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How to Build a Customer Referral Program for Your Small Business

By THI NGOC TRANG LE on Apr 28, 2023

Business is tough.  According to the Bureau of Labor Statistics, half of all businesses fail within the first five years. 70% fail within 10 years. So, you need all the help you can get. One of the best ways to get the help you need is through your own customers by setting up a structured customer referral program.

Though all small businesses are happy to take referrals, they rarely set up an organized program to seek referrals or make it drop-over easy for their clients to give them referrals. Your loyal customers are likely to have friends, family or colleagues who could benefit from your products and services. But it’s up to you to leverage your existing customer relationships in order to generate new leads from your current customers’ connections.

What Are the Benefits of an Organized Customer Referral Program?

There are a whole lot of benefits to building a structured customer referral program. Here are some of them.

Cost Effectiveness

Compared to other marketing strategies such as advertising, referral programs are relatively low cost even if you offer rewards in exchange for referrals. Since a reward is only given when a new customer is acquired, businesses only pay for results.

Higher Conversion Rates

Referral customers tend to convert at a higher rate than other types of customers. That’s because they know and trust the referring customer. When a customer makes a referral, that trust is transferred to your business.

Increased Customer Loyalty

By offering rewards to customers who refer new business, companies can encourage customer loyalty and engagement. Referral programs can help foster a sense of community and reward customers for their support of the business.

First-Rate Leads

Referral customers are often more targeted and qualified than other types of leads. Since they are recommended by someone who knows them, referral customers are more likely to be interested in the business and more likely to become repeat customers.

Brand Awareness

Referral programs can help increase brand awareness and reach. As customers share their experiences with their networks, they help spread the word about the business to potential new customers.

In a Nutshell

In other words, a customer referral program can be a powerful way for small businesses to generate new leads and grow their customer base while also rewarding existing customers for their support.

How Can I Set Up a Customer Referral Program?

Like any aspect of marketing, there are a lot of ins and outs and possibilities to set up a customer referral program. But here are the broad-brush steps.

Define Your Goals

Before creating your customer referral program, it’s important to think about what you want to achieve. You need to establish clear goals before you set your program parameters.  Some examples of program goals include:

  • Acquiring new customers
  • Increasing sales or revenue
  • Encouraging repeat business
  • Boosting customer loyalty and engagement

Defining your program’s goals will help you tailor your rewards, referral process and promotional strategy to best meet these objectives.

Identify the Rewards

Set up a simple customer referral program where you always ask for referrals in a specific way at a specific time during the sales cycle. This is certainly better than going at it in a hodge-podge fashion

In order to motivate customers to refer their friends and family to your business, you may want to offer attractive rewards. Rewards can take many forms, such as:

  • Discounts on future purchases
  • Free products or services
  • Gift cards or vouchers
  • Exclusive access to promotions or events
  • Loyalty points or rewards

When deciding on rewards, consider what would be most appealing to your target audience and what is financially feasible for your business.

Develop the Process

The referral process is how customers will submit referrals to your business, and how you will track and reward those referrals. There are many ways to set up a referral process, such as:

  • Providing customers with a referral code or link to share with their friends
  • Encouraging customers to refer friends in person or via email or social media
  • Offering a discount or other incentive to both the customer and their referred friend, family member or colleague

Whichever referral process you choose, make sure it’s easy for customers to understand and participate. You should also consider using referral software or tools to help you track and manage referrals. See this article for customer referral software you may want to consider.

Promote Your Customer Referral Program

Once you’ve defined your program goals, rewards and referral process, it’s time to promote your program to your existing customers. There are many ways to promote a customer referral program, such as:

  • Sending an email or newsletter to your customer base
  • Displaying signs or flyers in-store or at your business location
  • Promoting the program on your website or social media channels
  • Encouraging your team to talk about the program with customers during interactions

Make sure to clearly communicate the benefits of your program, such as the rewards customers can earn and how the program can benefit their friends, family and colleagues.

Train Your Team

Your team members are the front line in promoting your customer referral program, so it’s important to train them on how to effectively communicate the program to customers. This might include training on:

  • How to explain the referral program and its benefits to customers
  • How to answer common questions about the program
  • How to track and manage referrals in your system
  • How to thank customers for referrals

Continuously Monitor and Analyze Your Customer Referral Program

Once your customer referral program is up and running, it’s important to track and analyze its effectiveness. This can help you identify areas of success or improvement and make adjustments as needed. Some metrics you might want to track include:

  • Number of referrals generated
  • Number of new customers acquired through referrals
  • Total revenue generated from referral customers
  • Conversion rate of referred customers

Use this data to make adjustments to your program, such as tweaking rewards or promotional strategies, to optimize its success.

Thank Referring Customers

Finally, it’s important to show appreciation to customers who refer new business to you. This can help foster loyalty and encourage further referrals. Some ways to thank customers include:

  • Sending a thank you note or email. Be sure the thank you is both personal and sincere.
  • Offering a small gift or discount on their next purchase
  • Recognizing their referral publicly on social media or in-store (The wisdom of this will vary by industry.)

Want to Explore How a Customer Referral Program Can Benefit Your Business?

For a free consultation about how a customer referral program can affect your particular business, contact us here to set up a free consultation with an Umbrella Local Expert or call (646) 440-1426.

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