The legendary ‘golden goose’ of small business is word-of-mouth marketing. Attracting new customers can be a slog - and often an expensive slog too. So having existing customers go out and sell on your behalf is a dream come true.
Rather than waiting for this to land in your lap, setting up a referral programme can give your customers the nudge they need to spread the word about your great product or service.
Here’s a quick rundown of how to set up your own referral programme.
What is a referral programme?
A referral programme is a systemised way of gaining word-of-mouth recommendations for your business, normally by rewarding existing customers for bringing in new customers.
There are a few good reasons why referral programmes are so effective. People are more likely to buy from businesses recommended by other people - especially people that they know and trust. Also, many people are happy to talk about good experiences they’ve had with businesses, as it’s an easy way for them to help out people in their network.
Step 1: Get to know your existing customer journey
Before you start building your referral programme, it’s essential that you understand how your existing customers buy from you.
Ask yourself how many points of contact you have with each customer. If your transactions are immediate and in-person, you’ll likely need to introduce your referral programme during their purchase. If your customers buy from you online, you’ll likely have their email address and have more opportunities to let them know.
This will help you fit your referral requests into the right part of their journey. Referrals normally work by capitalising on a positive interaction with your business and most incentives encourage your original customer to buy from you again. So wait until you think their positive feeling for you is at its peak, and get in quickly to tell them that they can benefit from telling other people about your business.
Step 2: Choose your incentive
You’ll need to choose what you’ll offer your customers for referring. This will be the centre of your messaging, it is the main thing that’ll persuade them to take action to help your business. After all, while we all like being helpful, we want to know what’s in it for us!
Don’t think you need to break the bank offering huge discounts for referring customers. Use your average customer spend to inform how much you’re willing to give and ensure you won’t be making a loss. If you use FreeAgent, you can find this information in our Customer Sales report.
You can offer percentage discounts or a fixed sum off their next transaction, or you can send them a free gift. You should also consider giving the referred customer an incentive as well. These two-sided rewards are an even more effective way of persuading people who have been referred to ‘convert’ and choose your business.
Step 3: Track your referrals
It’s all very well and good having rewards ready, but you can’t give them out unless you know which customers have been referring for you. That means you need a way to distinguish regular purchases from referred ones.
Depending on how many customers you have each month, you may be happy with a manual system or you might need a more high-tech solution. At the basic level, you can choose your own referral codes - just make sure you pick a different code for each customer so you can track their rewards.
If you have a higher volume of customers (or just want to streamline the process), you can give each customer a unique link which they can share with their network. Then you can easily track how many referrals come through each unique link and give out the right rewards.
Step 4: Make it easy for customers to refer
This is the most vital step - no matter how much your customers like your business, they won’t refer if it takes them too much effort. They probably won’t refer if it takes more than a couple of minutes. So make the process as painless as possible for customers.
If you have an online referral programme, you can prepare a few things that’ll help your customers. You can send them different versions of their unique shareable link, so they can choose to share through the social media platform or email client that they prefer. And when they do, you can prepare a message for them which briefly tells their network about you and your referral offer.
You could set this up yourself or you could use a company that specialises in building referral programmes for small businesses. As well as creating a smooth process for you, they often provide simple platforms to track your referrals.
Step 5: Keep up the momentum
Once you have unveiled your referral programme and started to see the results, you want to double down. The ideal referral programme ticks over in the background, generating a steady stream of new customers without taking up much of your time.
You can add reminders about your referral programme when you speak to customers, sending them occasional emails promoting the offer and providing their link or code. But you can also reference these in regular communications, like invoices or order confirmations.
You might also want to think about whether you’ll give extra rewards for customers who refer multiple people. You can create tiered rewards that stack with each newly referred customer or give money off every time they refer a new customer.
Step 6: Monitor your success
A referral programme can be a significant source of revenue for some businesses - but it doesn’t work for everyone! That’s why it’s essential to keep an eye on how it’s working and what your return on investment (ROI) is.
You can track how many referrals you bring in each month, how much each referred customer costs you, and the percentage of people referred who actually become your customers - both short and long term. All of this data will help you to improve your referral programme, and ensure you’re delivering exactly what your customers want.
Did you know we have our own FreeAgent referral programme? If you use and love our accounting software, you can share your own unique referral link to earn you and your friends 10% off your subscriptions.