Everybody has had the experience of asking a friend or family member to recommend a business or a product. Whether you’re in the market for a new dentist or a new appliance, you’re more likely to trust a recommendation that comes from somebody you know. While many referrals happen organically, it can be useful to encourage referrals.
At Select Funding, we understand the power of referrals and know how useful they can be as a method of fueling business growth. If you’re not already familiar with referral marketing, you may be interested to learn how it works. Here’s the information you need plus six examples of effective referral programs for small businesses.
Referral marketing is a type of marketing that relies on people who are already familiar with your business recommending it to people who are searching for products or services you offer. Said another way, it’s a structured form of word-of-mouth marketing. In most cases, the person making the referral has an incentive to do so.
Referral marketing can be done on a personal or business basis. Consumer referral marketing comes from your existing customer base recommending your business to their friends, family, or coworkers.
Business referrals may come as the result of a partnership with another business and are most common when two businesses share a target audience but don’t offer the same services. For example, a wedding planner might have referral partnerships with florists, party rental companies, or catering companies.
Referral programs for small businesses work by incentivizing your loyal customer or business partners to recommend your business to the people they know. While a certain number of referrals may happen organically, you’ll need to talk to your customers about your referral program to maximize the program’s success.
The most common way that referral programs work is by providing the person who recommends your business with a reward for doing so. The reward is usually tied to a specific result. Here’s an example to show you what we mean.
A business owner has a company that sells accounting software. An existing client recommends the product to another company, who engages with the sales team. If the company that was referred doesn’t buy the software, there would be no reward. However, if they become a paying customer, the person who made the referral would get a reward.
Referral programs can have a variety of structures and you’ll need to think about the structure that makes the most sense for your business.
Now, let’s review some of the most important benefits of having a referral program for your small business:
Referral programs are effective and they don’t cost much. They represent one of the easiest and least expensive ways to attract new customers to your business.
Referral programs can work in a variety of ways and not all require a tangible incentive. Here are six referral program ideas to consider.
A feel-good referral is one where the person making the referral doesn’t get a reward from you but rather, reaps a reward that makes them feel good. While not ideal for every business model, this type of program can work well for businesses in the health and wellness industry.
For example, a fitness center or gym could have a referral program that touts the benefits of working out with a buddy. Many people do a better job of achieving their fitness goals when they work out with a friend, so you could try a feel-good program to encourage referrals.
One model that can work well for online retailers is the give-and-receive program, which encourages existing customers to give a freebie or discount code to their friends and receive something of the same value in return.
An example might be an apparel company offering customers an opportunity to give their friends $20 off their first purchase and receive a $20 store credit in return. The key here is to specify the requirements for the first purchase ($20 off your first $100 purchase) to make sure that everybody understands the program.
Not all rewards need to go to the person making the referral, which is where the charitable referral program comes in. There are many consumers who prefer to buy from companies that contribute to worthwhile causes.
For example, a company that sells children’s clothing might make a donation of pajamas or shoes to kids in the foster care system for every referral they receive. A catering company might make donations to a local food bank.
While referral programs are a form of word of mouth marketing, not all referrals need to happen in person. One option that businesses catering to younger consumers may want to consider is providing a dedicated link that customers can share with their friends. This type of program marries referral marketing with affiliate marketing.
Any referral who clicks the dedicated link and makes a purchase earns the owner of the link a store credit. A dedicated link program may be most useful for online retailers and those who have a lot of Millennial or Gen Z customers.
Social media referral programs combine referral marketing with influencer marketing. In this type of program, businesses ask their social media followers to share their content on Facebook, Instagram, or TikTok.
For example, you might ask people to share your posts and offer them a free product if they make three successful referrals. You’ll need to make sure you ask referral customers how they heard about you or use some kind of tracking system.
Service businesses need to think outside the box to deliver referral rewards. One way to do that is by offering your clients who make referrals a discount on your services.
For example, a software company that provides SaaS solutions might offer a free month or even a free year of subscription. In the case of the latter, you would probably want to require multiple successful referrals to earn the referral reward.
Here are some best practices to follow as you start your own referral campaign:
Using these best practices will increase the likelihood that your new referral program will live up to your expectations.
Starting a referral program can help you attract new customers who are highly likely to turn into loyal buyers. It can also cement your relationships with your existing customers and increase your sales and profits.
Are you ready to invest in referral software for business growth? Select Funding is here to help! Click here to learn about our small business financing and begin the application process.