Do You Need a Referral Program for Your Small Business?
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If you know Big Bad Marketing (from our podcasts, perhaps?!), you know that we almost always say, “It depends” when it comes to questions like this. Not today.
Nope, today we have some strong feelings on referral programs.
When it comes to referral programs, or broken down more simply: asking happy customers to recommend other customers, there’s not a single business that wouldn’t benefit.
Actually, hold up. We take that back. The only businesses that really would not benefit from a referral program are businesses that deliver crappy quality products or services, since most likely the ‘referral’ would actually be a warning not to use your product or buy from you.
But since you’re here and looking to build a bigger, badder business, we’re going to assume that you’re a rockstar and you’re doing the darn thing and people are loving it.
What’s a customer referral program?
At the most basic level, a customer referral program is a way to thank people for referring someone to your business.
It doesn’t have to be fancy or sophisticated, it just has to be. But before we dive into what makes a referral program great, let’s clear up some confusion around loyalty programs and reviews as they relate to referrals.
What’s the difference between a customer loyalty program and a referral program? Do they work together?
YES! They definitely work in tandem. A loyalty program rewards customers for their repeat business, while a referral program rewards customers for bringing in other, new business.
A loyalty program would be like my favorite Poke restaurant giving me a punchcard for buy 9, get your 10th bowl for free. It rewards existing customers for coming back again and again. And boy, do I love telling myself that the 10th bowl is worth all the money I’m dropping.🤑
In contrast, a referral program is something you offer to existing clients or people in your community who know and like you to refer new customers to your business.
Loyalty = Keep existing peeps
Referral = Get new peeps
Easy peasy, let’s move on.
What about reviews and referrals?
Reviews often live on third-party websites like TrustPilot. Testimonials are a curated review that’s going to live on your website (or in your emails, on your social platforms, etc.), and referrals are recommendations from someone who may also have written you a review or given a testimonial.
Reviews are amazing, and they can influence someone’s decision to buy, but a referral is sooo much more valuable. Here’s why.
A referral is a direct word-of-mouth exchange from someone who knows and likes you to someone who trusts them. That exchange is overflowing with goodwill and has the highest likelihood of turning into a new customer for you.
Do you have to offer a reward for referrals?
Nope. Not all businesses offer rewards for referrals. The point is to acknowledge that someone likes you or your product/service enough to help you get more customers, so even a simple thank you can go a long way. Pick up the phone, drop a text, send an email. It doesn’t have to cost a lot to work.
Building a traditional referral program
There are lots of ways to reward customers who refer their network of people, and there is a lot of value in it for you if those people turn around and become customers, so it’s worth your while to ensure your referral program is enticing enough to stir up excitement.
These are standard referral programs that many businesses end up using:
Give a monetary reward for a referral (Cash)
For every referral who signs with us, we’ll send you a $25 gift card. This is a straight financial exchange, and it’s probably the easiest and most straightforward to implement, so it’s super common.
👯♀️BBM Note: We did this in our first referral program! We gave an Amazon gift card to a referrer. All good if this is where you start!
Give a free session/product (Credits)
When a client signs, you’ll get a free PT session, coaching session, mug, t-shirt, stickers, etc. People loooove free sh!t, so this one can work well!
Give one, get one (Discounts)
When a client signs, you get a discount on your next session and a discount for the new person or the person of your choice. These dual-sided discounts incentivize the person who’s referred to you to also bring in more people, so they can continue to get rewarded.
Tiered referral rewards
If people are sending you a large number of referrals, you might consider setting up a tiered system. For example, for the first five people you refer, we’ll send an Amazon gift card, the next 3 earn you a product of your choice, and the next 3 get you a discounted service. The idea here is that the referrals increase in value for the customer, but they never get so large that they’re hurting your bottom line.
👯♀️BBM Pro Tip: Make sure your referral program is a biz expense!* If you choose to go the gift card route, every gift card you buy is a promotional expense, which is tax-deductible if you itemize! Keep receipts and track every time you buy a gift card for your referral program.
*But remember, we are not tax professionals and this is for educational purposes only, so always check with your CPA or tax preparer and definitely don’t take tax advice from strangers you meet on the internet.
Alternative referral programs
At BBM, we HATE the idea of you working hard to deliver a product or service at the right price point, then turning around and discounting the price and value that you deliver.
So instead, we encourage you to think beyond the discount or freebie model. There are tons of unique ways to provide more value for the referrer and the referee that don’t have to cost you time or money, drain your resources, or undercut your value.
Consider options like:
An extended session: If you run a service business, increase the time spent in the next session. Ex: Your next session after the referral signs on is 60 mins instead of 30 mins. This way, you’re not completely losing revenue for that particular session, just decreasing the value of your time. BUT you have the added benefit of introducing your existing customer to a new tier of service, and thereby creating an opportunity to upsell your services to that client too. Talk about a win/win!
Priority access for a set period: For the first few days/weeks/months, the referrer gets special access to upgraded assets, higher-level/tier services, expanded use, etc. If you offer multiple tiers of service, bump someone up for a set period. Similar to the extended session, this has the dual benefit of exposing them to another thing you do and potentially upselling them in the process. Because once you give them something awesome, they may pay just to keep it.
Grant access to collateral: If you’re in a service-based business and you have a learner on your hands, could you entice them to refer people by giving them access to certain collateral, like a program you’ve already created, a course, or something else that wouldn’t take any extra effort on your part besides sharing the thing?
Send a book: Is there a book you recommend to customers or clients again and again? How about sending them a copy? Bonus if you combine this with the next step and include a handwritten thank you note on the front cover.
Send a thank you note: By hand. Do you know how rare that is these days? Take the time to physically write a note and put it in the mail. You’ll be surprised at how much that heartfelt gesture means to someone. This can be a very inexpensive but very meaningful way for the very small biz owner to show appreciation on a shoestring budget.
Merch: Both parties get a physical product that acts as a billboard for your company (think t-shirt, hat, notebook, etc.) Everyone is stoked to rep your brand (because obviously they love you or they wouldn’t have referred you!), you reinforce the value your brand drives, and get some free advertising while you’re at it!
👯♀️BBM Bonus: Consider partnership referrals. Think about businesses that are tangential, related, or aligned in some way with what your business offers. Perhaps you have the same target customers, but serve different needs, or you offer complementary products/services (the gym and the juice bar, the roofing company and the landscapers, the financial planner and the accountant). Make arrangements to pass each other qualified leads or otherwise refer best-fit customers their way in exchange for them doing the same. You could also boost each other on social media and other channels to spread the word about each other's business even further.
What makes a great referral program?
If your customer referral program checks these boxes, you’ve done a mighty fine job.👍
The referrer feels appreciated. (Yay, they brought you a new customer, so they got a reward!)
The referee is jazzed to be part of the club now. (Yay, they got a bonus reward, too!)
The newly referred people refer people, too! (YAY! Your referral program is great!)
Tracking your referral program
At this point, you might be thinking, “Well, this is all great, but how do I remember that Joe Schmo sent over three referrals?”. That’s where a tracking system comes in.
There are platforms out there that literally run your referral program for you, and if your business is booming, that might be a logical solution. For larger companies, a referral program becomes an affiliate program in many ways, and that’s more complex and requires oversight.
But for a small business owner, tracking often means a spreadsheet. We use a very simple spreadsheet to track our referrals, and these are the columns we use:
Name
Business
Website
Email
Source
Status (Reward sent? Reached out?)
Date
Make your spreadsheet easy to get to, and be sure to document what you sent and when. Better yet, put a calendar reminder each week (or month if you have fewer customers) to go in and log the latest referrals. Then, block time to actually send the rewards. Because no referral program works unless you actually remember to give the reward!
How to ask customers for referrals
We get it, this can feel awkward. In fact, that’s just how our first few went: Bad. Awkward. Clunky.
But as with anything, practice makes perfect. And once you practice enough, it doesn’t even have to feel like an ask. It can just be a conversation.
Here are some of our favorite non-cringe tips to make the ask easier:
Come from an authentic place: If you’re a good person delivering a great product or service, it’s likely your clients already want to support you. Speak from the heart. We like using language like: “We feel strongly about the work we do and want as many people to benefit as possible, so sharing the work we’ve done together with someone else who needs it would mean the world to us.”
Focus on what’s in it for your customer: You built the referral program because you want to reward people! Try saying, “Because I know how awkward it can be to refer someone to a business, I’m offering XYZ to thank you for your time in doing it.”
Assume the “yes”: Instead of saying “Is there someone you could refer to me?”, try “Who are three people you know that might benefit from working with me?”
Now, let’s put it all together in a good old-fashioned BBM role-playing situation.
Jamie has been a coaching client of yours for 3 months. They’ve seen a lot of changes in their own life and have just decided to renew their contract. Here’s your opening.
You: I’m thrilled you decided to renew your contract and excited to see what we can do together over the next 3 months.
Jamie: Me too, you’re a great coach, and I’m getting so much from this!
You: I’m so glad to hear that. You know I’m incredibly passionate about what I do, and I have big dreams to continue growing my business and my impact. And my favorite way to do that is word of mouth referrals. Are there three people that come to mind for you, friends, family, co-workers, who might benefit from the type of work we’re doing together?
That’s it. Set the scene. And it’s going to work or it’s not.
The WORST-CASE SCENARIO here is that your client says, “You know what, nobody is coming to mind right now, let me think on it.” In which case, you can follow up with.
You: I appreciate it! I also wanted to let you know that for anyone you send my way, I offer an extended session as a little thank-you bonus.
And there you have it, an easy, breezy, non-cringe way to share your referral program with a client without feeling icky or like you’re pushing a hard sell.
If you want to share the program with former clients or others in your network, you might also consider:
Sending an email
Texting
Calling (on the phone, these mini-computers can still do that, right?)
The more people who know about your program, the more opportunities there are to receive referrals!
But keep in mind, these tend to be more personal asks. We wouldn’t necessarily recommend you go blasting your referral program on social media unless that’s on brand for you.
Got a great referral program? Or a great idea for one? Drop a comment and let’s hear it!
