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Ultimate Referral Program Guide For Small Businesses

Picture of Maria Davidoski
Maria Davidoski

Copywriter. Content writer. Psychologist.

Why should you use word-of-mouth marketing?

Have you ever been referred to a new business by a friend, only to be amazed by their incredible service leading you to refer someone else to that business?

This is called word-of-mouth marketing and it’s the heart of referral programs.

Without a doubt, it is the most powerful marketing strategy and it can help you grow your business, attract new customers, and even help you hire new employees.

This guide will cover everything you need to know to create your own successful money-making referral program.

What is a referral program?

A referral program is a system where you award your current customers when they recommend your business to new people.

Take a look at these mind-blowing statistics:

  • 92% of customers trust the recommendation of people they know
  • Only 33% of people believe the online ads they see on Google or Facebook
  • 91% of people in the US shares exclusive deals with their friends and family, according to Access
  • If customers are referred by someone they trust, they are 4 times more likely to buy
  • 84% of people will consider another person’s opinion when buying online according to Nielsen

The largest buying generation in the US, millennials, are 91% more likely to buy products and services if it is recommended by someone they know.

Two types of referral programs

Whether you want to attract new customers or hire the best employee for a specific role, a referral program can be your secret weapon to success.

There are two types of referral programs: customer referral programs and employee referral programs.

In a customer referral program, you offer incentives for existing customers when they help you spread the word about your business.

When customers love your product or service, they want to share the news with their family and friends. If they are rewarded for doing so, they will become loyal advocates for your business.

In an employee referral program, you reward a current employee when they recommend a potential new employee.

According to Yello, 88% of employers claim that their most extraordinary candidates come through referrals, which is not surprising.

Your current employees know the company culture the best; therefore, they might know the piece of the puzzle you’re missing.

On top of that, referral programs save companies around $3,000 per hire. (Recruiter).

The type of referral that will work best for your business depends on your current strategy and future goals.

Don’t look at these as one-way only.

Some of the most successful businesses on the planet use both types of referral programs because you can’t grow your business without loyal customers or quality employees.

If you need more info to help you decide, check out this article.

Benefits of a referral program for local businesses

The benefits of having a successful referral program are numerous and may include:.

  • Growing your customer base with more high-quality leads
  • Lowering customer acquisition costs
  • Increasing customer loyalty and their lifetime value
  • Spreading awareness about your business while saving money at the same time
  • Enhancing your business reputation
  • And most importantly, increasing sales

Once again, statistics are referral marketing’s best friend.

  • 84% trust recommendations from people they know-Nielsen
  • The lifetime value of a referred customer is 25% higher compared to other customers – Wharton School of Business
  • Referred customers bring you a 25% higher profit margin Nielsen
  • Often a referring customer invites an average of 2.68 people
  • 86% of B2B companies who have a referral program grow.

But let’s compare referral marketing to other marketing tactics for acquiring new leads:

  • Word-of-mouth may increase your sales by at least 500% compared to a paid advertising impression
  • People trust their friends’ recommendations almost seven times more compared to conventional advertising
  • According to WOMMA, one offline recommendation drives sales at least 5x more compared to 1 paid ad, and even more for higher-consideration categories

Numbers say it all.

One-way and two-way customer referral program

There are two types of referral programs: one-way and two-way.

In a one-way referral program, only one side receives an incentive: the referring customer or a new customer. However, in a two-way referral program, both customers receive an incentive, such as a discount or free product.

Single-sided referral programs have their benefits, but they also have some downsides.

Small business owners prefer this type of program since it’s cheaper. In the end, you only reward one person.

But the problem with this method is the lack of motivation for the referred person to actually buy something. And feeling that someone gets a reward and you don’t, doesn’t create a satisfied customer.

On the other hand, double-sided programs solve this problem by rewarding both the referrer and the referees. This is what 72% of referral programs do, and for a good reason.

So think about how you can make two-way programs work for your business.

For example, just split the reward amount in half. Instead of offering $30 as a reward in a one-way program, offer $15 in a two-way program. That way, both your existing and potential customers will be motivated to participate in your reward program.

3 steps for creating a successful referral program

If you’re thinking about starting a referral program, you can do a few simple things to make sure your referral program will be a hit.

Create a strategy

Your strategy should answer important questions to ensure your loyalty program will be successful.

First, who do you want to target with your referral program?

Before even thinking about the rewards you may offer, think about your ideal customers. Those customers get the most significant benefits from your business, love your products and services, and love spending money in it!

Do you want to target those customers with your referral program, or do you have another group in mind?

Ideally, you can spend some time talking to your customers to get to know them better. What motivates them? Why do they love your business? What are the biggest benefits they get from your service or product?

Not only will your current customers feel seen and heard, but you will also gain valuable insights to help create a successful referral program.

After all, referral programs are made for your customers. They will be the ones telling you what works and what doesn’t.

Second, what is the best way for referrals to get introduced to your business?

Will you start your referral program with your most loved service/ product? Or the newest one? Will you create an exclusive offer for potential customers?

Once again, think about your existing customers. Are they excited to try new things, or do they stick to what they like the most?

Your existing customers will bring you people who are similar to them, therefore, they will love the same aspects of your business.

Create your strategy based on your ideal customers, and you’ll avoid some of the most common mistakes business owners make in the beginning.

Third: What words and phrases do your customers use?

Spend some time getting to know your customers. Think about the words your customers use and their way of communication.

It’s not enough to choose a referral program and decide on rewards.

You have to speak the same language as your customers.

How will you introduce your program? What words will you use? Do you want to sound friendly, excited, or professional? Do you want to create different messaging for different segments?

You may say, “this is the product our customers absolutely adore,” or “the product our customers like.”

Which product would you rather buy?

The same goes for your customers.

Choose rewards

You can choose from many types of rewards: discounts, store credits, gift cards, donations, etc. We covered everything in detail here.

What is the most popular reward?

When choosing the most suitable rewards, business owners often forget one crucial thing: what will work the best for their business in the long term?

Suppose you’re in the beauty industry and choose branded swag as a reward for your referral program. Looking at the short term, this may be cheaper than discounts on your most popular services. But will this motivate your existing customers to participate in your referral program? Probably not.

So when choosing rewards, don’t forget that happy customers are the ones who refer their friends and family.

Ask yourself: How can I make my customers love my business even more?

Decide on a reward structure

Have you ever been rewarded for recommending someone’s product or service?

Have you ever been rewarded multiple times?

There are two main types of referral programs: Standard and Tiered.

Standard referral programs offer a set reward for every new customer that is referred. For example, you may offer a $10 discount or a free product for each referral.

Tiered referral programs offer increasingly valuable rewards as the number of referrals increases. For example, you may offer a $10 discount for the first referral, a $20 discount for the second referral, and so on.

This can be an effective way to encourage more people to participate and help you reach a wider audience. In addition, tiered referral programs can be customized to fit the needs of your business, and they can increase sales and build brand awareness.

Regardless of your reward structure, they all share one goal: to help you generate new leads and customers through word-of-mouth marketing.

What works best: software or physical cards?

When it comes to referral programs, most people remember branded physical cards to collect points and get discounts.

Do they still work today?

Even though people like colorful cards, there are more advantages to using software nowadays.

Here’s why:

  • Millennials and Gen Z are the fastest growing buyers groups, and they prefer to have everything in a few clicks on their phones
  • Software is easier to use, both for customers and business owners
  • You can create a customized campaign and engage customers in 1 on 1 communication
  • The software lets you provide your customer with more information about the referral program
  • It’s faster and often cheaper
  • It helps you automate the whole process and leave more time for your marketing team to focus on growing your business
  • It helps you track info and quickly analyze everything because you have all the information you need in one place
  • Allows you to change the design, messages and offers quickly while you’re learning what works and what doesn’t
  • It can’t be easily lost compared to physical cards
  • You can make a limited number of cards, but with software, the sky’s the limit

How to promote your referral program?

For your referral program to start bringing results, you must first introduce it to your existing customers.

This is where most business owners feel insecure.

Remember: your customers already love your products/services.

They will love your referral program even more!

There are a few different ways you can promote your referral program.

Here are the most popular ones.

Introduction emails

If you have a big customer base, an introduction email may be your best option.

Create a personal, heartwarming email to tell your customers how much you appreciate them. Explain the benefits of participating in your referral program, and don’t forget to mention the fantastic incentives they can get.

This tactic works because everyone loves to feel appreciated, seen, and heard.

If you’re unsure how to make introduction emails work for your business, check this article for inspiration.

Automated SMS and email campaigns

When it comes to promoting referral programs to your loyal customers, automated SMS and email campaigns can be a great way to do it.

You can set up your program to send an automatic thank you message when someone checks into your business. In the message you can also introduce the referral program, explain the incredible benefits, and ask if they would be interested in participating. This is a great way to get the word out about your referral program and generate some interest.

Additionally, you can set up automated email campaigns that go out to customers regularly, reminding them about the benefits of your referral program and how easy it is to participate.

You can also have automated messages go out to let customers know how close they are to earning rewards to encourage them to buy another product or sign up for another service.

By using SMS and email automation, you can ensure that your referral program gets the exposure it needs to succeed. Plus, it lets you stay in touch with your customers and build stronger relationships.

Landing page

Even though SMS campaigns are a great way to promote your referral program, one serious disadvantage of using them is the limited number of characters.

Of course, you can avoid this by sending lots of messages in a row, but no one likes to hear the constant buzz of their phones.

Sending tons of SMS also increases the promotion cost, which leads to higher customer acquisition costs.

So how can you avoid the disadvantages of SMS and email campaigns?

Simply create a landing page which offers the following benefits:

  • It’s easier for your customers to learn more about your referral program and how they can benefit from it
  • You can promote your landing page on social media
  • You can include a hyperlink in your SMS and email campaigns to ensure your campaigns are short yet effective

Check out this article to learn how to create a referral landing page that stands out and how to avoid some of the most common mistakes.

Flyers and posters in business

One of the simplest ways to promote referral programs is through flyers and posters.

When designed correctly, these marketing tools can be highly effective in driving referral program awareness and participation.

Here are some tips for using flyers and posters to help you promote your referral program:

  • Clearly explain the referral process on the flyer or poster, so potential customers know how to take advantage of the program
  • Introduce referral program rewards, such as an offer for a discount or freebie, to encourage customers to make a referral
  • Make sure the flyer or poster is eye-catching and attention-grabbing so that it stands out from other marketing materials
  • Place them in the visible place: on the door or near the cash register etc.

Through your employees

Referral programs are not only a great way to get new customers, but they are also a great way to attract new employees.

How can you ensure that your employees are aware of the referral program and that they will promote it to their friends?

The best way to do this is to create a referral culture within your company.

Make sure that everyone knows about the referral program and how it works. Encourage employees to refer their friends by offering incentives, such as a bonus or gift card. And make it easy for employees to refer their friends by providing them with marketing materials, such as email templates or social media posts.

By creating a referral culture, you can ensure that your employees are promoting your referral program to their friends and that you’re getting high-quality candidates.

Social media

Promoting your referral program using your social media accounts will help you reach a wider audience and spread awareness.

Spend some time to see what works best on Instagram or TikTok.

You can create a carousel or, even better, a video that clearly explains the program and how it works.

Be sure to include a strong call-to-action, such as asking users to share the post with their friends and family.

Many businesses use their social media accounts to promote their products and services, spread awareness about their brand, and even create interesting campaigns to grow their business.

By following these tips, you can ensure that your referral program gets the promotion it deserves.

How to make sure you have a successful referral program?

You’ve decided on the rewards structure, rewards, and promotion strategy. New clients are starting to arrive slowly.

Is there anything else you can do to ensure the success of your referral program?

Luckily, there is.

Referral program tracking

Don’t forget to keep track of your referrals.

This way, you can see what works and what should be changed which allows you to make smarter decisions and increase referrals even more.

Not everyone who is referred becomes your loyal customer.

Keeping track of referrals will make you aware of how often your referrers share their referral codes and how many referrals are actually showing up in your business.

Keeping track of referrals might be challenging, depending on your referral process.

The simplest method is to use referral program software to do all the heavy lifting for you.

We explained the different methods in this article for business owners who may find this slightly confusing.

Convert lead and follow-up leads

When a new customer is referred to your business, providing the best customer experience is essential to transform that lead to paying customers.

This is where you can start building a relationship with your potential customer.

It’s a delicate process since leads are introduced to your business for the first time; therefore, they aren’t ready to buy from you immediately.

Your job will be to create interest in your business and identify and solve your potential client’s problems. Start building personalized communication and choose the best point of contact.

Some businesses prefer to call the leads; others send emails or SMS, or even use social media platforms. Emails are 40x more effective compared to Facebook or Twitter, while 41% of salespeople say their phone is the most effective sales tool.

Whatever your choice is, it is vital to act quickly and continue to follow up.

Don’t be discouraged if your customers say NO the first time you contact them. According to Insvep 60% of customers say no four times before saying yes, and around 48% of salespeople never even make a single follow-up attempt.

Don’t wait more than 48 hours to contact your leads. Research shows that 35-50% of sales go to the vendor that responds first.

Start the communication on the right foot. Instead of asking if this is a bad time for them to talk, ask them how they are. According to Gong, starting with questions that have positive connotations increases the chance of booking a meeting by 3,4X.

If you think this may be too challenging for you or your sales time, just remember that acquiring a new customer costs 7x more than retaining current ones.

Investing your time now saves you money in the future.

The most common mistakes you can avoid

We identified some of the most common mistakes business owners make in different phases of their referral programs.

Even though mistakes can help you grow and create a better referral program for your current and new customers, there are some mistakes you should definitely avoid.

In this article, we covered the 25 most common mistakes. So here we’re going to explain a few.

Neglecting customer satisfaction

If you’re not providing the best customer service, or your product is below average, you won’t have a satisfied group of loyal customers eager to promote your business.

Always try to exceed expectations and provide more value.

You may have the best marketing strategy and fantastic incentives, but without a satisfied customer, your referral program won’t yield the results you’re hoping to get.

The referral process is too complex

Nowadays, people don’t have the time or energy to figure out the complexity of referral programs.

Make the referral process simple and easy to understand to ensure your customers will be eager to participate in it.

From signup to receiving incentives, everything should be straightforward and only take a few minutes of their time.

Incentives aren’t motivating enough

If you offer boring rewards, your customers won’t be motivated to refer your business to people they know.

Get to know your customers to see what motivates them the most and find a way to offer that as an incentive.

For example, some businesses offer discounts on their most popular products or services, while others give free cash, brand swag, or donations.

No one likes investing their time and money without being properly rewarded for doing so.

Using a spreadsheet for tracking

This is complex and time-consuming.

Try using software instead. It will collect the information for you, systemize everything and give output in one dashboard.

The easier the tracking process is, the more free time you’ll have at the end of the day.

Start your referral program today

Now you have all the information you need to start a successful referral program by yourself.

We have you covered if you want to use a referral software program or have advanced support to save you time and money.

Schedule your Referrizer demo or start a free trial now.

And don’t hesitate to share your results with us. We love success stories!

Maria Davidoski

Copywriter. Content writer. Psychologist.

Marija uses her knowledge of human psychology to create irresistible copy, the one that both Google and your clients will adore.

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Maria Davidoski

Copywriter. Content writer. Psychologist.

Marija uses her knowledge of human psychology to create irresistible copy, the one that both Google and your clients will adore.

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