Why Your Small Business Needs a Referral Program

September 19, 2011

Word of mouth marketing was once thought to be the only type of marketing a business needed to be successful. We all know that isn’t true. This type of marketing in which customers tell one another about your product or service to inspire them to also buy your products or services does work but isn’t easy to generate. If you don’t give people a reason to talk about your business, they probably won’t.

And that’s where referral programs come in.

Referral programs are great sources of customers for a couple of reasons:

  • Referred customers are coming to you with some amount of trust and good will courtesy of the recommendation from someone they know
  • Referred customers cost you a lot less to get than customers from other types of marketing efforts
  • Referred customers are more likely to become loyal customers, especially if they have a positive first experience with your business

With a good referral program, you can motivate your existing customers to become your best marketers.

Here’s how it works:

First, you need to decide on an enticement. Customers usually don’t talk about their consumer experiences unless they are exceptionally good or horrifically bad. Both happen rarely. The enticement you choose should be appropriate for the price of the service or product you offer. For example, if you sell $25 services then offering $100 for referrals will drive you out of business pretty fast. You might even want to test market several enticements to see which ones generate the best results.

Also, consider whether you want to reward customers for giving out the referrals or save it until the referred individual or business makes a purchase. You’ll need a higher enticement for the latter situation.

Second, figure out how the referral will be made. Part of the problem with word of mouth marketing is that even if a customer does espouse the virtues of your business to someone else that person might forget your company name or the entire conversation before they have a chance to take you for a test drive.

Here are some ideas for getting the referrals:

  • Have customers give you the name or contact information for referrals
  • Allow customers to send emails to people they want to refer
  • Give them business cards or discount coupons they can share with others (Netflix has had lots of success, for example, with giving current customers trial offers to distribute to their friends and family members)
  • Ask them to literally bring in other customers during their next visit

You can probably think of other methods that might work for your particular business.

Third, you’ll need to have a system in place of tracking the referrals so customers are rewarded accordingly. You want to make sure the rewards are done in a timely manner because that encourages them to provide more referrals.

That’s how easy the process of setting up one of these programs can be. They do require some effort but they will build your customer base exponentially and you’ll end up attracting customers who already have a good feeling about your business and are primed for building a loyal relationship with you.

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