Referral marketing for beginners: the power of referral programs

March 25, 2019

When it comes to small business marketing, trust is by far the most valuable currency. Driving web traffic and increasing brand awareness are great goals, but there's nothing more impactful than engendering trust in your business. This can be achieved in a number of ways, but word-of-mouth consistently produces the best results. Indeed, 92 percent of customers say they are inclined to trust "earned" media like word-of-mouth and personal recommendations. Referral marketing is the simplest and most effective way to generate this invaluable buzz, so take a look at what you need to know to get started.

What is referral marketing?

There's no question that word-of-mouth is a powerful force. Plenty of businesses have succeeded largely on the strength of word-of-mouth marketing. In-person recommendations generate over five times more sales than paid marketing efforts, making them a holy grail of advertising. Unfortunately, most businesses can't afford to simply sit back and wait for these recommendations to happen organically. The solution, then, is referral marketing.

In its most basic form, referral marketing simply means offering some kind of incentive to encourage satisfied customers to spread the word about your business. Why is this necessary? While 83 percent of customers are willing to spread the word about great products or services, just 29 percent actually do so on their own. Offering a referral program can tap into that remaining 54 percent and lead to a huge increase in your word-of-mouth recommendations. It's a simple strategy that can produce serious growth, but it's not right for every situation.

Is referral marketing right for your business?

An effective referral marketing campaign requires that a business has a few things in place. The first requirement is a truly excellent product or service. After all, few customers are going to suggest a subpar product to their family and friends. Even worse, offering a referral program for something that doesn't meet expectations can backfire in a serious way. Good reviews for your offerings, positive feedback from customers and unsolicited referrals are all good signs that referral marketing is a fit for your business.

Another prerequisite is excellent customer support. This serves a few important purposes. The first is to ensure that your business can adequately handle an influx of new customers. It's no guarantee, but a referral program can sometimes bring in a major increase in traffic. Can your company handle this increase appropriately? The second factor is to make sure that each new customer has as good an experience as the person who made the recommendation. A single referral doesn't do much good, but a negative experience can stop the chain before it even begins. The best campaigns rely on each referred customer subsequently bringing even more referrals on board.

The basics of creating a referral program

The first step in building a referral program is defining the goals you'd like to achieve. What would constitute a success for your campaign? For some businesses, it may involve hitting a specific sales figure in a certain time frame. For others, it may be more important to bring on a particular number of new customers. Perhaps the most important factor for your industry is building greater trust and recognition. No matter what success looks like to you, it's important to be specific and set tangible targets that can be used to track your progress later on.

The next task is to choose the right incentives. In some cases, simply thanking your customers and asking them to spread the word if they're satisfied is enough to jump-start the process. In other cases, it's best to offer a reward to help spur your customers into action. Take a look at what your competitors are doing and consider which incentives are appropriate for your industry. Popular options include the following:

• Priority service
• Credits or cash back on purchases
• Access to exclusive deals and discounts
• Free or upgraded shipping

Promote, refine and refocus

Once you've determined your goals and settled on incentives, the key to success is building awareness of your program. As with incentives, the right approach to promotion may vary depending on your industry and the goods or services you offer. Reaching out to existing customers with an invitational email is almost always a great place to start. A prominent call to action on your website is usually an effective approach as well. It's also a good idea to incorporate your referral program into your newsletter. Recent studies have shown that 90 percent of people who are prompted to subscribe to a newsletter opt to do so.

After the program has been launched, it's important to track the results and adapt your approach as necessary. Unfortunately, it sometimes takes some trial and error to hit upon the most effective combination of incentives and promotional strategies for your industry and customer base. Regularly refining your approach and refocusing your long-term aims will help you maximize your returns. Utilize the metrics that are most important to you to track your success. Consider requesting feedback from customers to gauge their response to your program and use this information to shape any changes moving forward.

The modern hyperconnected, media-saturated world has given businesses more avenues for marketing than ever before. Nonetheless, word-of-mouth is undoubtedly still king. In fact, it's the primary motivating factor behind a staggering 50 percent of all purchasing decisions. The most successful small businesses capitalize on this and turn satisfied customers into true allies. With small business referral programs, you can engender trust, give back to the customers who fuel your success and open up new opportunities for strong and sustainable growth.