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Why Your Online Business Needs a Referral Program (And How to Set One up)

May 26, 2021

Competition is fierce for online businesses. Having a digital presence and a great product or service offering is not nearly enough nowadays. Companies have to strategize, innovate, and think outside the box. Although this may sound like it could involve expensive advertising campaigns, there are ways to drive sales in simpler ways, like referral marketing.

What is referral marketing? In a nutshell, it's utilizing existing customers to refer their friends, family, and colleagues through word of mouth. In return, you give out rewards for any sales made. You can reward the person referring someone to you or be generous and reward the new customer as well, just for being referred!

Why Have a Referral Program?

Here are some of the top reasons why every online business should have a referral program:

  • Trust - There is nothing quite as solid as a referral from someone we trust. The internet is full of reviews and recommendations, but a personal referral trumps all of that because there is an element of trust involved. Ask any marketer about the power of word-of-mouth, and you'll hear all about its incredible benefits. According to a research report by Nielsen, 92% of people place more trust in what family and friends recommend than any other type of advertising. 
     
  • Exclusivity - Feeling part of something exclusive is more likely to increase loyalty in customers. Although coupon offers have been popular for decades, they're a dime a dozen. Referrals make people feel special because they earn them. Word-of-mouth builds brand awareness and instills trust. Referral marketing does all of that, capitalizes on current customers, and gives out rewards, which makes them feel oh so special.
     
  • Simplicity - Referral programs require minimal effort and time; they are super easy to set up and run. You can make it happen through any digital platform, including social media and email, or you can install software to help you with it.

A consistent referral program is a simple way to give your business new opportunities to amaze your existing customers' friends and family, creating more customers who will refer others down the line. This becomes a perpetual cycle that could help set your company up for long-term success.

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How to set up a referral program in 10 simple steps:

1. Plan your program

Before you launch a referral program, ask yourself what your goals are. Are you more interested in driving sales and growth? Or, is building trust and retention more critical at the moment? Once you've figured out what your objectives are, put them down and define them in detail. 

Part of planning is always research. Begin by assessing how and where existing referrals are coming into your business (if they are!) Involve anyone in the company responsible for cultivating customer relationships to help you figure out how you've been dealing with referrals.

Your next step is to quantify how much the time spent on referral programs costs and to determine how many referrals you would have to get to break even. Typically, a 10% conversion rate is a good starting point. 

2. Who is your ideal customer?

Before you begin asking customers for referrals, map out what your ideal future customer looks like. A good fit is crucial if you want referral leads that become conversions. If you use a referral form, list this information right at the top to remind those filling it in what you're looking for. 

3. List your sources

Make a list of potential referral sources. It could be people you're currently doing business with or people connected to you in the past. It could include your vendors, others in the industry, and former and existing customers. This list could form a solid base for you to begin with. 

4. Identify your platform

For any referral program to be effective, you need a communication platform. It could be your website, your social media pages, through email, or even text messages. You could also use referral software that will help you track referrals through codes, cards, or links. Some of the top referral software companies are: 

Talkable is an excellent example of a company that walks the talk with their very own referral marketing campaign front and center of their landing page:

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5. Decide on what you're offering

When it comes to referrals, there's no getting without giving. Come up with an offer that works for your brand. You can make rewards available for qualifying events like when you launch a product or when somebody makes a qualifying purchase amount. There are many types of referral rewards you can choose to use, for example:

  • Discounts.
  • Free products.
  • Contests of giveaways.
  • Gift cards.
  • Store credits.
  • Social gifting.
  • Exclusive events.
  • Product or service upgrades.

Pick a reward or combination of rewards that best suits your business and your customers. Here's an example of a long-standing referral program by Dropbox. They are offering free space for people who get a friend to sign up. The more friends you refer, the more space you get!

promo offer from Dropbox
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6. Get ready to reach out!

Refine your contact list, and begin with people you've worked with before. Identify who would best represent your brand. Then decide when it would be a good time to contact them to ask for referrals. 

If you're not using software, there are some free resources available. Don't reinvent the wheel! Download some free customer referral templates from sites like Hubspot or Typeform. You can adjust the template to the voice and tone of your brand. 

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Bonus tip: We are in a highly social, digital age, which means your referral program has to be shareable. If you've created a great incentive, your customers (and their friends!) will have a reason to spread the word. It's up to you to make it easy to share. 

7. Track it

No matter how large or small your company is, you have to track elements of your referrals, including:

  • Who was referred?
  • Who referred who?
  • When did the referral happen?
  • Did it turn into a conversion?
  • Next steps to follow up.

Customer Relationship Management (CRM) software is a great tool to keep track of customer relationships and individualize accounts. Try this free CRM by HubSpot to see if that will work for your business. 

The HubSpot CRM dashboard will give you all kinds of helpful insights: 

statistic's dashboard
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8. Say, "Thanks!"

Remember to say thank you to the new person for joining and to the referrer for bringing the person on board. Whether you're offering a reward or incentive to the referrer or not, take the time to say thank you anyway. It builds rapport and puts your brand in a positive light. 

9. Follow up

Don't wait too long to follow up on a solid lead. If you allow referrals to sit around for too long, you could miss out on an opportunity to convert them into sales. Don't forget that even though someone referred the person to your company, they are probably still shopping around. You may need to swing them over to your side from competitors, and that's not going to happen if you take too long to get in touch. 

10. Learn and improve

Even if you offer similar products and services to other businesses, your company is unique. Make sure your referral program is tailor-made to you and that it keeps evolving. It will take time to figure out what works for you and what doesn't. Test your program regularly to see where you're doing well and where you could do with some improvements.  

As you get used to adapting your referral program, consider sending out surveys to get some feedback on it and use that to improve your strategy. The better your referral program gets, the more leads it will generate for you. 

Will it work?

Referral programs work, but like everything else in life that grows, you have to nurture it. It may take some time to get going, but eventually, it could lead to great conversions. It's essential to make sure you don't put more effort in than what you expect to get out of the program. 

Do thorough research and plan. Use this guide to create an epic program and implement it. Referral marketing is helping some of the biggest brands on the internet grow; there's no reason you can't do the same!

Author Bio: Kristina Žiaukė is a content manager at sixads. Want to know more ways to increase traffic and attract buyers to your online store? Connect with sixads on Facebook, Twitter, LinkedIn, or YouTube!

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