How Do Referral Programs Help Small Businesses?

When someone we trust recommends a product or service, we take it seriously. That’s because referrals have the power to persuade. 

A small business trying to attract new clients can use a word-of-mouth marketing strategy as a free resource to promote its services. Not just that, the company can even amp up the strategy's effectiveness by creating a program around referrals.

Referral programs aren’t only smart because they bring in new business. They also help entrepreneurs connect with existing clients by rewarding them for recommendations and fostering even deeper loyalty. 

And coaching businesses, which rely on trust-based relationships with clients, stand to benefit significantly from one of these programs. 

If you’re an entrepreneur or solopreneur looking for information on organic marketing, check out our six-step referral program for businesses. But before diving into that, let’s understand referral programs and their importance. 

What is a referral program?

Referral programs reward existing clients for recommending a business. Satisfied customers spread the word to friends, family members, colleagues, and even social media followers to get a perk in return. 

And businesses usually offer this perk when a recommendation turns into a sale. Typically, companies ask new clients how they learned about their brand. And if the client answers referred by an existing client, the latter receives a bonus. For example, if your client recommends your coaching practice to a friend, your client would earn a reward once the friend books their first session. 

Incentives vary from credits, discounts, and free products. And perks are sometimes two-pronged. Win-win referral programs reward the referrer and the referee (not to mention the business owner). For example, an existing coaching client who recommends your business may get a free session in return, and the person they referred could receive a discounted rate.

A referral program’s aims to incentivize recommendations and turn them into sales.  

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Why are referrals useful for small businesses?

Small businesses, such as coaching practices, earn new clients thanks to an excellent professional reputation. Unlike large companies that launch expensive, widespread marketing campaigns, small practices rely on a grassroots approach. 

And referrals are especially powerful for small businesses because satisfied customers or clients vouch for the company’s great reputation. In the wellness industry, a recommendation goes a long way. Potential coaching clients seek a professional they can confide in, and who better to recommend a business than a trusted friend? Referrals generate quality leads.

What’s more –– it can be difficult to boil down the essence of a business in a marketing campaign and accurately encapsulate the type of experience a client will have. But referrers share first-hand knowledge of their interactions with a coaching practice, providing nuance. 

How to create a referral program in 6 steps

Referral marketing programs require little to no overhead and are, therefore, low risk. Any business owner considering launching one should feel confident jumping in after planning with the steps below. Here’s how to get referrals with a solid, well-thought-out program: 

1. Set goals and key performance indicators (KPIs) for the program: Determine what you hope to achieve through your program, such as bringing in 10 new coaching clients over the next year. Then, set KPIs to measure the program’s success, like a target conversion rate. If you can’t attract enough clients to reach your goal, but people actively recommend the business, perhaps you need to shift the incentives. 
2. Determine a budget: If you’re on a tight marketing budget, a referral program is your best opportunity. That’s because it’s free. You may have to trade services and time for referrals, but since not all programs require a cash reward, you can ask for recommendations without buy-in. That said, if your company has money to spend on client referrals, use this resource. Cash motivates referrers, as they can use their reward per their preferences. Whatever you decide, ensure you’re not spending too much on new customer acquisition. For example, if your average coaching client spends $1,000 on services, you wouldn’t want to offer a high cash reward, like $500, which would eat away at your earnings. 
3. Finalize the referral incentives: Define what you’ll offer referrers and when. For example, you may provide a free session or monetary kickback when a referred client has their first session. If you plan to offer incentives –– such as discounts, trial sessions, and special package rates –– to new clients, determine these rewards beforehand.
4. Choose the referral structure: Some referrers have a magic touch. For these effective recommenders, getting the same reward for every successful referral may feel redundant and less valuable. Decide how you’ll reward repeat referrals and whether you have a scale with more considerable perks for power recommenders. 
5. Promote your program: Create an email blast, social media post, or website blurb explaining the referral program, and share it across the board. But some companies prefer to keep this information close to save their referral budget and incentives, sharing only with existing customers.  
6. Track the program’s success: Use your KPIs to track how well the program performs. And listen to your referrers –– some might provide candid information on why other people may not sign up, and this valuable feedback can help you change your program’s structure.  

3 great referral marketing examples

Look at how other companies have structured their referral programs for inspiration as you start yours. Here are three service-oriented businesses with different successful approaches:  

1. Tom Ferry: In this classic referral model, real estate coach Tom Ferry pays referrers $500. The program also offers larger rewards (double) after three successful referrals. Since he provides a substantial payout, it encourages and incentivizes existing clients to refer others. 
2. Scribe: This publishing house’s referral program rewards referrers monetarily for recommending authors or people interested in the company’s services, such as ghostwriting. Scribe also offers attractive tiered perks based on a referral points system. More significant rewards include a private chartered flight and a new car. These are extraordinary rewards, but small businesses with limited budgets can adopt this idea but offer simple perks, such as free services or products.  
3. Skillshare: In this educational website’s model, all referral perks are free services. Referrers earn a class they want to take instead of receiving a cash payout, proving that not all valuable referral incentives need to have a dollar sign in front of them.  

Help your business take off with Practice 

Running a small business is a job in and of itself. Besides being an entrepreneur, you’re a coach. 

If you want guidance on managing business activities, head to Practice’s blog. Learn how to make intelligent decisions for your practice, perfect your client-facing skills, establish strong business relationships, and determine how to measure satisfaction. Become an expert at translating feedback into results and boosting client retention. 

And Practice’s Client Management Software, designed for coaches and small business owners, helps you streamline the administrative aspects of your business and save time. Take secure payments, receive client messages and bookings, and safely store data on new leads — all in one place. Try it today.