Why Your Small Business Needs a Customer Referral Program

Did you know that referred customers tend to spend more with your business than non-referred customers? Read on to learn all about referral programs and how your business can get one started.

Customer referral program

Developing a customer referral program can offer your business significant value:

  • Referred customers are more easily retained, which means you’ll get more value out of your existing customer base
  • Potential customers who were referred to your business by a friend are up to 4x more likely to convert than non-referred potential customers

These are just some of the benefits that a customer referral program can bring to your business! Let’s dive into what exactly referral programs are and some simple ways to set them up for your small business.

What is a Customer Referral Program?

Simply put, a customer referral program is an organized way to generate word of mouth business.  

They normally work like this:

  • A business advertises their referral program to their current customers with an incentive for both the referrer and the person being referred.
  • Once your business’s current customer makes the referral, they receive the incentive.
  • The person who receives the referral also gets an incentive or perk to spend with you or try out a service.
  • If the strategy worked out, you now have a new customer who loves your business and will advertise you to their network!

Rewards and incentives are the most important part of creating an effective referral strategy. Whatever industry your business is in and whatever service you offer, there is a way to create compelling referral incentives!

Just remember to create something of value for both the referrer and the referred. 

Some common incentives are:  

  • Discount codes
  • Freebies
  • Store credit
  • Extended free trials for premium access
  • Cashback

If you’re a restaurant, consider offering a free dish to a first time customer with the referral code! If you’re an interior designer, throw a little something extra into your free mockup and consultation. If your business is an in-person service-based company, you can still make your new referrals and referrers feel special with welcome and thank you packages or gift cards! The possibilities are endless. The key is finding the best thing that will really communicate your brand and your gratitude towards your current and new customers!

Marketing Your Referral Program

Developing a successful customer referral program involves creating a strategic marketing plan!

Marketing your customer referral program is a lot like marketing your business. You need to make sure there’s clear messaging, a seamless customer experience, a great product and ways to track and analyze the program’s results.

Understanding your target audience and what they value and appreciate about your business goes a long way. You can use that knowledge to offer incentives that will be truly compelling and that will show off the best of what your business does.

Including paid ads, social media posts, and email blasts about your customer referral program can help keep the referral funnel full and flowing! Building an FAQ page on your business’s website specifically for the program can add an extra layer of care and security for your customers so that they know exactly how it works, what they are getting, and that their friends and family will benefit from it as well.  

When it comes to tracking the performance of your referral program, make sure you look at the big picture as well as the smaller conversions like click through rate, individual purchases and shares. Calculating your business’s overall referral revenue rate can give great insight into the real time value of the program and can help make clearer where to allocate resources and attention in the future.

Calculate your business’s referral revenue rate with this simple formula:  

Referral revenue rate = number of referred purchases / number of total purchases

We suggest checking in on your referral revenue rate at least once a quarter and annually, but you can do it as frequently as every month!

Final Thoughts

If you’re concerned about how the freebies and discounts will affect your business’s bottom line, don’t be. Referred customers have a stronger lifetime value than customers earned through other means, so you’ll make up the cost and exceed it in no time at all. Plus, your current customers will feel more connected with your business and begin to work as a marketing force all on their own!

Of course, having a successful customer referral program requires having a successful business and digital marketing strategy. If your small business needs help with digital marketing, RevLocal can handle it all!

RevLocal offers personalized digital marketing solutions for small businesses and multi-location brands. To learn more about who we are and what we do, visit our website or contact us for a free consultation!

Join the Club

Subscribe to our email list to get the latest digital marketing content delivered to your inbox each week!