How to Build a Successful Customer Referral Program

Customer Referral Program

Customer Referral Programs provide multifaceted growth opportunities especially when having happy customers.

The obvious way a satisfied customer grows a business is by making frequent purchases of more expensive offers.

Satisfied customers can also act as brand advocates who will happily bring in more customers.

However, the mistake that many businesses make is thinking that an exceptional product or service is enough to get satisfied customers to bring in new ones.

An amazing offer is necessary but not sufficient to generate referrals. People forget to tell their friends or family about your business, or lack the incentive to be proactive brand promoters.

While some customers do in fact refer businesses to others, this doesn’t happen often enough, which means that a business can’t rely on the goodness of someone’s heart to acquire new customers.

Instead, there needs to be a frictionless plan in place that will encourage customers to spread the message about your products or service.

This is why marketers have developed a Customer Referral Program, also known as word-of-mouth marketing (WOW marketing).

However, referral marketing is essentially based on asking your customers to do what your sales and marketing teams do. A business that depends on referrals for much of its leads needs to be tactful, persistent, and patient when running a referral program.

In this article, we will take a deep dive into all the crucial parts that go into building an effective customer referral program.

The Importance of a Customer Referral Program

Companies across fields industries are incorporating a referral program into their overall marketing strategy because it adds another revenue stream.

Before we look at how to build a successful customer referral program, let’s first look at why you should incorporate this strategy into your overall marketing efforts.

Referral Marketing Benefits

Aristotle believed that People are social animals, which explains why we have a natural impulse to discuss our experiences with people close to us.

When we’ve had something good happen to us, we like to let friends know so that they can share in our positive experience.

On the other hand, when we experience something negative, we also want to tell our friends or family members not only so they can console us, but in order to avoid making the same mistake we made.

We learn from each other’s mistakes.

Social Media Today found out that a single message from a trusted source on WhatsApp gets 55 more clicks than a Facebook Ad impression.

Also, 77% of consumers report that feedback from friends or family is the most influential factor when deciding whether to make a purchase.

The latest data that we have on referral marketing shows how marketers harness our social nature:

As you can see, businesses that don’t use referral marketing are practically leaving money on the table.

Setting Up a Customer Referral Program

While the majority of satisfied customers are willing to promote a product or service, only a minority of them end up doing so.

This is why you should set up a referral system that will help you get new customers.

Let’s now look at all the different components that form the backbone of any successful referral marketing program.

Define Your Goals – Be Specific

Before you can begin building a program, you need to be clear about what you hope to achieve.

Having a clear goal in mind will help you come up with referral ideas that are more effective than if you simply relied on generic referral programs.

Are you interested in acquiring more customers or do you want your existing ones to make more expensive purchases? Do you want to grow your conversions or your sales?

The structure of your referral campaigns will differ based on your goals. Therefore, outline your goals before starting a campaign.

Potential Promoters

Typically, these are your satisfied customers, but they could be anyone with whom you’ve worked in the past, or will in the future.

However, don’t limit yourself only to customers – you should put anyone who understands the value of your business on the list. Reach out to industry leaders, influencers in your field or you can even include leads that you haven’t converted yet.

Did you acquire a satisfied customer from a referral? Add them to your list.

Best Candidates

Once you’ve compiled a list of potential sources of referrals, you then zero in on the ones who are most likely to follow through.

Take some time to identify the best referrers and avoid automating this process, at least in the beginning. You want to think about all the traits your ideal candidates have so that you can target those in the future.

Don’t worry about setting a high standard for your referrers. Select people with whom you have a strong relationship but also those who have access to a pool of potential customers.

Does their opinion carry weight?

Pro-tip: You have to be careful to walk a thin line between nudging customers to refer someone and being pesky and bearing down on them. This can cause referral fatigue.

Timing

Timing is an important but often overlooked aspect of a referral program.

For some industries, it is only appropriate to ask for a referral after the customer has had a chance to try out the product or service.

But for many other niches, like app development, it makes more sense to ask for a referral shortly after the sale.

In these cases, the customers experience the product or service immediately, so they are willing to promote your brand soon after purchase. That’s why it makes sense to ask them right after they buy it because they are still excited about it.

Even if the customer is always using the product, if you wait too long to ask for a referral, the novelty has worn off.

Therefore, strike while the iron is hot!

Incentives

One of the things you need to think hard about is what sort of incentive would get them to promote your brand.

You have to get into the mind of the customers and find what would motivate them to discuss your offer to someone close to them.

For example, the standard in the retail industry is to use discounts or deals as incentives. Stitch Fix is an online personal styling service that understands that its customers are attracted to deals. That’s why it created a customer referral program that gifted referrers with a $25 store credit.

For high-frequency sales, like e-commerce, it’s best to offer store credit as an incentive.

On the other hand, for low-frequency purchases, like insurance, it’s better to use gift cards.

Note, however, that a study carried out by the University of Chicago found that, “non-cash incentives are 24% more effective at boosting performance than cash incentives.”

While the findings of the study seem rather odd, there is a well-known case that supports it. A realty group boosted its referral sales by a whopping 3,600% by switching from a cash-based reward system to a bottle of wine.

The cost of the bottle was literally one-tenth of the previous cash reward the business gave to referrers!

So, think outside of the box and see if there are other non-cash based incentives you can incorporate into your referral program.

Spread the Word

Now that your program is up and running, you have to tell your customers. You have to use as many channels as you possibly can to promote the program.

Send emails and newsletters to each potential referrer informing them about your program, newsletters, or share blogs on social media.

You may be interested in our blog “Breaking Down Email Workflows for Your Business” to learn how to automate such marketing activities.

These are some of the most important things to consider when promoting your referral program:

  • Inform your potential referrers about the referral program and discuss what types of customers you think are the best fit for your business. Include a short customer avatar in the messages so that they understand who you would like to attract.
  • Add a link to a landing page in your messages so that your customers can quickly enter the contact information of the referent.
  • Your messages should include content like case studies, testimonials, blogs, videos that your referrer can use to convince their contacts to become your customer.

Whichever way you choose to promote your program, be sure to give your referrers all the information they need to succeed.

Tracking

Just like with any other forms of marketing, you need to track your customer referral campaign.

Tracking will give you an overview of your entire referral efforts so that you can easily pinpoint problems in your program.

You should track the following:

  • Information on the referrer and the people they referred.
  • Time and date when a lead was referred.
  • Did they convert?
  • How will you follow-up with both the referrer and the referent?

Use customer relationship management (CRM) software in order to keep track of your program.

CRMs will help you personalise your interaction with both referrers and potential customers, which will make them feel like they play a special part in your program. Which they do, of course.

Probably the best CRM system you can use is salesforce.

Be Grateful

Thanking both the referrer and the person or company which was referred is another way you make your customers feel important.

In addition to the incentive, also send a personalised “thank you” message to the referrer for helping you find another (hopefully satisfied), customer.

Make Sharing Simple

Your customer has to be able to refer someone seamlessly because otherwise, the whole program is in jeopardy. This also holds true for purchases –  contemporary consumers value convenience and if your business can’t provide it, then the competition certainly will.

The fewer things the customer has to do to successfully refer someone, the better the chances that they complete the process.

Even dedicated customers will be disheartened to learn that the process takes several steps of data entry and a serious time commitment.

Remember, you are asking them to find leads for you. Not just any old leads, but highly-qualified leads that are very likely to become your customers. Yes, it’s for a reward, but the longer the process takes, the less appealing the reward becomes.

Social Sharing Widget

Include a tool that will let your customers refer their friends and family easily.

Again, Stitch Fix shows how it’s supposed to be done. The brand includes a social sharing widget in the dashboard so that people can refer friends with a click.

Customer Referral Program - Refer a Friend
Image Source: NEILPATEL

Stitch Fix informs customers about the reward portion of the program while giving them an easy way to refer.

Email Referral Template

Another way that you can make referring simple is by sending an email referral template to the customer.

There are tons of free email templates online, but you can also write one yourself:

Hey Jane!

I was thinking that you’d be interested in trying out some of the products by “Name of Cosmetics Company”. I’ve been using their products for over a year now and it’s been doing wonders on my cystic acne.

Also, their products are vegan, which I know is really important to you.

I’m sure you’ll love their products! Get in touch with Mary from Sales and I’ll let you take it from there.

Take care,

Susan

Let your referrer know that they can use your email template if they wish.

Referral Campaigns Examples

Let’s take a look at a phenomenal referral program to get your creative juices running!

Glossier is a skincare brand, which uses a referral program that targets first-time or one-time purchases.

Both the referrer and the person they refer are rewarded with credits that they can use with their next purchase.

Also, the brand included a neat little button that informs your friends about the reward.

Customer Referral Program - Image from HubSpot
Image Source: HubSpot

Glossier has made an attractive referral program run seamlessly.

Conclusion

As we’ve seen, referral marketing is an insanely effective strategy. It should be integrated into the very fabric of your business.

Also, don’t forget to look at what the competition is doing: identify their mistakes and improve upon them.