A Key Marketing Strategy: Referral Marketing

Referral marketing is a tool used to offer existing customers incentives in the form of discounts, free products, or other deals once they have referred a friend to your business. I am sure you have been offered, or have offered, this type of promotion before.

So Why Do It?

As a business owner, you already have some sort of customer base. You can use this to your advantage by leveraging your loyal customers.

Now, I don’t know about you, but I like discounts and special offers. Especially if I am a regular at the business. Offering a deal to specific people, and not just anybody that walks in, makes the customer feel special and appreciated.

This strategy is also very cost effective since you have customers advertise your business for you without paying them hundreds if not thousands of dollars.

The last point I’ll make is that this strategy is very easy to implement. It also can be implemented in so many ways which I will discuss later.

Let’s Talk Cost!

I like it when marketing is measurable. In fact, if your marketing strategy is not being measured accurately or cannot be measured, why in the world are we doing it in the first place?

Referral marketing is easily measurable and can be measured over different periods of time (Weekly, Monthly, Quarterly, etc…). We call this the Cost of Referral Program (CORP).

The only costs your business should accrue while marketing this way should really only be the revenue lost due to the discount you provide to the customer and, if desired, hiring a marketing manager. If you need a marketing manager, I know a guy!

There are some ways to cut the cost down even further. I have seen businesses offer the discount on a product with high margins or you can offer a “Buy X, Get Y 10% off.” Remember, it does need to be fair for the customer since they are helping you.

How Do You Do It?

There are so many ways in which you can implement this marketing strategy. You do not have to stick to just one, you want as many customers as possible to see the promotion. The goal is 100% of your customers should at least know of the deal you are presenting. So how do you put it in front of their eyes?

The best way I have seen businesses market their referral program is via text or email. I am sure your business asks for customer emails, or phone numbers all the time. Whether it be for a rewards program, a newsletter, legal purposes you likely have this information. All you have to do is send the offer to them. Or hire someone to do it because they are great at marketing and can help increase your conversion rate. Yes, I am talking about me!

“What if I don’t have a huge list of phone numbers or email addresses?”

Did I just read your mind? Scary isn’t it!

Even without this information there are a couple of great options. You can promote the offer on your website homepage or even have a pop-up in the customers cart before they checkout. Pretty easy stuff. Lastly, if you have a physical location, put a sign outside or at the checkout counter. It really is as simple as that.

Make Marketing Measurable!

I said it earlier and I’ll say it again, if you do not know how effective your marketing strategy is, then why are you marketing at all?

Referral programs are about as simple as measuring marketing gets! So how do you measure how well this strategy is working?

Step one is to hire me!

I’m kidding….. sort of.

Anyway, there are a couple of ways to see how many new clients you get from your referral program. The best way is a hidden secret that has only just been declassified by the federal government. Ask your new customer this question….

“How did you hear about us?”

We did it! Secret unlocked…. Pandoras box is opened.

But honestly, that’s really all it takes, and when they either tell your cashier or answer this question on your website you just put another tally mark down.

Is This A Profitable Strategy?

Absolutely!

To be able to calculate profits does require some detailed knowledge about your business and customers which I pray you already know.

Calculating the cost of the referral program is straightforward so I won’t say much about it.

Now calculating net profits does require a bit more math and attention. But this is not a math blog! I will, however, tell you some important assumptions and variables that are required to calculate the Net profit from this marketing strategy.

1. How many existing customers do you have?

2. What is your average revenue generated per customer?

3. What percentage of customers do you think will refer a friend to your business?

I’ll leave you with an example of a business who used this strategy and their results.

This business had about 1000 customers. Only 10% of their customers referred a friend. Of the 100 referrals, 30% became new customers for that business. The average revenue per customer was about $500. Meaning the business made $15,000. They spent $3,500 to implement this strategy.

Imagine what this can do for your business!

“Massive actions solve most problems….”

It’s time to act!

If your business needs:

1. More Customers

2. More Revenue

3. More Opportunity to Grow

4. Less Competition

Please contact us at phdmarketers.com. We have just what the doctor ordered!