Howto, small business

How to Build a Customer Referral Program for Your Small Business: A Comprehensive Guide

A small business owner with a co-worker

Running a small business is no easy feat. You wear many hats day in and day out. You’re an expert in your product/ service, the face of your brand, and, perhaps, the manager of your day-to-day operations. But when it comes to customer acquisition and retention, even the most capable small business owners can use some extra hands on deck.

This is where you leverage your existing and loyal customers as brand ambassadors.

And one way to do that? Customer referral programs. 

According to a Nielsen study, 92% of consumers tend to trust recommendations from friends and family more than other forms of advertising. Referred customers also have a 37% higher retention rate.

These statistics highlight the importance of word-of-mouth marketing and why you should leverage it to grow your business organically. So, in this guide, we’ll take you through some proven tips that can help you build a successful customer referral program for your small business. Let’s dive right in!

A. So, why is a referral program essential?

A referral program is a strategic approach that lets you tap into the happy customer base you’ve worked so hard to build.

Customer acquisition costs are at an all-time high, considering the recent cost of advertising. Research shows that acquiring new customers costs businesses 60% more than retaining existing ones. A successful referral program can drastically reduce these costs by encouraging satisfied customers to recommend your exceptional products or services to their networks.

On the other hand, referred customers have a 25% higher profit margin than non-referred customers. Below are more benefits you can gain from this referral marketing strategy:

  • Increased sales: Referred customers are primed with trust and credibility toward your business. Hence, referral marketing generates a higher conversion rate than other channels. People are four times more likely to buy when a friend referred the product or service to them.  
  • Higher customer retention: Customers who introduce their networks to your product or service play a pivotal role in fostering a deeper and more meaningful relationship with your business. This act of advocacy transcends a mere transactional relationship. That is because it signifies a level of trust and satisfaction that goes beyond individual interactions. 
  • Cost-effective marketing: A staggering 54% of marketers say referral marketing has a lower cost-per-lead than other channels. Yet it’s the second-highest source of quality leads.

Overall, a well-designed referral contest can be a powerful tool to grow your small business

B. How to build a referral program for your small business

A small business owner welcoming customers

Word-of-mouth marketing capitalizes on a fundamental aspect of human nature – the instinct to share positive customer reviews and experiences. But to ensure you get the most from your customer referral campaigns, follow these tips:

1. Know your ideal customers

To ensure that you set up a successful customer referral program, you need to understand your ideal customers – what motivates them, their needs, and how your small business can meet those needs better than anyone else. 

Knowing these will help you tailor your WOM marketing to their preferences and behaviors. This will help you craft a referral message that positions your product as a solution to these problems. This is the message your advocates will promote to get them to convert.

To understand your ideal customers better, collect the following data:

  • Customer demographics: This may include factors such as age, gender, location, income level, interests, etc. 
  • Customer needs and pain points: Identify what problems your target customers are trying to solve. 
  • Customer journey: Know your ideal customer’s buying process, from the point they discover your business to conversion. 

Pro-tip: Leverage Google Analytics or social media platforms like Instagram and Facebook to gain these valuable insights into your potential customers. You may also ask your ideal customers directly by sending them surveys.

2. Set up an outreach plan for your advocates

Once you’ve identified your ideal customers, it’s time to focus on your existing customers who will do most of the promoting for you. Make a list of these advocates. They can be anyone from your current average customers to industry leaders who tried your product or service and had a great customer experience. 

If you’ve been asking all your customers for feedback on your product or service, the best people to ask for a referral are the ones who gave you glowing online reviews. 

Determine the best marketing channels to reach them. Would it be email newsletters, social media channels, SMS, or a blog post? This depends on where your customers are most active and responsive. You can check your historical data for this.

All this doesn’t mean you should limit yourself to only one channel. Your plan can involve combining all the channels that work best to promote the referral program, with effective referral tracking to monitor and optimize performance. For instance, you can send out an email blast and then strategically schedule social media posts that include the referral page link. This approach not only ensures that your content is consistently reaching your audience but also keeps the campaign feeling fresh and engaging.

Now craft a message explaining the referral campaigns’ benefits to motivate your existing customers’ participation. Make your referral messaging clear, concise, and persuasive. This email from Robinhood should show you how to go around that. Notice how the brand highlights the benefit of joining the customer referral program in the headline:

Make sure your plan also specifies when you’ll send those messages urging them to join the referral program to each of your advocates. Ideally, the best time to ask for a referral is when they’re at their happiest. That may be right after a purchase or after you’ve resolved a problem for them and have given them exceptional customer service.

In your plan, specify the referral program software you’ll use to track your referral sources and volume of referrals. Determine the referral link or referral code each of your advocates should use to make tracking easier for you.

3. Define the referral incentives and rules

You already know your loyal customers, what motivates them, and what they value. Leverage this information to offer incentives that align with their interests. For instance, if your customers value discounts, offer them a special discount coupon on their next purchase. If they prefer exclusive experiences, organize a special event or give early access to new products or services. You can even offer them monetary rewards as a referral bonus like Allset did:

If you’re a software company, you can give your current customers a service upgrade to premium packages for a limited time frame as an incentive for attracting new customers. This can be an incredible SaaS marketing strategy because not only does it reward the customer and promote their loyalty, but it also introduces them to your premium packages. After using the package, there’s a chance they’ll want to upgrade.

You can also offer incentives that will encourage your advocates to send you more than one referral. 

But don’t just offer referrer rewards. Offer incentives to the referred as well. This will increase the chances of a successful referral. For instance, you can offer a welcome discount on their first purchase.

Keep in mind that there’s not one best incentive. The best type of reward is tailored to fit your business and your customers. Feel free to experiment with different options. Just ensure your two-sided incentives are not so high that they diminish your profit margins.

Whatever incentive you choose to give in exchange for referrals, just keep your entire referral process simple. Bear in mind you want a win-win situation for both your advocate and the referred to boost the effectiveness of your program.

4. Make social sharing easy

It goes without saying that the rise in popularity of social channels and social media marketing over the years has been remarkable. These platforms can make anything go viral. So, regardless of the platform you choose to reach out to your advocates, you need to ensure your customer referral program messaging can be easily shared on social channels. This will help expand your reach, and, ultimately, boost your chances of getting more referrals and referred customers.

If you promote your customer referral program on social media channels, you don’t need to do much to make sharing easy. Facebook, Instagram, and other channels already provide those sharing buttons for you.

But what if you’re using other channels like dedicated landing pages and emails for promotion? In that case, you can embed the social media buttons yourself using marketing software for website and email integration. 

You should also optimize your promotional messages for mobile sharing. About one-third of all internet traffic is mobile. That may include your advocates who access their emails or your website to read about your customer referral program. They won’t be able to share your message if they can’t understand what you’re saying from their mobile device in the first place. 

So, whether you’re promoting your customer referral program via email or your landing page, make sure you use responsive templates with distinctly visible call-to-action buttons.

Final thoughts

Word-of-mouth marketing can be a powerful inbound marketing strategy. An old business adage says, “Happy customers are your best customer advocates.”

With a strategic approach, customer referral programs can be a powerful tool for growing your small business. By understanding your ideal customers, creating an effective outreach plan, and defining compelling referral rewards, you can turn consumers into super-advocates and generate sales. Also, make it easy to share your messages promoting your customer referral program on social media. 

Remember, success doesn’t come overnight. So, monitor the performance of your customer referral program, adapt, optimize, and learn from your experiences. You’ll soon see your business grow organically.

About Appointy

We at Appointy, help business owners grow and run their businesses with our online scheduling software. This blog was a part of our ‘Manage your Business’ category, where we provide expert tips, and resources, or simply talk about the challenges that small and medium businesses face every day. 

If you have any thoughts on this blog or would like to chat about your business struggles and achievements, let us know in the comments below. 

We love a good talk!