. Outsourcing the referral program mechanism lets you use a third party’s expertise to define the rules, including who can participate, how referrals are tracked, and how rewards are issued.

Third parties handling the processes also put systems in place to prevent abuse of the referral program, such as fake referrals or multiple accounts. Left unchecked, these easily eat away at your return on investment. In addition, the inflated numbers result in problems with tracking actual metrics.

It is Time to Promote the Referral Program!

You have made it this far; it is time to spread the word about the program. How to build a referral program for business success depends on how far-reaching its advertising is. There are a few advertising avenues you cannot do without.

• Integrate the program on your website. Banners, pop-ups, and landing pages are ideally suited for introducing the referral program to website visitors. Check out what your competitors are doing. This will give you an idea of what customers in your niche like.
• Make it part of an email campaign. If you send out monthly newsletters, announce the program to your existing customer base. Some businesses like to separate their newsletters from these announcements because it will allow them to send targeted follow-up emails.
• Use social media platforms. If you already have a presence on one or more social media platforms, use it to spread awareness and encourage participation. You should consider running campaigns or contests there that highlight the referral program. If your company is not yet on social media, it may be time to establish its presence.

There are additional ways to spread the word. Some are outside the digital realm, which may resonate with some newcomers to your brand. Examples include:

• Door hangers.
• Postcards.
• Flyers.
• Customized receipts, invoices, or quotes.

Set up the Referral Program for Scalability

Better referral incentives are the indirect outcropping of developing a larger customer base. As your conversion rate increases, it is time to up the ante. Truly successful referral programs are suitable for the long term and continue to grow alongside your business.

For example, continue promoting the program via email, social media, and your website. Because it is an essential element of your brand’s growth, the referral program’s presence should be immediately visible to new and existing customers.

Because you want to keep it fresh, you must periodically adjust the rewards to make ongoing participation attractive. At the same time, remember that your referral program must outshine the one your closest competitor currently offers.

Scalability is easy to achieve.

• Customer feedback. Customers will tell you what would incentivize them to continue participating in the program. They can also point toward areas you need to improve to increase engagement.
• Expansion. Many small business referral programs start small. You might focus initially on your customers from the last three months. As the program proves successful, consider opening it up to new segments. Examples include older customers, suppliers, partners, or social media influencers.
• Ongoing metric evaluations. Track the number of referrals made, the conversion rate of newcomers to your brand to customers, and the overall revenue increase you have seen from the program. These details help you to grow incentives that work and phase out those that do not.
• Focus attention on boosting successful channels. If social media has not been successful for your referral program, but your email campaign worked great, focus on the latter.
• Build on the referral program with other incentives. If you do not have a customer loyalty program, now is a great time to design one. Additionally, review the companies that are partnering with you. Suppliers are the most likely ones, and it is a good idea to refer your customers to them whenever possible.
• Create new methods of reaching out. The vlog is a fantastic tool for allowing customers to upload videos showing how they use (and like) your products. Videos could easily become another effective element in your ongoing referral program.

Another excellent option is adding a dedicated landing page explaining the referral program to your website. This page must be easy to read and understand. Keep lettering to a minimum. It should have a key message, a clear call to action, and a frequently asked questions section. If a customer decides to become an active brand ambassador, they must be able to trust that the program is clear to understand and participate in.

Dealing With a Referral Program That Has Not Been Successful

If the return on investment no longer justifies the expense of offering rewards to new customers or established brand ambassadors, the referral program has been unsuccessful. It is critical to establish the point of failure. For many, the most significant problem is converting newcomers to the brand into customers.

All is not lost! You do not have to scrap the entire program. Instead, adjustments should be made to deal with the areas where the program broke down. You may have to review your incentives and the program advertising if you had insufficient participation. For programs with conversion problems, it is better to look at your marketing strategies for first-time customers.

For example, some businesses tend to come across too strong too soon. If you offer incentives for providing an email address and a cell phone number, remember that getting multiple emails and texts in a week is too much for a consumer on the cusp of becoming a customer. If you notice a lot of churn, make changes here first.

For many small businesses, it makes the most sense to outsource the referral program mechanism at this point. Experienced experts can assist you with gauging your approach to these new customers and optimize it as needed.

Takeaways to Consider

A referral program is the most inexpensive way to grow your customer base. Happy customers do all the advertising for you. Of course, this program only works when you have a pool of happy customers to work with. If you have not yet generated the trust and goodwill of the shopping community, continue doing business until you have sufficient numbers of brand ambassadors.

To evaluate the program’s success, it is critical to evaluate established metrics. They can be the earliest indicators to adjust or leave the process alone.

Outsourcing the referral setup is always easier than doing it in-house. Even if you are enthusiastic about doing it all yourself, remember to keep the referral program going for the long term. If you are already too busy to deal with each of its elements daily, it is better to let someone else run it.

Back to Basics: Can Prospective Customers Find You?

Of course, even the best referral program will remain unseen if customers cannot find your online presence. Before setting up a new referral program, take advantage of content optimization services that will bring plenty of traffic to your website and social media presence!

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