Implementing a referral program is an effective way of encouraging word-of-mouth from your customers. Your existing customers are the best people to talk you up, not only because they are familiar with your product, but also because they are familiar with the people to whom they will sing your praises.

According to a Wharton study on referral programs and customer value, this is what’s known as the better matching mechanism. Christophe Van den Bulte, professor of marketing and a co-author of the study, explains it this way: “As a customer, I know my bank better than non-customers do. I also know my friends better than my bank does. I have a better idea than my bank about which of my friends would be a good match for the bank, and vice versa. This is the better-matching argument: The existing customer knows both the bank and the prospect, and so has superior information to assess to what extent there is a good fit between the two. Using that information, I only refer prospects who I feel will match well with my bank.”

Referral program best practices

Keep the message simple and the offer compelling

At its simplest, the essence of any referral program is “do this, get that.” Don’t muddy your message up much more than that. Make it clear what you are asking of your customers and how you will reward them.

But remember this: a compelling offer does not always mean a monetary reward.

As Ivan Misner wrote in Entrepreneur Magazine, “Years ago I went to my chiropractor for a routine adjustment. Several weeks before, I had referred a friend to him who had recently been in an accident. As I walked into the waiting room, I noticed a bulletin board that was displayed prominently on the wall. The bulletin board read, ‘We would like to thank the following patients for referring someone to us last month.’ Actually, there was nothing unusual about this sign. It had been there on each of my previous visits, except this time my name was posted on it. I took notice and was pleased, but I didn’t give it a second thought until a month later, when I returned and saw that my name was no longer on it. Instantly I thought, ‘Who else can I refer to the doctor so that my name will be put back up on the board?’ For the record, I did come up with another referral for the good doctor.”

The lesson? Simple recognition is a powerful motivator. If you don’t have a brick-and-mortar space to display a similar bulletin board, is there a way to recognize referrers digitally, perhaps on your website or through social media?

A reward can even be silly. Years ago, Strinkingly created this incentive: a dancing cat. “Invite your friends to see me dance!” it said. Adding the cat doubled the conversion rate for this landing page by giving instant gratification.

Of course, money talks. Monetary rewards are also very effective. But they’re not your only option.

Gamification through progress mechanics

Progress mechanics give your customer a means of tracking how close they are to attaining their reward. Gusto uses this easy three-step process to encourage referrals:

Make it as easy as possible

The Gusto example also exemplifies this best practice well. It enables the user to sync her Google contacts to send invitations. Using predictive data, it even offers “smart suggestions” – the algorithm’s attempt at the better matching mechanism discussed above.

It also provides easy links to share a personalized URL on social media. Each little barrier you can remove makes your referral program more likely to be successful.

Account for offline conversions

This is where most referral programs falter. It’s easy to track online referrals, but not all referrals come through this way. For instance, a referred customer might call your business, or drop by in person. Have you accounted for these conversions?

One way to do this is to train your employees who take orders over the phone to ask whether someone referred the caller. For example, a receptionist might ask, “Is there someone I can thank for referring you to us?”

An ever-growing list of referral codes

Here are some of the referral rewards I’ve come across. I will continue to add to them. If this article was helpful to you (or if you’re simply looking for a discount!) please click on them and enjoy the benefits of a successful referral program.

Author: KIM KOHATSU

Kim Kohatsu is the founder of Charles Ave Marketing, where she brings the power and reach of Madison Ave to small businesses and startups.


Also published on Medium.