How to Create a Profitable Customer Referral Program
Satisfied customers are a great asset to a business. If prompted and perhaps provided an incentive, they are likely to spread the good word about your business. And that’s why a lot of companies invest in customer referral programs.
Banks are doing it. Insurance companies, online service providers, and even car dealers and dentists reward customers for referrals. In fact, for some companies, referral marketing proves to be the most successful avenue for acquiring new customers. According to Social Media Today, 78% of B2B businesses say that referral programs generate good or excellent leads for them. What’s even better is that 54% also admit that referral programs generate leads at a lower cost when compared to other channels.
Sounds promising, right? Well, let’s dive into the nooks and bolts of creating a customer referral program for your biz. But first, let’s unpack some basics.
What is a Referral Program?
Put simply, a referral program is your method for soliciting more referrals and recommendations from your customers (and rewarding them for it).
The Word of Mouth Marketing Association estimated that every day American consumers engaged in over 2.4 billion (!!!) brand-related conversations. The goal of your referral program is to tap into those conversations and encourage more customers to recommend them to their friends and family. And when that happens you are in a great position as:
One offline word of mouth impression drives sales at least 5X more than one paid impression.
Another obvious benefit to a referral program is that your business acquires warm-to-hot leads on autopilot. Customers that came through a referral don’t require as much canoodling and persuasion as cold leads.
And if the incentive is valuable enough to your customers, they will continue to make those referrals. And new customers can also become part of the referral program. It can literally have a positive “snowball” effect on your business.
Examples of Wildly Successful Customer Referral Programs
Several particular companies stand out for referral program success. Many of them are large enterprises, but the concept easily transfers to small and mid-sized businesses. So let’s take a quick look at these:
1. Tesla Referral Program
Tesla has long been in the referral game. Their first program offered rather lavish rewards – literary and ability to score a free new car if you were a super active referer – among other things. So they recently decided to re-work the deets and released an updated version last year.
For referrals of family and friends, customers will get 1,000 miles of free supercharging. They are also entered into monthly chances to win a Tesla Model Y, and every quarter, they are entered into a chance to win a Tesla Roadster – that’s 16 cars a year. Once a car is won, though, a customer cannot be entered again.
There were other rewards too, that have since been dropped (high-end wheels and batteries, e.g.). Predictions are that they may re-appear.
In short, Tesla is being very generous with rewards. That makes sense as they are selling an expensive range of cars.
2. Sprint Referral Program
Sprint has a dual referral rewards program – $50 gift cards for both the person providing the referral and the one receiving the referral (provided they open a Sprint account and activate within 60 days of receiving the referral). Of course, there are some terms and conditions – you can only refer people you personally know. A referee can only claim one reward, no matter how many people may have made that referral. The total cap on referrals is $500 a year.
That’s a pretty good deal considering that customers don’t switch their telecom providers too often. The average lifetime value from a single one will be well beyond $500 per year.
Evernote is a popular note-taking app that has a free, premium, and platinum account levels. And it managed to rack up their first million users in just 14 days after launching, hitting 11 million two years later. Word of mouth marketing and referrals played a significant role in that.
While their referral program has changed a couple of times, the current version uses a point-based system. Users can earn points for those referrals and even for taking advantage of promotions from their partners. Point accumulations result in the following:
- Upgrades to the premium level, or extension of a paid subscription
- Points can be used to boost space by 1GB in monthly upload
- Point earners can also choose event tickets or other perks.
Lest you think that only “big boys” are involved in successful programs, lots of small to mid-sized businesses have solid referral programs that are popular and that results in increased customer bases. Boden, an online clothing retailer, gives a $15 coupon to anyone who refers another and a 20% discount on a referee’s first purchase. It’s a quick and straightforward deal that most customers take advantage of.
The bottom line: referral programs have become so common now, that customers are beginning to expect them. If you have not implemented one, now may be the time to do so.
How to Set Up a Successful Referral Program – Brief Guide
At its basics, any referral program has three key elements – conditions for participation, a reward for the recommender and a bonus incentive for the other party to activate reciprocity.
But the devil is in the details: small rewards may not create any traction, while lavish ones can drain your budgets. To work out the ultimate setup for your business, follow this step-by-step framework.
1. Understand the Mechanics of Referral Marketing First
Referral marketing has all of the mechanics of regular marketing. Except it is certainly far less expensive and it lets your happy customers do a lot of marketing for you. Your task is to provide a valuable incentive for these customers to refer you, and to provide the means for them to do it easily. Using the following mediums are recommended:
Social Media: This is a no-brainer because it is where your target audience resides a lot of the time. Research the demographics of your audience and discover where and when they are on their favorite platforms. Offer our referral program to reach that audience.
Emails: If you have happy customers on your email list, this is a great place to announce your referral program. Use catchy and engaging subject lines to get maximum opens, and show your customers how they can become a part of the program quickly and easily.
Push Notification: If your current customers have opted in to receive notifications, this is a perfect place to announce your program and to provide info on how they can quickly sign up.
Referral Marketing Software: Use automated software programs to keep track of referrals, rewards, and sign-ups – this gives validity to your program and develops trust on the part of your participants. It also reduces the amount you have to spend tracking all of this.
2. Set up Your Goals
Obviously, your overall goal is to convert those referrals into paying customers. But in order to do that you’ll need to think more granular:
- Do you plan to target a certain demographic?
- Will the discounts apply to all of your products/services or just a certain range?
- How can you incentivize people to make referrals regularly?
Lastly, be certain that you are offering a valuable product or service. No referral program will work with unsatisfied customers – people who are unhappy with your quality or your customer service. No referral program will ever work unless you commit to quality first.
3. Identify Your Target Audience
This is nothing new. It should have been a part of your overall marketing strategy from the beginning. You already understand the demographics of your current audience, what they want and need, and what problems they want that you can solve. So, ask yourself again:
- Who are my current customers and how am I reaching them?
- Based on their demographics, what rewards would they find valuable?
- If your demographics are correct, then those who will be referred are the same as your current customers. So, how can you offer a referral program that will benefit both your current customers and those that they will refer?
4. Consider the Rewards
If you think that only cash rewards will work, think again. There are many other perks both your customers and their referees will find valuable. For instance:
- Offer freebies and product/service upgrades
- Provide discounts and coupons
- Use gift cards and gift certificates
- Offer tiered discounts
And here’s another thought: if your business has a strong program of giving and corporate responsibility, many customers who feel as you do will be happy with an additional donation to a cherished cause in return for a referral.
5. Develop Your Program Rules
Every rewards program comes with a clear set of “rules” for participation. Customers need to understand the terms of that participation. So be sure to specify:
- How often and how many can they refer?
- How easy is it to do this? (the answer must be very easy).
- Are they rewarded for the referral or only when that referral becomes a customer?
- Are their rewards for both the referrer and the referee?
- If you are providing rewards points, do they expire?
One tip here: check out successful rewards programs of your competitors. Can you at least match or improve upon those? You don’t want customers “bailing” to participate in a program that offers more value than you do.
6. Set up a Website Page Specifically Dedicated to your Rewards Program
Your customers need to have hotkey access to all the deets about your program. The easiest way to do so is to set up a dedicated page on your website. Once there, your customer should be able to join the program and begin making referrals with one or two clicks. There’s plenty of software tools that will help you create such landing pages and manage all the entrants.
It’s certain: referral marketing works. It increases a customer base, ripples out to continually increase that base, is relatively inexpensive, lets happy customers do lots of your marketing for you, and is more and more expected by consumers.
Your job is to set up the right program from the start, to modify that program as you track its success, to use the right tools that simplify your work, and keep your current customers happy with your product and your customer service.
Photo by Priscilla Du Preez