There are dozens of different marketing strategies available in order to promote a product or service. But, as a new or a small business, it can be difficult to choose one. You have to consider how profitable and how much of an investment can be put into one with a tight budget, as well as how effective it may even be in the end. One of the most powerful and effective models of promotion is, to this day, referral marketing for small businesses.
Referral Marketing for Businesses: Can It Help?
Referral marketing has been around since before the internet even existed. But even as the digital age progresses, this type of marketing has maintained its high rates of effectiveness compared to traditional advertisements.
According to a research study released by McKinsey and Co, around 20% to 50% of decisions to buy a product or service are mainly influenced by referral marketing. This is also commonly called “Word-of-Mouth” marketing. In this article, we’ll be diving into the ins and outs of why and how referral marketing can be beneficial for the average small business owner. Maybe even your business!
What is Referral Marketing?
The term referral marketing is known as “word of mouth” marketing due to the main methodology of this marketing strategy. In simple terms, the basic idea behind referral marketing is to broaden a business or brand’s audience scope and obtain new clients through the “word of mouth” from their existing customers.
Everyday, whether we realize it or not, almost all of us are partaking in some form of referral marketing! You do this when you find a super comfortable, stylish pair of pants and have to tell your close friends. Or when you see a new movie that deeply moved you, and you recommend it to your brother. Or, more imaginable, when one of your colleagues gets the new iPhone and has to brag about all the new specs– resulting in you feeling like you need the new iPhone because of how awesome it is. These are all examples of referral marketing.
If a small business starts with only a couple of clients using or buying their product or service, these clients can help spread the word and tell their friends, family, and peers about the business. When someone benefits from a product, they generally want to share their positive experience! By doing this, some of the individual’s friends and family will be inclined to buy from the business as well.
Sounds simple, right? However, as concise as the idea sounds, there are quite a few strategies that can accompany this powerful marketing method as a smaller business.
How Small Businesses Can Benefit from Referral Marketing
The key to successfully applying a referral marketing strategy is to provide an incentive for customers to spread the word about your product or service. These incentives can vary from small rewards in the form of money, offering a discount on products, or even a point system in which, for each referral, customers will earn points to be redeemed for free prizes, products or services.
By offering an incentive or a reward for referrals, it’s a win-win situation for you and your customers. Your existing clients can both help support you and your business, as well as continually reap benefits for themselves. Additionally, the average person is more likely to be influenced by the opinions of their friends, family and people they look up to rather than by a traditional advertisement or marketing campaign led by a brand.
One of the biggest advantages of referral marketing is that it’s not only extremely effective when applied correctly, but it also has a high return on investment (ROI). Referral marketing doesn’t require expensive funding as many traditional marketing campaigns do, and because of its effectiveness, you’re able to make higher profits at a much lower cost.
If you’re familiar with “influencers” on social media, quite a bit of what they promote is in fact a form of referral marketing. The influencer or model promotes a product they enjoy in return for a portion of funds or a discount from the brand for each new sale that influencer generates by sharing.
3 Ways to Successfully Get Started With Referral Marketing for Small Business Growth
Learn Your Customers’ Values & Tendencies
As we’ve mentioned, the most important component of a referral program is to offer incentives that your clients will desire and be excited about. If your reward system is not valuable or realistic for your average customer, the entire point of your referral program goes out the window.
In order to understand your clients’ perspective and determine what kinds of rewards would work best, there are a few methods you might want to apply. Firstly, you should study what your competition is doing. If other local businesses similar to yours have a thriving referral program, it’s important to evaluate what they are doing right. How can you apply a similar strategy and even offer a higher level of rewards?
Additionally, many businesses will directly ask their customers to answer a survey or put in suggestions of what kind of incentives they’d like to see for referring their friends. This can be done through a newsletter or in person. Be sure not to hassle your clients about this, but it never hurts to politely ask for their participation.
In general, good referral incentives will follow a quick rule of thumb. If the products or services you’re selling are mostly one-time purchases, you’re better off offering a cash reward. However, if you have many repeat customers who regularly buy your product or service, they will likely appreciate being offered discounts, gift cards, free products, redeemable points, etc.
Understand the Different Types of Referral Strategies
In the world of referral marketing, there are various types of strategies used that will each have different results depending on your budget and your audience. These can include, but are not limited to:
- Community Referrals: This is where you partner with a good cause in order to spread the word about your own business. A common tactic is to offer to donate $10 to charity for every friend referred.
- Share with a Friend: This type of referral program offers to reward both the client and the person they refer to when they sign up. For example, Uber famously offered a “get $25 give $25” deal for those who refer their friends to the service.
- Tier System: For this strategy, the more people your client refers, the higher their reward. For example, Duolingo offers a free period of access to their Premium program, with the number of weeks rewarded getting longer with every referral made.
Learn How to Properly Promote a Program
The most important thing you can do for your referral program is to get the word out there. Your customers will never know about it if you don’t tell them. If you have a customer service team, make sure to properly train them to remind clients about the referral program with every purchase made, while painting it in a desirable fashion and highlighting the incentives.
Likewise, if you have a website, you should consider putting it on your homepage. Most importantly, remember to make the referral program instructions clear, concise and sincere so that it’s as easy as possible for your clients to refer a friend and reap their rewards.
Being Creative With Referral Marketing
Sometimes you will need to get creative with referral marketing for small businesses. If you’re more of a service-only based company, seasonal deals, returning or new customer discount specials, and “Buy one, Give one” offers are excellent.
If you need help with any of your referral marketing ideas, reach out to Owl SEM today. We not only help companies grow online, we also help with creative marketing strategies to help boost any aspect of your business. Schedule a call today.