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How to Build an Effective Referral Program

You spend a lot of time and energy winning over new business, and once you’ve gotten that prospect to convert, you work hard to create a positive customer experience.

Rather than going out and trying to find brand new customers all over again, it’s much more time- and cost-effective to turn to the customers you already have, not only for repeat business, but to create a steady stream of referrals when they pass you name along to their friends.

It helps to establish a concrete plan for generating these referrals from your existing customers. This is why establishing an effective referral program is so important. We’ll take a look at what a referral program is, why you need one, and how to get the most out of the program you create.

What is a Referral Program?

A referral program is a systematic approach to generating referrals. This is a broad term that can encompass any number of tactics that you use to encourage and gather referrals, either from existing customers or partner businesses.

Know Your Customer

The first step to creating an effective referral program is really understanding your existing customer. What do they like about your business? What keeps them coming back? When you understand their wants, needs, and behaviors, you can create a referral program that draws them in and encourages them to refer their friends.

Fortunately for you, today’s tech-filled world provides marketers and business owners with a myriad of tools to track customers’ behaviors and solicit input through various online channels. The first step is to decide what you’re hoping to get out of your referral program, and the next step is to turn to the data.

Data can help you see what’s really important to your existing customers and who your best customers are. You should create a referral program that’s centered around what your best customers want. Once you’ve identified these best customers through your data analysis, don’t be afraid to reach out to them with a survey to get their input on how you plan to structure your referral program. After all, if they’re your top customers they’ll likely be the ones who are taking advantage of the program by sharing your name with their friends!

Create a Customer Reward Program

An often-used technique in building a referral program is offering a reward to customers who refer your business. There are a number of different ways to go about creating a customer referral program, but all good programs have some key elements.

• Offer a reward your users want. This might be a discount on their next purchase, a gift card, or access to a special good or service that other users don’t get. It doesn’t have to be an expensive offer, but it does have to be something that your customers will find useful.
• Double the reward. Customer referral programs are even more effective when you make an offer both to the referrer and referee. Dropbox very famously did this, offering additional free storage to anyone who referred them and to their friends who signed up as a result of the referral, and this approach led to exponential growth for the company.
• Be transparent about your offering. Customers don’t want to feel like they’re being bribed into saying something nice about you or passing your name along. Make sure that the terms and conditions of participation are clear and simple, and display them prominently on your website. Not only will this likely lead to customers you hadn’t expected participating in the program, it also gives customers a sense of ease.
• Make it easy. If your rewards program is hard to find out about or difficult to sign up for, then what good is it to you or your customers? Trumpet your referral program on your website, via email, and on social media, and be sure you’re up front about the terms of participating. Make the criteria for joining the program easy to understand, and make the sign up process as simple as possible.

When you create an effective customer referral program, you can more easily create referral champions: enthusiastic customers who will refer your business over and over again!

Encourage Online Reviews

When you think of online reviews, you may feel that it only applies to businesses in certain industries, particularly those businesses that are B2C. The fact is, though, that in today’s online world every business should be concerned with gathering reviews online.

More than 90 percent of consumers look to online reviews for guidance before making a purchase. If you’re not being reviewed online prospects might not even know you exist, or they might write you off as illegitimate because of a scant online presence. Not only that, but your online reviews factor into your SEO ranking, so if you’re not gathering reviews, then Google doesn’t notice you, either.

Include links to your online review pages in follow-up emails to customers, asking them for feedback on their purchase. Of course, part of soliciting reviews is knowing how to deal with unfavorable ones. It’s actually okay to have a few bad reviews—otherwise prospects begin to worry that your “reviews” are all from shills—but you do need to directly address complaints in a timely, considerate, and appropriate manner.

Engage Other Business Owners

The only thing better than building a referral program on your own is building a referral program with another small business owner. As a fellow entrepreneur, they face the same challenges and have the same goals. Why not team up to divide and conquer in your efforts to build a referral base? Finding business owners who have a similar customer profile to yours allows you to tap into their existing network—and vice versa—so that you can double your pool of prospects overnight.

These strategic partnerships work best when the business owner is someone you yourself know and trust; you’ll be recommending their business to your valued customers, so you want to be sure they’ll be providing the same excellent level of service your clients have come to expect from you.

Reevaluate Your Approach

It’s no small feat to get a referral program up and running, but once you’ve established your program your work is far from over! You want to track the results of your program and make changes as appropriate.

Keep track of where your prospects are coming from. Are they finding you through online reviews on Facebook or Yelp? Are they coming directly through your customer referral program? Did a current customer forward them your email newsletter? Has your partnership with another local business resulted in conversions? Understanding how people are finding you allows you to adjust your program accordingly.

If your customer referral program hasn’t taken off, maybe it means you need to market it more effectively. Send an email blast out to existing customers letting them know about it, and include a link in your email signature for people to refer a friend. Or perhaps it’s an issue with the reward; try making a different offer in the coming months and see if your numbers pick up.

You’ll also want to monitor your customer acquisition costs. Hopefully your referral program is driving those costs downward; it should be costing you less to acquire customers via referrals than it would be to go out and approach an entirely new cohort through outbound marketing tactics. If you’re seeing your costs rise or stagnate, that’s another sign that you need to revisit your approach. Perhaps the reward that you’re offering is too costly for you to take on, or maybe your strategic partner’s business is not as well aligned with your business as you had hoped, and you’re not getting the proper number of referrals from that relationship.

Building an effective referral program doesn’t happen overnight. You first have to understand your existing customers—what they want and need—and then build a program that encourages them to spread the good word about your products or services. And then there’s the work of maintaining the program, checking in on your results and making changes along the way. It take some effort, but when you land on an approach that’s effective and generates repeat results, you’ll feel a great sense of accomplishment and see the benefits in your bottom line.

Why Partnerships Are Your Secret Weapon to Building Referrals

Generating referrals is the key to securing your business’s long-term success, and it can feel like a pretty massive undertaking. One way to lighten the load and help you to create a more sustainable stream of referrals is to build partnerships.

Why go it alone when you could instead join forces with other business owners and make the referral process easier for both of you?

Types of Partnerships

When you’re thinking about establishing partnerships for your business, there are a few different types of relationships to consider.

• Strategic partners. These are businesses or individuals who provide a good or service that is directly tied to your business’s product offering. If you’re a graphic designer, you want to have a trustworthy copywriter who you can suggest to your clients.
• Content partners. A network of publishers, bloggers, and those in need of content for their own sites can help you to spread your business’s name, mission, and unique point of view to a whole new audience of people.
• Co-marketing partners. These are business owners whose business models have some sort of synergy with your own company. If you’re a plumber, this person might be an electrician or contractor. If you own a wine shop, this might be the owner of the cheese store down the street. As a fellow business owner who’s not in direct competition with you, but does business with a subset of the population who might also have an interest in and need for your business’s offerings, these relationships offer easy cross-promotion opportunities.

Bonus points if you can create partnerships that are unexpected like the ones I outline here; unique partnerships can generate even more marketing buzz!

There are a variety of reasons to consider each type of partnership, and there’s a different value-add that comes from each one. That’s why it’s important to focus on building up a comprehensive network of partners, with different partners from each type of group.

Become a Trustworthy Guide for Your Customers

No matter what business you’re in, there are a lot of other businesses out there that do what you do. While a key part of standing out from the crowd is making sure you have a clearly defined value proposition, another thing that will keep customers coming back again and again is that they see you as more than just a provider of a good or service—they see you as a trustworthy partner and advisor.

One way to become a trusted partner is to tap into your network of fellow business owners who you yourself know and trust. When you’re able to suggest other service providers to your customers, it makes you seem like someone who’s in the know and who truly has your customers’ best interests at heart.

Let’s say, for example, that you own a rare used bookstore. A customer comes in and buys a first edition of a work by their favorite author, but then they want to be sure they’re going to be able to care for their new, beloved purchase. You should be able to provide them with a list of trusted partners—a bookbinder who can help restore the original leather cover, a vendor of special boxes for book storage, or an appraiser who can help set the sale price for another rare book in their collection.

These partners need to be people that you know and trust; you’ll do more harm than good if you suggest another business who does not do right by your customer. But if you do have a strong network of other worthy businesses who can provide a service that’s of real value to your existing customers, then you establish yourself as a trusted source of knowledge in your industry, and the next time your customer is looking for advice or to do business, they’ll be coming back to you.

Move Up the Hourglass

There is a lot of work that goes into winning over new business, particularly if you’re starting from scratch. For someone to decide to go with your company, there are four steps in the marketing hourglass before a new customer even makes their first purchase. And there is a tremendous amount of effort and money that can go into those first four steps.

For someone to come to know and like your business, there are marketing and advertising dollars to be spent. To establish trust, you need testimonials. For the trial phase, you need to create products or services that you’re willing to give away for free in hopes that it converts your prospect into an actual customer.

Establishing partnerships, however, allows you to leap over the heavy lifting associated with these steps. You don’t need to spend excessive amounts of money on advertising and marketing to prospects when you have a solid partnership network who will refer their customers to your business.

A prospect who has been referred to you by a business owner they already know, like, and trust, will have an inherent level of trust in your business. This allows you to jump ahead and move right to the try and buy portion of the hourglass.

Double Your Network Overnight

As the old saying goes, two heads are better than one, and that’s particularly true when building up referrals. You’ve worked hard to create repeat customers, and new customer acquisition is a costly endeavor. You know that other small business owners have put a lot of blood, sweat, and tears into creating their own roster of return clients. Why not come together with a fellow entrepreneur to double your network overnight?

When you establish a strategic or co-marketing partnership, suddenly you have access to another business owner’s entire rolodex. There’s no competitiveness there, because you offer products that are related but different, and so you’re willing and able to share your existing network with this other business owner.

Additionally, you can consider creating new marketing campaigns that are a joint effort. While you double your reach, you can also halve your costs by splitting advertising fees with your new partner. Running joint promotions for your business can allow you to catch the eye of your established customer base, their established customer base, plus those who are new prospects for both of you.

Referrals are the lifeblood of any business. Why go it alone on this important road to generating referrals when you could join forces with another like-minded business owner? Together, you can help each other to create a sustainable referral engine that will continue to benefit you both in the long term.

If you liked this post, check out our Small Business Guide to Referrals.