How to Build a Referral Program into Your Online Business

Tuesday January 26th, 2021

How to Build a Referral Program into Your Online Business

You know the power of word-of-mouth advertising. In fact, you swear by it. But what marketers usually miss is that word-of-mouth advertising isn’t something that always has to happen completely organically. With a little strategy, you can encourage customers to spread the word.

Online businesses that create referral programs can track their brand advocates, incentivize happy customers to promote their product, and increase both customer acquisition and retention.

But how do you take an idea like “word of mouth” and turn it into a successful, manageable program that includes dashboards, analytics, and real-time results? In this post, we’ll explore how and why you should build a referral program into your online business.

The Benefits of a Formal Referral Program

What’s so great about referrals? Why not focus on leads? Leads, after all, are the lifeblood of any business that needs to make direct sales.

For starters, referrals and word-of-mouth are the most trusted form of advertising, according to a Nielsen study, and the second most trusted form doesn’t come close.

Second, referral programs still help with lead generation: you’re rewarding people for doing the work of finding leads for you. A referral program is a way to generate leads—and not just any leads, but highly-qualified, niche-specific leads that are more likely to result in sales.

That’s not just speculation. When researchers at the Harvard Business Review looked at some 10,000 accounts at a German bank over the course of three years, they saw that “customers obtained through referrals are both more loyal and valuable than other customers.”

The research controlled for such factors as age and sex and found that referred customers were some 18% more likely to stay with the bank, earning 16% more in profits thanks to the referral program.

What are we left to conclude about the benefits of a formal referral program?

  • The leads you acquire will trust you more.
  • The leads you acquire are more likely to buy from you.
  • The leads you acquire are more likely to remain loyal customers.

The bank earned some 60% profit from their initial referral investment. If you knew of a way to get trusting, loyal customers that generate 60% profit on your marketing dollar, you’d at least consider it, wouldn’t you?

How to Integrate a Referral Program into Your Business

A referral program is a great way to find qualified leads in your specific niche. But how do you go about integrating a referral program into a highly sophisticated sales funnel?

Decide on Your Offer

In the world of referral programs, there is no getting without giving. You first have to come up with an offer that works for your brand.

Put yourself in the shoes of your customer. What are they looking for? What kind of incentive will actually get them moving on the possibility of showing off your product to a friend or confidant? Some businesses create contests, while others simply announce that if customers refer a friend, they get a flat payment.

When it comes to the retail industry, most customers want deals. Stitch Fix, a subscription-based clothing service, capitalized on this desire by implementing a referral program that would give customers $25 in store credit.

Implement a System that Puts the Customer in Charge

If there’s anything you’ve learned in building a business already, it’s this: never make things difficult on the customer. That’s as true for purchases as it should be for referrals. Your goal is to make the process of referring new customers and earning their rewards as easy as possible.

You’ll find some tools for implementing ease-of-use later on in this post, but for now, focus on a few key items:

Social sharing. This is the digital age, so you want to make sure your program is shareable. If you’ve created a substantial incentive to customers, you’ll give them reason to spread the word. Make sure that your referral tool makes it easy for them to share. Stitch Fix makes it easy for customers to refer their friends by including a social sharing widget right in the dashboard.

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