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How Start-Ups can Build a Successful Referral and Rewards Program

Every business needs a referral program. Though you may not think so at first, but how many decisions in your life have gone the way of a recommendation. Every time you ask a friend, family member, or something online, you're trying to get a referral. The opportunities awarded from word of mouth can change a business's future. However, people only work when incentivized. There has to be some kind of motivation for the customer to send others your way. Here's some key points to set up great referral and rewards program to ensure that your customers keep coming back and bringing their network along.

First step is safety for your business. You have to set rules for your program that will always be financial beneficial for you. Basically make sure that you only pay out the reward for the referral after a purchase of some sort of value is received from the new customer. "Rewards $15% off your next purchase when you refer someone that makes a purchase of $150 or more!" (You've seen them before and it's put together that way for a reason.

If the reward is given before a new purchase is made, you'll have customers going through all their contacts sending you leads that aren't qualified buyers and getting all of their rewards regardless. This also improves the quality of the referral because they will likely be prequalified for the $150 purchase if the customer has been educated on the program well enough.

Step two. Rewards that are actually worth it. The 10% off the next purchase is great and probably the most commonly used. Rewards programs have become incredibly boring though. How many businesses have a 10% for a referral that you can remember off the top of your head? Not many right. Because its boring. The way things are going with POS systems in stores these days you'll have to pay an extra 20% tip just to use the 10% off.

So what to do if not doing 10% off. Make it a tiered program. With each referral granting a bigger award. This is basically what affiliate marketing is but you don't have to work with influencers. Let's say 1st referral is 10% off. 2nd referral is a free shirt. 3rd referral is 20% off a purchase of $150 or more...and keep it going. Free products, expedited shipping, free service, or whatever your business offers. You can give the customer something to actually work towards.

For some reason business owners will spend all of their money on marketing campaigns but when it comes to giving a discount for repeat business in their rewards program it seems like a hard decision. I think a lot of it is the view point. All you see is the discounted purchase and that your are making less profits than you would have. The problem is your business probably isn't the only one that is out there. You might not be as amazing as you think. As business owners we tend to think our products/services are the best. Customers if not completely blown away may end up looking for a better deal somewhere else or just try a new service. But even if its only a little bit cheaper to come back to you, and not deal with the efforts of finding a new service, you can improve your chances of return business.

If you have 10% off a $100 purchase or more you will make $90 on that sale. That means your customer acquisition cost is $10. Only paid after a new purchase has been made as well. (obviously use whatever numbers fit your business model) but with no upfront customer acquisition cost, referrals and rewards should be a major focus for your sales process. A simple points program can have them keep coming back and if you have different reward levels, the incentives just keep stacking for your customer to either come back or send everyone they know to you.

That leads us to step 3. Educate your customer. Most people feel rewards and referral programs aren't great because they don't actually educated the customer on the benefits. How many salesman out there will go through the process and their efforts of explaining a rewards/referral program is "If you know anyone else that's looking for (whatever you sell) give them my name/link/card..." or "After 6 orders you'll get 10% off your next purchase."

If you develop a strong program you should educate the customer and get them excited about it. Now if you're a high volume business with a quick sales process then this will most likely be handled through email. If you are a car salesman for example, when covering everything about the features after your close, make sure to give them a good understanding of the referral program. If they send someone that buys a used car, they get a free hoodie, if they send 2 new customers that buy a car, they get a free oil change. Something that is actually worth it to recommend you or your business.

Let's wrap this one up. So step 1 is make sure you get paid before you pay out the reward. Step 2 is make sure its worth it for the customer to actually recommend you with a quality reward program and if possible, multiple tiers. Step 3 is just tell them about it. You can't expect customers to use your referral and rewards programs if you never tell them how it works. If you want more information about building quality rewards and referral programs feel free to send an email to (that's me) or go through our contact page here.

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