Many successful businesses are built on the backs of solid, scalable referral programs. These enterprises don’t always make headlines and may not even have great name recognition, except among those lucky enough to be referred.
But they succeed all the same because their referral programs are powerful, cost-effective lead-generation channels. Unlike the mass media advertising tactics that many entrepreneurs pursue as they grow, a referral program is anything but passive — and yet it costs far less per conversion than television or radio advertising.
“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,” says Neil Patel, a digital marketing expert.
In effect, says Patel, you’re “rewarding people for doing the work of finding leads for you.”
Referral programs’ mechanics are very flexible. Just about any business, in just about any industry, can launch and grow a referral program. The most successful ones tend to follow some, most, or all of these guidelines.
1. Define your referral program from the start
A successful referral program needs clearly defined goals that can be measured and tracked with readily available data. Before your program goes live, define the following parameters for it:
- The one to three “big picture” goals you want it to achieve, such as “increasing brand awareness” or “growing sales in x line of business”
- The metrics needed to measure the program’s success or failure
- The timeline for the program (will it be indefinite or just during the early stages of growth?)
- Who will be responsible for the program internally
- Who will be responsible for the program externally (that is, who will be doing the referring?)
2. Create a like-minded network to help you scale
Let’s first look at the last question above.
A successful referral program requires a potent referral network. Many businesses find success in developing networks of like-minded professionals or entrepreneurs. A lawyer building a referral program for their growing practice might tap other attorneys with similar values and skillsets, for example.
This is important to help ensure consistent quality of experience across the entire referral network. Otherwise, referred prospects could feel that they’ve been taken by a “bait and switch.”
“As more and more cases (or customers) land on your doorstep, the value of building a high-quality referral network will become obvious,” writes Bob Goldwater, a partner at the Goldwater Law Firm. “If you refer out to someone who does not share your client-first perspective, that experience will also become a part of your brand, albeit a negative one.”
3. Make referrals worthwhile
Another point about those doing the referring: The act of making referrals has to be worth their while. You need to incentivize your “referrers” so that they feel it’s worth the effort. Or, if they work for you directly, that they are obligated to make referrals as part of their official job duties and safe in the knowledge that they will be compensated accordingly.
4. Change the deal often (for the better, if possible) and backtest every change
“Static” referral programs tend to lose their effectiveness over time. Change the terms of your referral program whenever you feel momentum slackening, preferably by enhancing its appeal to referrers and referred parties alike. Always, always, always backtest and forward-measure these changes using relevant data and metrics.
5. Lean into the “customer trust” proposition
Referral programs work because they take advantage of existing peer networks, humans’ preference for first-person recommendations, or both. In short, prospects trust referrals because they trust the people doing them or the businesses behind them (or both).
That is, if the brands running these programs work hard to cultivate and deepen customer trust while enhancing their own credibility and authority.
Referral advertising “is trusted by nearly 70 percent of consumers globally, which emphasizes the notion that marketers maintain the ability to control the messages about their brands in a way that consumers consider credible,” says Randall Beard, global head of Advertiser Solutions at Nielsen. “This perceived credibility is a key component in advertising effectiveness.”
6. Invest in thought leadership to cultivate referrals that don’t convert
The need to cultivate credibility and authority leads naturally to an initiative that should run parallel to every referral program: a “thought leadership” campaign that aims to position your brand as a reliable source of trusted, high-quality information.
A thought leadership campaign is the cornerstone of every strong personal brand. And it can indirectly assist your referral program by keeping “on ice” those prospects who don’t convert right away. If they’re consistently checking in with you because they appreciate the value of the information you provide, they’re more likely to convert eventually.
7. Make sure you’re able to over-deliver every time
You know what they say: Under-promise and over-deliver, every time. As you grow, this becomes even more important. Many referral programs falter as they grow because brands can’t keep up with rapid customer growth. They become victims of their own success.
You need to stay one step ahead of your referral program to ensure this doesn’t happen to your business. Sure, you can set ambitious growth targets, but make sure you don’t disappoint as you do.
8. Train your team to cultivate and manage referrals (creating separate referral onboarding teams when and as needed)
Finally, a great referral program needs a well-trained team to manage it as it grows. Eventually, it may need a dedicated team that only manages the referral program. This second approach can help improve employee morale and reduce employee turnover by clearly defining roles and expectations around the program, rather than just assigning random aspects of referral management to employees on top of their existing roles.
Start building your referral program today
Each of these elements of a successful referral program takes work to put in place. They won’t set themselves up overnight, that’s for sure.
On the other hand, none of these referral program guidelines are what you might call “rocket science.” None require specialized skills that are in short demand. Some might require you to hire people to manage your referral program, but that’s something you’d do for other aspects of your business as you grew anyway. No surprises there.
So starting a referral program isn’t just something you can do for your business. It’s something you should do — today, if possible. Once you start, you can embrace the possibilities.
