Customers who come to you after hearing a recommendation from a trusted source are 16-25% more likely to stay with you long term, which increases your bottom line because it saves on marketing efforts.
It makes sense, because 82% of Americans seek recommendations from friends and family before considering a purchase. People prefer to minimize their risk when buying from a new vendor, especially if what they buy requires a large investment of money or time.
Want in on this lucrative source of business growth? Here’s how to build a profitable referral program for your business.
Step #1: Decide on Incentives**
Some people will refer you just because you’re great, but most people need some incentive to take action. It’s your choice whether to incentivize the referred client on top of the referring party, but it’ll definitely help your referral partners encourage others to take action faster.
Incentives come in all shapes and sizes. You can provide a free product or service, greater access to you than most customers get, cash rewards, or an invitation to an exclusive dinner for a select group of customers and prospects.
Whatever you decide, take average deal size into consideration. You want your referral incentive to be perceived as high value, but its monetary worth can’t be the same for a $500 product and a $500,000 product.
**Disclaimer: Some industries do not permit these kinds of incentive programs. Before considering offering rewards or incentives, please be sure you’re in compliance with all your industry-specific laws and regulations.
Step #2: Make it Easy for People to Refer Others
People are busy and have a lot on their minds. Don’t make it necessary to remember where they placed your business card, or memorize long phone numbers and email addresses.
Make the referral process as simple as possible – for example, with the help of a shortened URL, or an app they can text to a friend with one click.
Step #3: Reach Out to Potential Referral Partners
The best referral partners are those who know how valuable your product or service is. Start by reaching out to people who gave you 5 stars on review sites, praised you on Twitter, used your hashtag on Instagram to show off your product, or sent you thank you emails. Tell them about your new referral program, explain which types of customers you’re looking for, and invite them to participate.
Next, reach out to your network – family and friends, LinkedIn contacts, business owners in complementing industries. If you don’t know enough relevant people, participate in online group discussions (for example, on Facebook or LinkedIn), go to conferences and meetups, and start building relationships. It’ll be a while before you can invite new contacts to your referral program, but if you don’t start, the time will never come.
On that note, connect with influencers in your field – those who can expose you to thousands of qualified prospects with a click of a button. Known as affiliate programs, referrals are done online all the time in exchange for incentives, and it’s an easier way to facilitate mobile client acquisition than driving around town.
Step #4: Show Gratitude to Referral Partners
Every time someone refers you a prospect, thank them, because it’s a big deal.
If they need to refer several paying customers to get their incentive, thank them after each prospect becomes a client, and let them know how many customers are left for them to refer.
When it’s finally time for them to get their reward, don’t wait for them to contact you. Initiate the email or phone call to give them their reward, and they’ll appreciate you even more.
Step #5: Analyze Your Referral Program
At the end of every quarter or year, analyze your referral program to know which referral sources are more profitable. Consider rewarding them even more to increase referrals, but also analyze why the other sources weren’t as profitable.
In addition, analyze how much work it takes to bring in customers on your own vs. via referrals, and what’s the average deal size and sales cycle (how long it takes to get from first contact to a closed sale) in each way.
As a result, you’ll know what to keep doing and what to change as you move forward, and you’ll be able to create an even more profitable referral program.