Cash Flow Solutions

5 Ways Referral Programs Help Small Businesses

Employee tracks referral program as new customers shop in clothing store

Small businesses are a prime candidate for referral programs. Perhaps you’re a local shop or start-up company, whatever the case may be, getting new customers is always helpful.

Everyone knows of at least one business that has a referral program. We’re not talking about loyalty cards or punch cards, but a legitimate referral program. You know, where you refer a friend and perhaps get a cool reward for it. Not the whole buy a smoothie 9 times to get the 10th free. We’re talking about converting leads to customers, as in growing your customer base.

Referral programs work well because people trust their friends and family. Think about it. Before you try something new you probably ask around to see if you can gain some insight. You may even look for reviews online. But, the fact of the matter is, you’re going to trust the opinion of a friend over a stranger on the web.

When a small business uses the influence of their existing customers, the results can be outstanding. The truth is, if you are providing customers with a great experience/product/service your customers are going to be rooting for you. Not only that, but they will want to see you succeed too. Meaning they would most likely be thrilled about helping you out. Word of mouth marketing happens on it’s own, without any sort of incentive or provoking factor. It can double when a customer is primed to share, whether it be by an incentive or just by how easy it is to spread the word.

1. The viral nature of a referral program

We can all thank social media for this one. When a referral program is implemented and sharing becomes as easy as the click of a button, it’s easy to imagine how fast you can make word of mouth go. Remember people will already talk about your business, but if it’s made easy to share then obviously it can travel faster.

Let’s quickly break it down. If you have one customer who shares your referral program on their social media page, then everyone who follows them on social media has the potential of seeing you. Let’s say a couple of them actually click the link that was shared and become customers. Now that you have these new customers, they can then go on and share the referral program with the people on their social media profiles. You see how the cycle has the potential to go on and on?

2. Creates loyal customers

Referral programs provide a customer with a greater incentive to keep coming back to do business. Some businesses may have a few people they see every other month or every other week. When you provide a reason for that customer to come back more often, they most likely will. If a customer is willing to refer their friends and family to you, that makes them a brand advocate. Brand advocates are your own personal cheerleaders – they want to root for you.

It’s not only the existing customer who turns into a loyal customer. Referred customers are more likely (about 18%) to stay a customer, according to a study done by Wharton School of Business.

3. Becomes a form of advertisement

You may have gotten this vibe by now. One of the really interesting things about referral programs is that they act as advertisement. We sort of covered this in the viral section. Since referral programs, especially those ran with referral software, make is so easy to share, it acts as mini advertisements for your business. Typically, when a customer shares your referral program via a social media button it includes a brief message. This message includes a tiny bit of information about you and it usually includes your logo. Most companies use this space to explain what they do or what their product is. So customers essentially share your ad. On top of that, each customer who shares this image will usually have the opportunity to add their own little message to help encourage friends to check it out. Imagine what could happen if just 20 people share your referral program… that could put you in front of a ton of new eyes.

This works out great for small businesses because you are getting your customers to promote your business for you. Meaning you don’t have to spend as much on actual advertising.

4. Creates better relationships

This goes hand in hand with customer loyalty. Referral programs create customer engagement. These people have chosen to engage with your business on a completely different level. Meaning, they went out of their way to do something good for you. Sure, there may be an incentive that helps persuade them, but it’s something that they ultimately chose to do for you. Why do they want to do this for you? Well, that can be answered multiple ways, but the gist is that they trust you.

Referral programs help create a better relationship because a customer who refers you someone will feel responsible for being part of your business’s success. These people feel like they have a behind the scenes or VIP status. Having a strong customer relationship for any business is important, but it can be even more crucial for a small business.

5. A referral program is pretty cost effective.

It’s easier and it’s cheaper too. Think about it, traditional marketing means you target your potential customers. You take the time to figure out your target audience and usually that means spending money trying to get strangers to convert. Sure some of these ‘strangers’ may know of your business, but for the most part you’ll be exhausting resources on people who have never heard of you.

Referral programs allow you to market towards your existing customers. Which means you have to work less hard on converting new people into customers. Remember, people trust their friend and family more than any other form of advertisement. Using referral marketing works well with small businesses because your existing customers are already fans of you, and have developed a relationship with you brand.

Besides existing customers are more likely to read, retweet, post about and share your information versus a lead or prospect. Plus, existing customer are likely already following you or keeping up with you, so you won’t have to go far to find promote your referral program.

Why implement a referral program into your small business?

One of the best compliments your business can receive is a referral. As a small business, a referral program can help give you a leg up on the competition. It provides you with another reason to prime customers to share.

In fact, as soon as a customer hears about your referral program they may be able to think of a person or two who they would instantly share with. Why does a customer instantly think of these people? Because they know that specific person would love what you do. They essentially turn into a bit of a hero, providing a friend with a new business to check out and providing you with a new customer.

Megan Mosley is the marketing specialist at Referral Rock. We believe every business has the potential to increase their word of mouth with referral marketing. Visit us at Referral Rock to see how we can help you build your referral program.

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