As we continue to serve our customers for more than 35 years, we are always considering programs that will benefit our clients and contribute to a healthy bottom line. One program that doesn’t receive as much attention as it should is that which rewards business referrals.
The magic of business referral programs is that they are tremendously personal and via “word of mouth,” and we know that compliments by word of mouth are the best endorsement a business can have. The main reason is trust. A Nielsen survey in 2012 found that 92 percent of respondents trusted word-of-mouth recommendations the most.
A recent survey of small businesses found that 85 percent of new customers come from existing customers. Referred customers also are shown to be the most profitable and the most loyal. An often-cited case study showed that referred customers had a lifetime value 16 percent higher than non-referred customers and a 60 percent ROI over a six-year period. Additionally, referrals convert to purchase 35 percent faster and their churn rate is 18 percent lower.
Companies investing in referral programs are getting results. Uber offers customers free rides or a credit to their account when they refer a friend. The file sharing site Dropbox increased signups by 60 percent with its refer-a-friend offer. And mattress maker Leesa saw 30 percent of its sales coming from a referral program whereby their existing customers were offered a choice of $50 cash or a $50 donation to their favorite charity, while the referral customer received a $50 discount on their new purchase.
As you can see, referral programs come in many varieties and are used by all kinds of businesses. The notion is relatively simple, but getting someone to actively participate can be the hard part. A Texas Tech University research study showed that 83 percent of existing customers were willing to refer a customer, but only 29 percent actually did.
Which leads to the fact that those “willing customers” need to be incented. If you haven’t taken advantage of a business referral rewards program, here are things to keep in mind before starting one:
As the economy continues to improve, competition is heating up as well. Organizations need to use a variety of tools to succeed, from employee engagement programs that benefit the bottom line to incentive and rewards programs that encourage new business, such as refer-a-friend programs.
If you think your organization could join the many benefiting from referral programs, ask a Marketing Innovators solutions expert about MIFunds, a rewards disbursement platform that uses American Express Serve®, a prepaid, reloadable debit account.”
Smallbiztrends.com. “85 Percent of Small Businesses Get Customers Through Word of Mouth,” by Anita Campbell, June 4, 2014
University of Frankfurt. “Do Referral Programs Increase Profits?” P. Schmitt, B. Skiera, C. van den Bulte, 2013.