How A Customer Referral Program Can Provide a Lift for Your Business

Customer referral programs are popular with big brand companies, particularly retailers, because they effectively bring in new customers. Plus, there's the bonus of building on customer loyalty. 

Word of mouth referrals has long been golden to any business. People trust recommendations on where to shop or do business from their friends, family, and even professional network. But assuming your customers will refer you to their connections simply because you provide exceptional service is idealistic at best, cautions Madeleine LaPlante-Dube, a content marketer for Precision Marketing Group.

“Referrals only happen out of the good of a customer's heart some of the time – for the rest of it, giving customers a reason to refer will work wonders,” she writes in a blog for Hubspot, which develops and markets software products for inbound marketing, sales, and customer service.

What Is A Referral Program?

A referral program is a word-of-mouth tactic that encourages customers to advocate on behalf of your business.

While encouraging customers to do reviews online or participate in customer surveys are good ways to engage them, a referral program is a straightforward and incentive-based method to share their brand experience with partners, colleagues, and friends.

The purpose, of course, is to attract new leads to your business. "But, you're not just bringing in anyone," points out LaPlante-Dube.

"By asking customers to think about people who would benefit from your product or service, they'll refer leads that are a good fit for your brand," she writes.

Designed to Work

Like any marketing-related plan, small business owners can use a referral program as a tailored opportunity to reach their targeted audiences, i.e., potential new customers, to grow their business and revenues.

While word-of-mouth recommendations can and do happen without your prompting, they're also not in your control, writes Jessica Huhn in a blog for Business 2 Community or B2C, which covers news and trends in social media, digital marketing, content marketing, and social business.

A referral program gives you a way to formalize the process - it provides customers an easier way to recommend your business, plus they get a reward for doing so, she adds.

"Small business referral programs are an awesome way to get your customers to spread the word about your business, at a much lower cost than other marketing efforts," Huhn writes.

 "Your customers will feel like a valuable part of your business's success, so your relationship with them will grow stronger."

Creates Loyal Customers

Like a customer loyalty program, a referral program rewards your customers for their engagement with your business, writes Sean Peek in a Business News Daily article.

"This not only helps attract new customers (referral marketing is both effective and affordable!), but also keeps your existing customers coming back for more, as they now have incentives to do business with you," he writes.

Also, referred customers are 18 percent more likely to remain your customers and have a higher lifetime value, according to the blog by Huhn.

"After all, they trust their friends," she writes. "And on the other side, incentives for referring friends, such as discounts, store credits, and free products, give your referring customers a reason to keep coming back!"

Further, studies show customer loyalty can boost your profits.

"The more customer loyalty you have, the better your profits will be," Peek writes, SailThru data that suggests a 5 percent increase of customer retention could increase business profits by 25 percent to 95 percent.

Keeping It Simple

A referral program shouldn't be challenging to create nor complex for your customers to follow.

"Make sure your customers can quickly understand what you want them to do (refer) and what's in it for them (your incentive)," Huhn writes in the B2C blog.

Keeping it simple also means creating a clear CTA (Call to Action), one that's easy to see on your website and social media - and easy to share.