Unless your company brings in new business, it will likely have a very short life. But many small-business owners don’t have the time or the budget to conduct large advertising campaigns to try to reel in new customers. One of the most productive ways to accomplish this is to use paid referrals. It will cost you less than a splashy ad campaign and the results could be nothing short of spectacular. According to Sales Prospecting for Dummies by Tom Hopkins, you can count on about a 10 percent closing rate for ordinary leads versus a 60 percent closing rate for leads that come through a referral. What’s more, a study [PDF] published in the GfK Marketing Intelligence Review found that referred customers are more loyal and more profitable than those coming by other means. So, what exactly are paid referrals and how do you set up a referral program?
What Are Paid Referrals?
If you’ve ever been offered a discount, gift card, prize, or cash incentive to refer someone you know to a business, you’ve been asked for a paid referral. There are various ways you can use this tactic to entice customers to pass along your business’s name, and each of them works differently. Here are some of the more common types of paid referrals:
- An offer at checkout. Whether you run a retail store, service business, or online store, you can offer your customers an incentive for every customer they send you. For instance, if you own a service business, you could offer your clients $25 for every customer they send you and deduct it from their balance. You’ll be surprised at how motivated some people are to refer their friends as a way to reduce their bill. If you run a retail or online store, you can offer additional discounts toward future purchases for new business referring customers bring you.
- With a thank you card. If you feel more comfortable asking for the referral from a distance, consider including the offer in a thank you card that you send your customers after your business with them is complete.
- Business-to-business referrals. Your customers aren’t the only source of referrals for your business. Other non-competing businesses in the same industry can send customers your way. For example, if you sell window coverings, you can set up a referral program for real estate agents, title company employees, home inspection agents, or any other person who comes into contact with people who will eventually need window coverings. Make up special discount cards, and ask the businesspeople to pass them out to their clients. If you include an individual code on each person’s card, it will help you keep track of who made the referral.
How to Set a Plan in Motion
For your paid referral plan to succeed, you’ll need to make a few decisions and do a bit of groundwork first. Here are a few things you should nail down before you ask for your first referral.
- Which type of incentive will you offer? Your incentive needs be attractive enough for people to want it and affordable enough so that it fits into your marketing budget. It can be cash, discounts, free products or services, gift cards to a nearby restaurant, or anything else you know your customers will value.
- What constitutes a referral? Not every referral you receive will turn into a paying customer. You’ll have to decide whether to compensate the referrer in that case, or only offer the incentives for referrals that end up buying from you.
- How will you track your referrals? The last thing you want is to have a loyal customer send you referrals and not get credit for them. By setting up a tracking system in advance, you will ensure this never happens. You can ask every new customer how they heard about you, ask your customers to let you know when they’ve made a referral, and set up a more formal tracking system. Ambassador offers a 14 day free trial for its social referral program here, and Referral Key offer a free program for business to business referrals.
It’s important to remember that while you are technically paying for this new business, the additional sales should more than make up for the expense. And since referred customers tend to be more profitable, you’ll build a client base that will likely spend more money with you in the long term.