How to Create a Small Business Referral Marketing Program in 2023?

Whether you’re influenced by success stories or the idea of being your own boss, starting a small business comes with its own set of surprises. The excitement of bringing your idea to life often gets overpowered by the fear of securing new customers.

Most business owners, while starting out, throw every other growth hack marketing strategy - distributing flyers, sending mass emails and text messages, and building a social media presence - at the wall, hoping something sticks. But startups living out on limited resources should stick to reliable customer acquisition strategies where referral marketing reigns supreme.

Companies like PayPal, Uber, and Dropbox, have all harnessed the growth momentum through referral marketing programs. Surprisingly, these modern-day unicorn companies started out small.

To leverage the power of word-of-mouth marketing in your favor, you need to mold it to your particular audience. We’ve pinned down key steps in creating a small business referral program along with real-life examples to invoke inspiration.

How Can a Customer Referral Program Help Small Businesses?

When buying something from a new brand, people always prefer running it by their friends or family. In the noise of sponsored posts on social media, YouTube ads, and spam emails, customers will always value a recommendation from someone they know.

As Mark Zuckerberg puts it, “A trustworthy referral influences your target audience more than the most powerful broadcast message. A loyal referral is the Holy Grail of marketing.”

Although online reviews and testimonials help shape the opinions of your potential customers, an endorsement from a friend or family holds precedence. For small businesses, word-of-mouth marketing can be even more effective in rounding up new leads. But how do you acquire those initial leads that build momentum for referrals? Well, start with customer service.

If you’ve mastered a cutting-edge product, make sure to round it off with exceptional customer support. Go above and beyond for your customers to make them feel valued and happy enough to tell people about it. Happy customers help transfer your good name and credibility onto new referrals, growing your customer base.

A referral marketing program can bring prosperity to a small business in many ways, here are a few of them:

Build Strong Ties with Customers

For any small business to survive against hefty competition, needs a loyal customer base that trusts your brand enough to refer others. Let your existing customers know they’re valued as individuals and feel like they’re part of your community.

Announcing your referral program will most likely trigger a welcoming response from these individuals, who are ready to endorse your products to others. With a reward attached, new leads will be enticed to share your offerings with their friends.

Foster Customer Loyalty to Pump Referrals

Customer referral programs could be your doorway to high-quality leads - people who come aboard with inherited trust from an existing customer base and are likelier to pass it on to others. Study proves that referred individuals are 18% more likely to stick with your brand than the ones acquired through other channels. By offering incentives with each referral, you’re inherently giving them a motive to return.

Save Customer Acquisition Costs

No word like ‘fair play’ in today’s business world. Mastering a product is one thing, but to flash it to the world, startups often have to fight off industry giants who are pouring big bucks into marketing. With limited budgets, small businesses have to use their resources wisely - and referral programs are their best shot at affordable marketing.

Referral programs pose no upfront costs to product promotion, rather you’re only required to spend when there’s a quality lead in the pipeline. There’s no harm in awarding customers with rewards for bringing new customers to your platform and enticing them in turn, to create a viral loop.

Around 54% of marketers find referral marketing as the most cost-effective lead acquisition channel. With higher customer retention and lower churn rates, the leads you acquire as referrals pay back in the form of repeated purchases and positive word-of-mouth.

Tap Viral Growth for Maximum Reach

A referral program is a word-of-mouth marketing tool that inherently taps altruism and reciprocity. People are purposefully driven to talk about a brand in their social networks when they know they’re on the winning side as well. By simplifying the sharing process and introducing the right incentives, even small companies can create a viral loop of referrals.

New customers who join your platform via trusted recommendations are more likely to pass that on to others either in group chats or social media, expanding your reach to unexplored audiences.

Creating a Referral Marketing Program for Small Businesses

People are 4 times as likely to purchase a product if a friend endorses it, making referral marketing a key component in steering growth for any business.

But what if, your friend never mentions your name in a social gathering? Or simply forget about it? And even if they do, you lack the mechanisms to track it down? That’s right, you can’t rely on human intuition alone to spread awareness around your brand.

Without a powerful incentive and the mechanics to supervise every step of the program, your referral marketing strategy is bound to fail. When building a referral program, make sure you are not only optimizing your ROI but also spending your budget wisely for maximum impact across all channels. We’ve outlined a 5-step strategy to create an impeccable referral program for your small business.

Invest in Streamlining Customer Experience

It all starts with picking the right audience to cater to once you launch your referral program. If you manage to pinpoint key players in your customer base and win them over with exceptional user experience, they can help build a larger group of supporters.

The customer's journey often begins with the first interaction, whether it's on your website, in-store, or through social media. To win favor with every customer that comes aboard, make sure your website is user-friendly, the referral process is simpler, and your social media responses are prompt and helpful.

• Keep an eye on the churn rate. If you’re leaking customers, there’s a high chance you’re lacking somewhere.
• From product quality and website navigation to user support and participation mechanics, make every step of your program sublime and user-friendly.
• Empower your customer support team with the tools and knowledge to resolve customer queries on the spot.
• A quick resolution can save the day, turning a potentially negative experience into a positive one and impressing customers to recommend your business to others. Leave them no option but to vouch for you.

Pick the Right Referral Incentives

For an average consumer, a company’s product or service isn’t always at the top of their mind. Relying on customers’ goodwill to talk highly of your brand and prompt others to buy from you, in spite of their busy schedules, is a utopian dream. Out in the real world, people need an extra nudge either in the form of recognition or monetary incentive, to promote your brand.

As a marketer, you need to identify what motivates your audience. Take a look into their purchase history and spending habits to figure out their interests and desires, and devise rewards that best tap those. While you’re at it, don’t neglect what your brand stands for.

A lucrative reward program may appeal to a larger audience, but if doesn’t align with your brand customer will drift away as soon as they receive their share, resulting in a higher churn rate.

For instance, a tech-savvy younger audience may respond to digital marketing or in-app incentives, while an older demographic would prefer monetary rewards. Here are some cost-effective incentives that may relate to small businesses:

• To lure in maximum leads, try offering free products for every referral made. Set a point system or loyalty program where referrers are required to register a certain number of leads to win the reward.
• Companies often hold raffle or referral contests to boost audience engagement and create hype for the product launch. Contests often drive higher response rates, as people compete to win bigger rewards and recognition that follows it.
• Non-profit organizations and educational institutes sometimes use charitable donations as a referral incentive. For each successful referral, advocates can have a certain amount donated to their preferred charity.
• No matter what referral route you take, reward both entities (referrer and referred-in customer) to get a better response. Double-sided incentives tap into altruism and reciprocity, encouraging users to go above and beyond to get their name out there.

Keep the Process Straightforward and Easy

Engaging an audience for a referral marketing campaign is a major undertaking on the marketer’s part, but is often at risk of a high churn rate. Any inefficiency or hurdle in your referral program mechanics - excessive signup forms, lack of sharing options, no dedicated referral landing page - can be a major turn-off.

Remember, a good referral will benefit you more than it will benefit the referrer. It is your responsibility to build a system that allows customers t share referrals the way they deem fit. Implement the following tips to build a seamless referral program:

• Design a user-friendly and intuitive interface for your program that is easy to navigate, even for customers who may not be tech-friendly.
• Integrate one-click sharing options for all mainstream social media platforms including Facebook, X (Twitter), and WhatsApp.
• Draw clear terms and conditions for the program around how it works. how do customers refer? and how rewards are allotted.
• Every referral program must be optimized for mobile devices since the majority of the customers use smartphones to connect with each other and shop online.
• Implement Single Sign-On (SSO) functionality to allow customers to refer others without the need for separate logins or account creation.
• Provide a referral dashboard where they can track the progress of their referrals and stay informed about the status of their rewards.

Shortlist Your Promotion Channels

With the referral structure finalized and sharing options enabled, it’s time to devise a promotion strategy. For your target audience to engage with the program and share referrals, they ought to be aware of your campaign in the first place.

There’s already a lot on everyone’s plate, if your referral program can’t make it to the prospects’ line of sight, you cannot expect them to scour through your website simply to participate. Create a dedicated referral landing page on your website or a pop-up widget that greets visitors as soon as they visit your website.

But to compel an audience outside your initial customer base, set an initial line of contact through targeted emails and social media posts while presenting your referral offer.

Boldly highlight your program prepositions and explain what’s in it for an average customer to participate in the campaign. Make sure your posts carry a clear call-to-action button leading straight to your landing page. Stay in contact with your current customers to learn about the strengths and weaknesses of your program, and how you may improve them.

Put the Program on Autopilot

Managing a referral campaign through human supervision alone is nearly impossible, even for a small business. Once the leads start rolling in massive numbers and referred customers to share the program on their networks, keeping a record of every conversion would be beyond human comprehension.

For any referral marketing program to scale up, and maintain transparency and efficiency while doing so, automation is necessary. Try putting as much as you can on autopilot by referral program software before your campaign hits a certain threshold, to maintain credibility throughout.

An effective referral marketing software - like Prefinery.com - helps track key metrics including, average customer expenditure, the number of referrals contributed by each customer, new referrals that drifted off after being rewarded, and the overall effectiveness of the campaign.

3 Best Referral Program Examples for Small Businesses

Marketers often associate the success of a referral program with big guns like Robinhood and Tesla but fail to neglect its potency for small businesses. We’ve shared success stories of how small businesses implemented different types of referral programs to drive growth and expand their customer base remarkably.

Lightspeed

Previously known as Upserve, Lightspeed deals in restaurant management software, allowing food and beverage establishments to streamline their day-to-day operations, provide better accommodations, and improve profitability overall. With plenty of customizable sales modules and scheduling features, Upserve has become a go-to franchise for small to large eateries.

But what’s exclusive about Lightspeed is it’s peculiar referral marketing program. The company rewards customers with a $1,000 prepaid Mastercard gift card for successfully signing up a friend - a business owner, hospitality merchant, or retail. As the LightSpeed’s tagline states:

“It Pays to Share”

For most professionals, a $1,000 prepaid gift card would sound more attractive than catching a discount on a new deal.

Bandier

The famous activewear sports brand drives most of its popularity and repeat business through customer referral programs. Bandier knows there’s no better way of rewarding its loyal fanbase than a discount credit for their future purchases, in exchange for referring new leads.

Happy Bandier customers get to earn $25 in credit points for future credits when their referred friends make the first purchase. Referring customers receive the same reward for future purchases. What’s best is that there’s no end to credits.

Referrers can continue to earn credit points for every new customer who joins Bandier through their unique referral link and registers a purchase. According to most marketers, redeemable points are an effective way to engage customers long-term and generate recurrent purchases.

Tomlinson Bomberger

Tomlinson Bomberger is all about maintaining outdoor spaces with exceptional landscaping, impressive lawn care, and regular property maintenance for residential and commercial clients. The company has harbored most of its clientele on behalf of trust and positive word-of-mouth and takes pride in it.

“Our business has grown over the decades from all the great referrals from our clients!”, says Tomlinson’s referral message. The company knows how effective asset referrers are and thus rewards referring customers with $50 in-house credit for generating a successful lead through their referral code. The cumulative reward builds up over time depending on the number of referrals you make, contributing to a higher discount package.

5 Tips to Create a Successful Referral Program that Works

While there are plenty of referral marketing ideas to implement, you must look at your company values and target audience aspirations to build a referral program that works. Note the following tips to build a customer referral program in 2023.

1. Forget the Jargon: Create a referral program that's free of jargon. When you communicate your referral program to customers, use plain and simple language. Avoid industry jargon or complex terms that might confuse your customers.
2. Don’t Be Shy to Ask for Referrals: Sometimes, all it takes is a polite request. Let your customers know that you appreciate their support and would love their help in spreading the word about your business.
3. Referral Marketing Needs Some Marketing: Your referral program won’t reach the desired audience unless augmented through suitable marketing channels including emails and social media.
4. Supervise and Track Every Analytics: Keep a close eye on all referral leads. Implement a system that tracks referrals, records their source, and monitors their progress.
5. Follow Up with Customers: After receiving a referral, don't let it languish. Reach out to referred prospects promptly and provide excellent customer service. Address their needs, answer questions, and make them feel valued to foster long-term loyalty.

Closing Note

Referral programs aren’t exclusive to the business elites. In fact, with minimum user acquisition costs and higher retention rates, they are a perfect outlet for startups and small businesses to build a constant inflow of new customers and reinforce relationships with existing ones.

Set the right type of referral rewards, keep the process simpler, and promote it through the right medium, and your referral marketing program will grow your small business into a multi-national enterprise. Always sign up with a credible referral partner like Prefinery.com to ensure nothing gets sidetracked while you focus on the end goals.

FAQs

What are the right incentives for a small business referral program?

The choice of incentives largely depends on your business type and what your customers value. You can consider various options such as discounts, cash rewards, free products/services, exclusive access, or even charitable donations.

How can I determine the success of my referral program?

To figure out how your referral marketing strategy fared, monitor key performance metrics like number of referrals generated, conversion rates, the cost per user acquired, and customer lifetime value acquired through referral marketing.