How to Set up a Customer Referral Program for Local Businesses

Word-of-mouth is a powerful thing, and the more happy customers you have talking about you to their friends and family, the more customers you’ll get walking through your door. That’s what a customer referral program aims to do but goes about it in a more organized way.

Having a customer referral program can also give a major boost to your other marketing efforts. While things like ads and social marketing can be hit or miss, referrals are oftentimes seen as more trustworthy because they come from people who already love what you do. So, if you’re looking to expand your customer base and keep those profits rolling in, it’s time to get serious about your customer referral strategy. 

Here’s what you need to know to design a killer customer referral program right out of the gate:

Understanding the Basics of Referral Programs

Referral programs are like a win-win for everyone involved—the person referring (let’s call them the referrer) and the one being referred (we’ll call them the referee). 

Here’s how it works: When a happy customer refers a friend or family member to your business, they’re basically saying, “Hey, this place is awesome—you should check it out!” And when that friend or family member becomes a customer, both parties get rewarded—usually some kind of perk, like a discount or freebie.

But why do referral programs work so well? 

It’s all about trust. See, when someone we know very well recommends something to us, we’re much more likely to give it a try. It’s like getting a personal recommendation from a friend—it carries a lot more weight than just seeing an ad or hearing about it from a stranger. 

Plus, when we see other people having a great experience with a business, it makes us more confident that we’ll have a good experience too. That’s the power of customer referral programs; they tap into these psychological principles to help businesses gain a competitive edge in their local market.

Benefits of Customer Referral Programs to Local Service Businesses

Increases Word-of-Mouth

Customer referral programs greatly enhance the effectiveness of word-of-mouth marketing. By offering referral incentives to your current customer base for referring friends and family, you’re essentially turning them into brand ambassadors. These incentives make them more motivated to spread the word about your business, which can lead to a snowball effect of new customers walking through your doors or visiting your website.

Low Cost, High Trust Marketing

Compared to traditional advertising methods, customer referral programs are incredibly cost-effective. You’re essentially leveraging your existing customer base to bring in new business, which means you’re not spending a fortune on ads or promotions. Plus, because referrals come from people your potential customers already know and trust, they’re much more likely to convert into paying customers. 

In many ways, it is like getting a stamp of approval from a friend, which carries a lot more weight than any fancy ad or marketing campaign ever will.

9 Steps for Creating an Effective Custom Referral Program

Step 1: Set Clear Goals for Your Referral Program

Setting clear goals is the first step to ensuring your customer referral program is effective. Here’s how to do it right:

Define Success Metrics

Determine what success looks like for your referral program—this could include metrics like the number of new customers you’ve acquired over a given period, the increase in revenue you saw, or how much repeat business you have observed. By defining these metrics upfront, you’ll have a clear understanding of what you’re working towards.

Differentiate Short-term and Long-term Goals

Consider both short-term and long-term goals for your referral program. Short-term goals might include metrics like the number of referrals generated within the first 30, 60, or 90 days, while long-term goals could focus on the overall impact of the program on your business over the course of 6-months or more. 

By setting both types of goals, you’ll be able to track your progress and adjust your strategy accordingly.

Step 2: Know Your Audience

It’s about more than just knowing Frank’s favorite type or bagel or Sarah’s dog’s preferred treat; it’s about getting a well-rounded understanding of your intended customer for your referral program. 

Here’s how to do it:

Identify Your Most Loyal Customers

Take the time to identify customers who are most likely to refer others to your business. These customers are often your biggest fans and can be powerful advocates for your brand. 

Good candidates include:

• Regular customers who frequently purchase from your business.
• Customers who have provided positive feedback or testimonials in the past.
• Customers who have referred others to your business before.

That being said, here’s how to spot someone who is definitely not a good fit:

• Clients that you regularly butt heads with or who have had bad experiences with your company.
• Individuals who are infrequent purchasers or have only made a one-time purchase.
• Those who have expressed disinterest in recommending products or services to others.
• Customers who lied about referring someone in a past referral program in order to try to get a discount.

Understand Their Needs and Preferences

Get to know the needs and preferences of your target market when it comes to referrals. 

Consider what incentives would motivate them to refer others, and what channels they prefer for communication. By understanding their preferences, you can tailor your referral program to suit their needs and increase the likelihood of success.

There are a few ways you can go about finding answers. These include:

• Sending out surveys via text/email.
• Getting feedback in-person.
• Taking a look at online reviews about your business.
• Using metrics to determine spending behaviors.
• Looking at what your competitors are doing.

Step 3: Design Your Referral Program

The way you design your referral program is a pretty big factor in its success. Here’s what you need to consider before you start:

Choose the Right Incentives

Decide what incentives you’ll offer to encourage referrals. This could include discounts, free services, or even small gifts. Consider what would be most appealing to your customers and motivate them to refer others to your business.

Example: HelloFresh

A great example is the meal delivery giant HelloFresh. With their referral program, customers share a unique code with their friends to get $40 off their first delivery. Because their referral program goes both ways, every time a customer’s referral code is used, they receive a $24 credit towards their next box.

Decide on the Program Structure

Determine whether your referral program will offer one-sided or two-sided incentives.

In a one-sided program, only the referrer receives a reward for the referral. In a two-sided program, both the referrer and the referee receive incentives, which can be more effective in encouraging referrals. However, not all businesses have a big enough budget to offer a two-sided program, so choose the structure that aligns best with your goals and budget (and don’t be afraid to get creative to save some cash!).

Step 4: Leverage Technology for Your Program

Technology can feel intimidating at first, but leveraging it can help make your referral program run much more smoothly. Here’s how:

Use Reputation Management Software

Start by choosing a good-quality reputation management software to track referrals and manage rewards. These tools often include features like automated referral tracking, customer communication, and reward management, making it easier to monitor and incentivize referrals without having to keep track of things in a spreadsheet or with a pencil and pen.

Tech Automates the Referral Process

What if we told you all that manual work you’ve been doing to get referrals could be done automatically, without you having to touch a thing? 

Software makes it possible.

Look for solutions that allow for automated referral tracking, reward distribution, and follow-up communication with referrers and referees. 

By automating these tasks, you can ensure a seamless referral experience for both your customers and your team.

Step 5: Communicate Your Referral Program

Effective communication is key to a killer customer referral program. Here’s how to get the word out:

Plan a BIG Announcement

Spread the word about your referral program launch through various channels, such as email marketing, social media platforms, and your website. Make sure to craft engaging messages that clearly explain the program’s benefits and how it works, including any exclusions, exceptions, and limitations. Trust us on this, customer referral programs go a lot more smoothly when everyone is on the same page.

Utilize Email Marketing

When you first start your referral program, send out dedicated email campaigns to your existing customers, informing them about the referral program and encouraging them to participate. Highlight the rewards they can earn and make it easy for them to sign up for the program so they can start referring their friends and family right away.

Harness Social Media

Leverage your social media channels to promote your referral program. Periodically share posts and updates about the program, including testimonials from satisfied customers who have already participated. You should also encourage your followers to spread the word and join in on the referral fun. After all, everyone loves hopping on a trending hashtag.

Leverage Your Website

Make sure your website prominently features information about your referral program. Create dedicated landing pages that outline the program details and provide crystal clear instructions on how to participate. Use eye-catching graphics and persuasive copy to capture visitors’ attention and encourage them to take action now rather than later.

Step 6: Make It Easy to Refer

Simplify the referral process for your customers to encourage more participation:

Keep Things Simple

Let’s be honest, we’re humans, and our attention spans are very short. If something appears super complicated right out of the gate, there is no way your customers are going to go for it. That’s why you need to design an extremely user-friendly referral process that requires minimal effort from your customers. 

For example, utilize simple referral forms or dedicated referral pages on your website where customers can quickly and easily input their referrals’ contact information.

Provide Shareable Links or Codes

Offer shareable links, QR codes, or referral codes that customers can easily distribute via email, text message, or social media. This ensures that referrals are accurately tracked back to the original customer, making it easy for them to collect rewards.

Step 7: Track and Manage Referrals

Closely monitor your referral program to ensure it continues on the path to success:

Establish Tracking Systems

Try implementing reliable systems to track referrals from start to finish. This could be in the form of software for tracking referrals, which would allow for precise referral monitoring and reward distribution management. This helps you keep better tabs on the success of your program and know when to switch things up.

Review Program Performance 

Regularly assess the performance of your referral program to identify areas of improvement. That way, you can analyze key metrics such as the number of referrals generated, conversion rates, and reward redemption rates. From there, you can use this data to make informed decisions and refine your program for the best outcomes.

Make Any Necessary Adjustments

Stay agile by making the necessary adjustments to your referral program based on performance insights. Tweak the program structure, incentives, or communication strategies as needed to address any challenges. Regular adjustments ensure that your referral program remains effective and aligned with your business goals.

Step 8: Show Appreciation to Your Referrers

A small “thank you” can make a big difference. Let your referrers know you appreciate them by:

Sending Personal Thank-Yous

Send them a friendly message thanking them for their support. Personal touches go a long way in making them feel valued.

Offering Special Perks

Consider giving them exclusive deals or freebies as a kind gesture. It could be anything from discounts to free services, just make sure it is tailored to what they’d love.

Sharing Their Success

With their permission, highlight their referral wins on your website or social media. It shows others how awesome your referral program is and encourages more people to join in.

Step 9: Analyze and Optimize Your Referral Program

Gather Feedback

Actively seek input from participants about their referral journey. That way, you can get a better understanding of their perspectives on the program’s effectiveness, ease of use, and any challenges they encounter. At the end of the day, incorporating their feedback can refine the program you worked so hard to build for future success.

Data-Driven Insights

The devil is in the details, so don’t neglect to dive deep into the metrics provided by your referral platform. By understanding what drives successful referrals and where improvements are needed, you can better fine-tune your program to appeal to more customers.

Learn more:

• Referral Program Ideas
• Successful Referral Program Examples
• Referral Marketing Examples
• Referral Software

Get More Customers in Less Time with Broadly

Creating a great customer referral program takes some careful planning but can be a real game-changer for local businesses if done right. By following the steps we’ve outlined, you can set up a system that encourages your satisfied customers to spread the word about your services.

Remember, start small, gather feedback, and keep refining your approach—and if you need assistance in managing your reputation and enhancing your referral program, don’t hesitate to reach out to the friendly folks here at Broadly. We’re here to help you succeed!

At Broadly, we understand the importance of reputation management in amplifying referral efforts. Contact us today to learn how our reputation management software can seamlessly integrate with your customer referral program.