Referral System a Strategy to Attract Customers

Customers’ consumption habits have evolved and every day there are more sources of information that make them more selective when buying.

More than just the product or the price, there are a number of important variables for decision making. Therefore today more than ever our strategies to attract customers and maintaining them must be more effective.

Today I share with you a simple but powerful strategy to achieve this goal and it is through the implementation of a Referral Compensation system.

To understand how this strategy works we must remember that old and well-known business principle: “a satisfied customer attracts 5-10 new customers, while a dissatisfied customer will lose you 10-15 potential customers“.

This is still totally true. Why? For two simple reasons:

  1. All of us as consumers, we recommend positively or negatively our consumer experience. And beware that we recommend experience, and this has to do with the product, the price, the care or the support of the supplier. All factors to some extent make the experience and that is what we share by word of mouth.
  2. We all recommend sooner or later. As an unconscious act, we all end up recommending about that customer experience. Recommending is a natural act of the human being. Talking about whether we did well or badly is a way of expressing our feeling towards that moment of satisfaction or frustration.

So we must understand that all our clients will talk about our businesssooner or later. They will speak good or bad. So we can harness the tremendous impact of this aspect as a strategy to attract more customers.

What is a Referral Program
Considering the above and assuming that our clients will speak well of their experience with our bussines, then we can take advantage of that impact on the recommendation by rewarding our client for referring us.

This achieves two very positive effects:

  1. Our client will be motivated to speak well of your business, thus continuing the positive experience. It also maintains your company or brand in their mind and this condition sooner or later will make you come back. This is called customer loyalty.
  2. Our client will become a marketing medium to attract other potential customers to us through your referral.

So a referral program it comes down to a reward system that we offer to our loyal customers for helping us attract other customers.

How a Referral Program works
It is much simpler than you imagine. The first step is to come up with some good incentive for your referring customer that is attractive and motivates them to attract invite other customers to get to know your business or product.

This incentive or award does not have to be something very expensive but they can be small incentives but added by volume represent some benefit for your referring client.

Let’s see some examples:

  • 10% discount coupon on your next purchase for each client that you refer to us and buy with us. Ideal for: general stores, furniture stores, tire sales, etc.
  • For each client that you refer to us and begin their treatment with us, a coupon of $ 20 applicable at your next appointment. Ideal for: medical clinics, dentists, aesthetics, nutritional centers, etc.
  • For each referred customer If you sign up, you get a 50% discount on your monthly payment. Ideal for free courses, English academies, motor racing schools, training centers, cooking schools, cable companies, subscription businesses, etc.
  • If you bring us a new client, you have a free service. Ideal for car washes, mechanical workshops, office cleaning, computer companies, etc.

How to Choose the Right Incentive?
This is definitely the hardest part although there really isn’t much to lose and much to gain. The incentives to choose have a lot to do with the personality of your client and the type of business you run. Common incentives can be:

  • Discounts on future purchases
  • Medium-term cumulative bonds
  • Free services
  • Discounts on services

And the most important thing to take care of are the costs. There’s no use offering big discounts blindly if it will eat up your profit, so to speak. The rule that should determine if your referral program is well focused is that you always have to win and your referring client also.

For example, if you offer a $ 30 discount as a prize, but you know that that new customer will represent subsequent sales for an estimated $ 500, and you assume that your net profit is 30%, then that new customer will actually represent in your pocket $ 150 dollars. So you are investing $ 30 in prize money to get $ 150. This would be a profitable thought incentive.

Another example. If you have a computer company and you offer your client a free maintenance service in exchange for a new prospect, then we should think like this. If the cost of your maintenance service is $ 20 dollars and that new customer is going to buy only a service of the same type worth $ 30. Then you would be offering a $ 20 prize in exchange for an estimated profit of $ 10. If you consider the material that may require promoting your program, this could then be a poorly planned, unprofitable strategy and should be reconsidered.

In short, these are only some elementary examples so that you can understand how the referral system as a strategy to attract customers.

Finally, you must promote your referral program. If you don’t make it known, no one will be interested. For this you must allocate a moderate percentage of advertising budget to inform your clients about your program and it should clearly describe:

  • How does it work
  • What are the prizes
  • Who applies and who does not
  • What are the restrictions
  • When and how the prizes are collected

You should put a lot of emphasis on the aspect that it is something new, interesting and great for your clients. Phrases like “Atime you want to buy!” The “Earn a lot of money recommending your friends“or similar are very strategic to get the attention of your customers.

Thus, this is a very useful strategy and one that, if properly planned, can bring you enormous benefits for expand your client portfolio and increase your sales. If you implement it, I would love to know your results. As always, my best wishes for success in everything!

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