Use Customer Referral Programs To Grow Sales

Customer referrals are one of the most effective marketing tactics—and it's free, too. Here's how to take advantage.
President, Proximo, LLC
July 26, 2011

The most effective types of marketing programs that exist are those that cost nothing, or next to nothing, and are proven to work. It’s almost as good as having a cash printing machine. While most marketing techniques don't fall into this category, there is one which does: customer referrals.

The term referral is sometimes used interchangeably with viral marketing, but viral marketing is a little broader. Let’s keep it simple. By referrals I’m talking about having existing, satisfied customers voluntarily recommend your business to people within their circle of trust.

Referrals are effective precisely because they aren't considered a form of marketing or sales. Consumers are bombarded with hundreds (some sources calculate it as thousands) of marketing messages daily. We have become relatively skilled at blocking out most of these messages. It takes a high degree of cleverness, differentiation and persistence to have your message penetrate a consumer's busy mind.

Why referrals aren’t perceived as marketing

Referrals aren't considered marketing by consumers for two reasons: first, it’s the buyer that solicits the information. People don't call everyone they know to tell them about a great plumbing experience they just had. Instead when someone needs a plumber they ask people they trust. This means you already have a willing buyer.

Secondly, the referrer isn’t receiving monetary compensation in exchange for the referral. They are referring the business to appease some of the most basic human desires—to help someone else and to feel empowered to help. I've never heard someone respond to a request for a referral by saying "I know just the company that can help but I won't tell you because they aren't paying me.”

Referrals are probably the oldest and still the most reliable form of generating new business

Sometimes companies try to artificially accelerate the referral process by offering compensation. "Refer a friend and get a $20 gift card!" and things like that. I would be hesitant about instituting that type of compensated referral program.

  • Firstly, it can be very expensive. The referral amount needs to be sufficiently interesting to elicit participation.
  • Secondly, it can create a type of winner’s curse where the referrer may feel they aren't being paid enough to refer your company and will feel a bit resentful about it.
  • Thirdly, it can cloud the genuineness of the referral and may raise doubts about the quality of the referral in the eyes of the recipient.
  • Finally—and this is the best reason—people are willing to do it for free! So why pay for it?

How to accelerate referrals the right way

Instead of paying, there are some productive methods that you can implement to enhance and accelerate your referral program:

Ask your customers for referrals

After—and only after—you have done a great job of satisfying your client, let them know that you would appreciate referrals. Many consumers could recommend you to a few people they know and would gladly do so at no cost. But if you don’t tell them you want a referral, then they won’t think about it next time someone asks them for a name.

Show your appreciation

In cases where a referral leads to new business for your company, make sure to say "thank you" to the person that referred you. I can’t count the number of times I’ve referred a business to someone who later became a client and I never even received a thank you call or e-mail. Small displays of gratitude are valuable and much appreciated.

Make it easy for them to refer you

When you tell a customer that you would appreciate referrals, have a simple way to allow the referral to take place. Don't place onerous requirements on the customer. Having a simple domain name and an easy-to-remember phone number are helpful.

If someone has to find your contact information from an old receipt because it’s too hard to remember your URL, your business will miss many referral opportunities. Some companies implement personalized URLs and phone numbers to track referrals precisely. As long as this can be done in a way that isn't burdensome to the referrer then proceed.

Tout your high referral rates

Every business owner should know the percentage of new sales that come in through referrals. This is a selling point that employees can use and it’s a way to reassure new customers that they are in the right place. For it to be worthy of praise consider publicizing it only if and when it’s above 25 percent.

Don’t make customers feel pressured

The worst way to approach a referral is to make customers think they must do it or that they owe you. This is a complete turn off. As the owner you may be aware of this, but do your employees understand this? Teach them the proper language to use when asking for referrals, discuss the proper time to ask, and also ensure that they don't ask the wrong people. The wrong people are those that aren't satisfied or are very finicky. You could do everything right and they still won’t be happy.