Referral marketing for small businesses

Referrals from current and past customers can net entrepreneurs a wealth of new business. It’s a great passive way to spread the word about your biz to a targeted group of potential customers.

Let’s look at what a referral is, how it’s beneficial to your small business marketing, and how to implement a referral marketing program that will help you meet your goals.

What is referral marketing?

Referral marketing is when a business gains a new customer through word of mouth. An existing customer or simply someone who knows of the business may refer them to someone who needs their products or services.

Many businesses create referral marketing programs. These programs often incentivize the referral, either rewarding the referrer or the referee (or both). Referral marketing programs allow you to more easily track how effective it is.

Benefits of referral marketing

Referral marketing is awesome because it’s marketing that you don’t have to actively do yourself. It’s always a good idea to find ways to passively earn income or leads. As such, this is a cost-effective customer acquisition tactic that won't impact your marketing budget too much.

Referrals influence up to 50% of all purchase decisions. Plus, these peer recommendations are far more powerful than any self-promotion you can do. Nielsen found that 92% of consumers trust referrals from within their network.

Converting leads from referrals is also easier than leads acquired from other channels. They’re likely better-matched, have accurate expectations of doing business with you, and need less “warming up” to make the sale.

Over time, they also prove to be more valuable than customers gained elsewhere. One study by Goethe University found that referred customers recommended had 18% less churn than other customer segments, while generating 25% more profit.

New businesses can especially benefit from referral marketing. It’s a great way to build up a base clientele in the early stages of your business as a cost-effective way to spread the word. This is how Kaylie Kempsell built her business, Kaylie Ruth Photography, at first.

“I didn’t have the years of Facebook reviews to lean on,” she says. “I needed to find another way for people to build trust in me.”

Now let’s figure out how to tap into this valuable source of lead generation.

How to generate referrals

Perfect your product first

You need to give people something to talk about. If you first focus on your referral marketing strategy before ironing out any kinks in your offering, you’ll be fighting an uphill battle. Instead, make sure your customers are happy with the experience you provide, and only then can you think about referrals.

Deliver great customer service, and a stellar product or service. Contrary to what you might think, customers share positive experiences just as much as the negative ones.

Emily’s Maids used referral marketing to grow their business 25% in less than 6 months. “First you need to perfect your product,” says general manager Abe Navas. “Don’t jump into a referral program if your product isn’t ready, because you will suffer the consequences.”

Building your referral program

A successful referral marketing program makes it easy for customers to refer, while also having enough of a barrier that you’re not giving away too much for free. It’s about maintaining the perfect balance of friction and ease.

It’s a good idea to start simple. “In the beginning, offer a word-of-mouth referral fee so you can begin to bring in extra revenue and wow your new clients,” says Heather Farris, Pinterest strategist & owner of Heather Farris & Co. “For every client you bring in on referral, encourage them to refer you as well.” She recommends building on this as you gain traction, and has tripled her client base thanks to this tactic.

“If it weren’t for my loyal clients referring their friends and colleagues to me I wouldn’t be successful today.”

Heather Farris

Remember, every customer segment is different. What works for Business A’s customers might flunk for Business B. When you’re getting started, why not ask your customers directly what they want out of a referral program? Send out a survey or, depending on your relationship with your customers, ask them one-on-one.

When it comes to actually building the program, there are many tools you can use. “Starting a referral-driven marketing plan isn’t that hard, and you don’t have to have a ton of technical know-how to build one out,” says Jake Lane, director of growth at NuWash Mobile Car Wash. “Companies like Smile offer a simple way to set up and deliver a great referral system for your customers.”

Their efforts have led to an average 5–10% increase in monthly growth, attributed to referrals.

To build yours, also check out ReferralCandy and TapMango, and browse your website builder’s app or plug-in store. Many tools will integrate for a seamless implementation, even if you’re not super tech-savvy.

Key tips to remember in your referral marketing program:

• Keep it simple.
• Communicate benefits in a short but sweet headline.
• Create a landing page to answer FAQs.
• Build trackable links — and remember to review the analytics.

Incentivizing

Incentives add extra motivation for your existing customers to refer your business. Incentives can be awarded to the referrer or the referee. Boulder, Colorado’s Amana Yoga Studio offers rewards for both.

Amana offers credit incentives. This gives both the referrer and referee a reason to return to the business. But you can offer different types of incentives, including a free gift, discount, or even cash.

PHLEARN, a website which offers Adobe Creative Suite tutorials, uses content as a way to incentivize referrals. “[We’ve given] away a tremendous amount of free content,” says CEO Seth Kravtiz. Users can share that content and a 20% discount with friends through a trackable code; in return, they earn a free month of access to their paid education platform.

Another option is to explore the social good route, offering to make a donation to their organization of choice for every referral.

You could also introduce a tiered incentive system. After X referrals, your customer moves to the next tier, which has better rewards with higher value. This can encourage continued engagement with the program, with a healthy dose of competition!

Promoting your program

The best way to promote your referral program depends on your audience, where they hang out, and what resonates most with them. That being said, here are some promotional tactics to consider:

• Social media: Organic and paid social media are both viable options for promoting your program.
• Website: Create a landing page on your site dedicated to explaining the program and how it works, as well as answering commonly asked questions. You can also drive traffic to this site from each of the other channels listed here.
• In-person: As you interact with customers, let them know that you have a referral program and encourage them to check it out. Remember to train your employees to do the same.
• Email: Your referral program should be included in post-purchase emails (e-receipts, customer satisfaction survey, etc.)
• Text messages: Drubi Orthodontics has seen great success with SMS marketing. “Their open rate and number of referrals increased dramatically [compared to email],” says owner Agustin Drubi, DMD.
• Referral cards: This can be combined with the in-person tactics, but referral cards, similar to business cards, are a physical reminder of your business and program.
• Influencers: Collaborate with influencers in your niche and offer them rewards for referrals. This is especially great for spreading the word at launch.

Getting customers to use the program

“If you build it, they will come.” — a phrase in business that isn’t necessarily true. Although you’ve built a great program and promoted it until your face turns blue, that doesn’t mean your customers are going to use it.

It starts with focusing on the right customers first. If you can create a small group of early adopters, they can be the catalyst for building a larger group of advocates.

Beyond that, here are a couple of ways to build extra buzz about your program:

• Publish the progress of your referrers. Friendly competition can motivate them to spread the word even more.
• Take it a step further and hold a contest for the “best” referrer. If you want to steer clear of competition, do a random drawing for every eligible customer—eligibility means X referrals within a specific time period.

Thank-yous

Yes, we’ve talked about incentives, but thank-yous are a different type of reward. A thank-you is a genuine, heartfelt gesture of appreciation for the customer’s contribution to your business success. This isn’t something you advertise as part of the program.

Bill Cates, president of Referral Coach International says it’s important to personalize these thank-yous as much as possible. “My biggest mistake was not using customized thank-you gifts to referral sources earlier,” he says. “When I take a little time to customize my thank-you, such as coasters with their university logo, my referral source ends up sending me more prospects.”

Get the right timing

Being proactive in asking for referrals is a great strategy, but you have to time it carefully so as not to come across as pushy or irrelevant.

For Ollie Smith, CEO at ExpertSure, the right timing is immediately after using their service. “After successful use of our price-comparison service, each user receives a thank-you email which contains a referral request,” he says. “This has led to a great ROI and growth of our email subscriber list.”

Safeguard from program abuse

It sucks, but the fact of the matter is, referral program abuse can happen. The best thing you can do is take steps to prevent this from happening.

For younger, tech-savvy crowds like ClutchPrep.com’s audience, you’re likely more susceptible. Their referral program operates with a token-based currency. Each user account can earn tokens when they refer a new account registration. “Since our audience is young, they’re more likely to find ways around [the program] and create additional accounts to keep getting more tokens,” COO Artem Volos says. To remedy this they started using Twitter, making it more difficult for this loophole to work.

Moving forward with your referral marketing program

Now you know what referral marketing is and how you can use it to grow your business. Before you begin, remember to ask your customers what they want from you. Build a program around their needs, rather than your goals, and your customers will support you every step of the way.

Although initially daunting, building a referral program takes less effort and time than you might think. Getting started can be as easy as talking to your customers and asking what they’d like out of a referral program, or using an online referral program builder for something more structured. Either way, referrals are proven to boost business, and can be leveraged as one of several free ways to market your business.