Customer referral programs: how to plan one

A client referral program turns satisfied customers into your best marketers. People trust a recommendation from someone they know more than an advertisement, and a referral program gives that word of mouth some structure: who to ask, what to offer and how to say thank you. This guide brings together our older posts on customer referral programs: the benefits, how to plan one, the dos and don’ts, and the three reasons referral programs fail.

Benefits of a client referral program

A referral program can do better than cold calls or bought leads, because a referral arrives with trust already in place. It comes from someone who has used your product or service, not from your own marketing. The main benefits:

• Brand awareness. Every referral is a conversation about your business that you did not have to start. Word of mouth spreads, online and off.
• Better clients. Referred clients often arrive with clearer expectations and a better fit, because the person who referred them knows both sides. They can become referrers in turn.
• Closer relationships. Asking a client for a referral, and thanking them properly when one comes through, deepens the relationship. Your best clients become ambassadors for your brand.
• Cost. You reward results, not attempts. Even with a reward for the referrer and an offer for the new customer, a referral program is usually one of the cheaper ways to win business.

The rewards matter. Referrers should be recognised for their effort, and the reward must feel worth having to the people you ask. That means finding out what your customers value, whether that is points they can spend, a gift card, a discount or simply public thanks.

How to plan a customer referral program

Word of mouth happens on its own. A referral program that works needs a plan.

1. Look at who you already know

Start with your contacts. List the people you have a good relationship with: current customers, past customers, suppliers, partners and people in your industry who know your work. These are your likely referrers. Approach them with tact: one clear invitation works better than repeated requests.

2. Define the program

Decide what counts as a referral and what the referrer gets for it. Some programs offer an incentive, some rely on goodwill and recognition, and many use both. Group your referrers if it helps: a partner who refers several clients a year may suit a different offer from a customer who refers a friend once. Write down exactly when a reward is earned, such as when the referred customer signs or makes a first purchase.

3. Plan the resources

Work out how a referral moves through your business. Who receives it, who follows it up, and how does the sales team hear about it? Give referrers an easy way to submit a referral, and a referral kit if they need one: a short description of what you do, a case study or a video they can pass on.

Dos and don’ts

Do

• Be open about how referrals are handled. People hold back when they do not know what will happen to a friend’s details. Tell referrers how you will contact the person they refer and how their information is used.
• Keep referrers informed. Share progress, and let them know when their referral becomes a customer.
• Recognise and reward them. Gift cards, tickets and other rewards all work, and so does a sincere thank you. Recognition that costs nothing is still part of the reward.

Don’t

• Bombard referred people. A referral is a warm introduction. Treat it as the start of a conversation, not a list for cold calls.
• Break your promises. If you said a reward would be paid when a deal closes, pay it when the deal closes. Many programs lose referrers here.
• Change the rules halfway. Changing the process or the rewards while referrals are in progress undermines trust in the whole program.

Three reasons referral programs fail

Most businesses know referrals matter. Fewer put in the effort a program needs. A half hearted program with no budget for rewards, no training and no promotion rarely succeeds. These are the three most common problems.

1. Not enough support from management

A referral program needs a proper launch and enough resources to keep it going. It touches sales, marketing and customer service, so it needs a senior owner who can get those teams working together.

2. Too little imagination

A program announced once and then forgotten fades quickly. Keep it visible: remind customers at natural moments, share success stories and refresh the offer from time to time.

3. Weak incentives

The incentive has to make sense to the referrer. A reward that is too small can feel insulting, and one that does not suit the audience will be ignored. Choose rewards people actually want. And remember that people will not refer a poor product or service, however good the reward. A strong referral program starts with an excellent product.

Running a referral program on RewardCo

RewardCo’s Referral module lets you create referral offers with points or cash rewards, approve or reject each referral and set up your own referral statuses to track each one. Admins can read the referral module guide, and our page on referral and affiliate programs shows how a program for customers, partners or staff fits together. Once your program is running, our guide to referral program management covers the rules, tracking and checks that keep it honest.

Thinking about a referral program for your customers or partners? Book a demo.