As a small business, continually growing your customer base is important to your profitability. One of the most effective ways to reach new customers is through word-of-mouth referrals.
Studies have found that leads from referrals produce a 30% higher conversion rate compared to leads from other marketing methods. Referred customers also have a 16% higher lifetime value than other customers. There's no doubt about it — referrals work.
But referrals don't always happen organically. Your customers may need a push to tell their friends about your awesome services.
With a referral program, you can boost customer loyalty, gain new customers, and improve customer recovery and brand recognition. Here's how to implement a successful referral program for your small business.
At its core, a referral program is an incentive system that encourages your existing customers to refer their friends to your business. When a referred customer buys your product or service, the referring customer can receive a reward, such as a coupon, gift card, or free product.
Referral programs can take many forms and have many criteria. Some businesses place limits on the number of referrals customers can complete. Others offer tiered rewards systems that provide better prizes the more referrals a customer generates.
However you decide to shape your customer referral programs, keep the overarching goals of customer acquisition and loyalty at the forefront. Your program should create an opening for new customers and help your existing customers build a stronger sense of loyalty to your brand.
Shaping your customer referral program strategically can maximize its outcomes. Here are the steps you can follow to create a successful referral program for your small business:
First, define your goals for the program. You should set realistic expectations for the number of new customers you'll receive. Not every customer will participate in your referral program, even if you offer top-tier rewards.
Maybe your goal is to bring in five new customers per month through your referral program. After the first month, you can review your figures and adjust your goal (and processes) if necessary.
Many referral programs use the following process:
Every customer receives a unique referral code.
Customers send their referral codes to friends or family members.
A new customer uses a friend's referral code in your purchasing process.
You pinpoint the referring customer by linking the code back to the customer's profile.
The referring customer receives a reward.
With this basic process in mind, your business can decide on the following variations:
Will customers be rewarded for sending their codes to friends, or only when a friend makes a purchase?