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You don’t have to be as big as Dropbox, Uber, or Airbnb to benefit from referral marketing. Your small business can reap great benefits from a referral program as well—it’s an awesome way for you to convert leads and increase your customer base.

What exactly do we mean when we say “referral program?” We’re not talking about a punch-card program or print referral cards for your customers to share with friends.  Instead, we’re talking about an official way for your customers to spread the word about your business, and possibly get a cool reward for their efforts.

But why do small business referral programs work, and how can they help your business? Also, what strategies and best practices should you follow when designing a  small business referral program? Let’s explore.

Why do small business referral programs work?

Referral programs work because people trust word-of-mouth recommendations from their friends and family more than any other source of information. Yes, they look for reviews online as well, but they’re far more inclined to believe a friend’s recommendation than a review from a complete stranger. A referral program simplifies this recommendation process and makes it more official—your customers can share your business with friends with the click of a button.

But when you start a referral program, how can you increase the likelihood that your existing customers will share your business with their friends? Customer service is key. When you go above and beyond to satisfy your customers, they’ll be more than happy to spread the word about you because they want to see you succeed.

Yes, word-of-mouth recommendations like these usually happen without prompting, so they can often be hard to control. So, why not formalize the process with a referral program, where you give customers an easier way to share (and reward them for doing so)?

How can a referral program help your small business?

Referral programs can help your small business in many ways—here are the top 4 ways we’ve identified.

A small business referral program builds solid relationships.

Having a strong customer relationship for any business is important, but for a small business, solid relationships with your customers mean everything. Loyal customers who refer their friends do so because they trust your small business, feel valued as individuals rather than being just a number, and feel like they’re part of your community. Once they hear about your referral program, many of these customers will quickly think of a few friends who would also love what you do, and share your business with them almost immediately. Referral programs help create better relationships because customers who refer friends to you will feel responsible for part of your business’s success.

A small business referral program creates loyal customers.

Referred customers are 18% more likely to remain your customers, and have a higher lifetime value. After all, they trust their friends! And on the other side, incentives for referring friends, such as discounts, store credits, and free products, give your referring customers a reason to keep coming back!

A small business referral program is cost-effective.

Your small business needs to use its resources wisely. Referral programs are easier and cheaper than other forms of advertising. Customers who spread the word to friends and family provide advertising money can’t buy!

With a referral program, you’re not spending as much money (and valuable time) on customer acquisition, and you’re not targeting complete strangers with traditional ads. Rather, you’re targeting your existing customers, who already have developed a positive relationship with your brand. These loyal customers will promote your business for you, at little to no cost. So, you won’t have to shell out nearly as much on the usual ads.

Plus, most referral program messages include prewritten text from your company itself, but also have space for the referrer to add their own personalized message. And regardless, every referral message comes from a customer, not directly from your brand. People trust the word of their friends far more than they trust traditional ads, so referral programs are a smart play for more reasons than one!

A small business referral program creates a viral loop.

Word of mouth travels fast, especially on social media. Since a referral program makes sharing easier, this cycle will go even faster. When a customer shares your referral program via social media, all of their friends instantly become aware of your brand (and trust what their friend shared). If a few of these friends become new customers, there’s a strong possibility that they’ll also share the referral program with their own friends via social. Thus, the cycle will keep going on and on! This cycle is known as a viral loop—for more on creating a viral loop through a referral program, be sure to check out our linked article.

Referral program best practices for small businesses

Now that you know how your small business can benefit from a referral program, let’s review some of the best practices for small business referral program design.

  • Make sure your customers can quickly understand what you want them to do (refer) and what’s in it for them (your incentive).
    •  Keep your explanation concise, but include all the necessary terms and conditions (Ex. What requirements must customers meet to receive the reward? Are rewards cumulative?)

Display a clear, enticing referral call-to-action (CTA).

  • The most effective CTAs catch customers’ eyes, concisely invite customers to refer, and quickly share the incentive.
  • Your CTA must be easy to find. Always put it at the top of your referral page. Display it in the biggest font, and consider bolding it. Then, follow it with an easy to find CTA button.

Offer valuable but cost-effective incentives that tie right back to your business, such as store credits/service credits, gift cards, and discounts.

  • Consider double-sided incentives (incentives for both referrer and friend) and cumulative incentives (stacking credits that can all be used at once).
  • Also, consider offering free (or more deeply discounted) products or services, but only after several successful referrals. If you choose this route, gamifying the experience through a “point” system can pay dividends because it shows customers how close they are to the exclusive perk.
  • Another route you could take is a raffle drawing, where every referral enters a customer to win a larger gift card, amount of store credit, or other larger prize from your business.
  • Charitable giving can also work as a referral incentive, especially when it involves a donation to a charity in your community. For example, your business might donate a set amount to your local food pantry for each referral.
  • And never underestimate the intrinsic reward of friends helping friends!

Make efficient social sharing easy for customers.

  • Make it as simple as possible for customers to share your referral program on social media.
  • Why focus on social? That’s where your customers naturally share with many friends at once. Integrating social sharing into your referral program means you’ll increase your impact!

Use referral program software to make managing your referral program even easier.

  • Even when done digitally, manual referral management can end up getting complicated. It’s hard to keep track of who referred who when you go it alone.
  • Take away the hassle by automating your program—using referral software is easier than you think, regardless of your business size.

Finally, use your position as a small business to your advantage.

  • Your small business has a unique personality that big-box businesses can’t duplicate. So, why not inject your personality into your referral program?
  • Emphasize being part of a community in your referral program messaging.
  • Consider using “feel-good” messaging that focuses on helping friends and your business.
  • One example of a “feel-good” message is “share the love.”
  • This messaging can include friendship-focused and/or community-focused images.

Small business referral program examples (and why we love them)

We’ve rounded up 6 referral programs for small businesses that provide awesome examples of the best practices listed above, to help you apply them in your own small business referral program.

PA Fitness

Who They Are:

PA Fitness operates fitness centers in Marysville, Washington and Arlington, Washington.

What We Love:

  • “Feel-good,” friend-oriented CTA: “Working out is always more fun with a buddy!”
  • Friendship-focused image of women working out together.
  • Concise referral text that emphasizes the “why” behind referring (still friend-oriented): “From the hottest new group exercise classes to one-on-one personal training, the latest fitness equipment, and top-notch facilities – we have you covered. Now, help us cover someone close to you.” Below the CTA button, there’s also the text that reads, “Your friends will thank you.”
  • There’s no extrinsic incentive, but the intrinsic incentive of helping a friend is pitched so well that an extrinsic reward isn’t really needed.
  • Easy-to-find long blue CTA button (“Invite my friend”).

Tomlinson Bomberger

Who They Are:

Tomlinson Bomberger offers landscaping, lawn care, and pest control services to the Lancaster, PA area.

What We Love:

  • Community-minded, “feel-good” referral messaging: “Our business has grown over the decades from all the great referrals from our clients!”
  • Friendship-focused image emphasizes how referring will help friends out.
  • Enticing call-to-action (“Referrals | Want to make an easy $50?”)
  • Company-connected incentive: $50 company credit.
  • Cumulative credit: every time a referred friend makes a qualifying purchase, Tomlinson Bomberger rewards the referrer with another $50.
  • Easy-to-find CTA button.
  • Clear referral terms and conditions that state exactly what a “qualifying purchase” is.

Dave’s Cooling & Heating

Who They Are:

Dave’s Cooling & Heating is an HVAC business based in Frederick, MD.

What We Love:

  • Focus on community: “The best way you can reward us for a job well done is to tell a friend…If the person you referred ends up becoming one of our customers, we’ll even give you a gift as a thank you. It’s a win-win-win!”
  • Enticing, dual-sided referral reward: Both referrer and friend receive $50 when the friend becomes a new Dave’s customer.
  • Easy-to-understand terms explain the program mechanic in two sentences. Customers know exactly what it takes to earn the reward—and since these terms are in the red box, they’re easy to find.
  • Eye-catching colors draw the customer in. We love the megaphone, too!

Dragon Gym

dragon gym small business referral program

Who They Are:

Dragon Gym is a martial arts and fitness center located in Exton, PA.

What We Love:

  • “Feel-good,” community-minded messaging: The program description is a personal letter to students from the gym’s president, which emphasizes the importance of word-of-mouth to the gym.
    • Here’s the start of the letter: “At Dragon Gym we’ve always gotten most of our new students from referral and word of mouth. We can’t thank you enough for that, but here’s what we can do. When you tell someone about Dragon Gym and recommend them to be one of our students it’s one of the greatest compliments you can give.”
    • Also notice how Sikdar thanks the students at multiple points: both at the beginning and end of the letter.
  • Highly enticing, tiered referral rewards encourage students to keep on referring. Plus, they’re tied right back to the business:
    • The student receives “$100 of the next month’s tuition or CASH” whenever someone they refer decides to join the gym “after their Quick Start Course.”
    • Best of all, successfully referring 5 people in one year, who all become new members, means that the referring student gets a whole free year of membership!
  • Clear description of the program mechanics makes referring simple: “Referring a friend is as easy as 1-2-3!”
    • “1. Complete the form below. 2. Your friend comes in for the trial class and tries out our Quick Start Program. 3. They like the program and decide to enroll as a member at Dragon Gym!”
  • Easy-to-find red CTA button for submitting the form.

No Place Like Home Pet Sitting

Who They Are:

No Place Like Home Pet Sitting offers pet sitting services to the Lithia, Florida area.

What We Love:

  • Community-minded messaging: “We love our clients and want to thank you for trusting us with your precious pets. There is no greater compliment than when our valued clients refer us to their family, friends, and neighbors. To show our appreciation, we are proud to announce our new referral program.”
  • Enticing, company-connected referral reward: “Whenever you refer someone to No Place Like Home Pet Sitting and they become a new client, you’ll receive 10% of their invoice off your next invoice.”
  • Clear referral terms and conditions (clients must be new, and must complete their first service).
  • Cumulative, unlimited incentive motivates customers to keep on referring!
  • Charitable element: “If you are a 501(c) 3 charity and you refer clients to us after a client completes their first sitting, you’ll receive 20% of their first bill as a thank you and to help in your rescue efforts!”
  • Easy social sharing: easily accessible Facebook “Share” button lets customers share the business right from the referral page.

Borst Landscape & Design

Who They Are:

Borst Landscape & Design offers landscaping design and maintenance services to Allendale, NJ and the surrounding area.

What We Love:

  • “Feel-good” referral messaging emphasizes how referrals help friends and Borst:
    • “As a way of thanking our valued customers for referring us to their friends, family, neighbors, and others, we would like to reward you with a credit on your current invoice.”
    •  “We very much appreciate your business and as our company grows we would like you to be part of our success!!”
  • Enticing, company-connected incentive: $125 credit towards any future services from Borst.
  • Cumulative incentive: “This is not a “one time only” credit, but instead applies for every new client that you refer who signs with us.”
  • Concise offer text with clear terms and conditions: “For every new client that signs a contract with Borst Landscape & Design and mentions the name of the client that referred them, we will be issuing you an immediate $125 credit.”
  • Clear referral terms and conditions (referrals must be new clients and sign a contract).

Key Takeaways

Small business referral programs are an awesome way to get your customers to spread the word about your business, at a much lower cost than other marketing efforts. Your customers will feel like a valuable part of your business’s success, so your relationship with them will grow stronger. Plus, you’ll gain new customers who are more likely to keep coming back to your business. After all, people trust their friends and family more than any messages that would come directly from your business.

Be sure to offer incentives that tie back to your business, like credits, discounts, or gift cards. Use “feel-good” messaging that emphasizes friendship, community, and helping your business. And consider using referral program software to make managing your referral program even easier.

Interested in starting a referral program?

Jessica Huhn

Posted by Jessica Huhn

Jessica Huhn is a writer at Referral Rock. When she is not writing, there is a good chance that Jessica is singing, arranging songs, sharing and enjoying content on social media, or hanging out with her mini Goldendoodle. She believes that it's always important to cultivate gentle strength.