The first thing to establish when launching a referral program is your reward structure. The overarching question to ask yourself is: What do I need to offer my current customers to get as many new customers as possible?
A few elements come into play, here are the steps to take to find the best reward structure.
1. Who is the program for? – Finding the Ideal Advocate
The first thing to ask yourself when establishing a reward is “Which ones of my customers do I want referring their friends?”. Essentially, you want to target a specific group of customers who you know is more likely to refer their Friends.
Example – You own a health and wellness clinic. Your Ideal Advocates could be:
- Customers who come in on a recurring schedule.
- Are very dedicated to their health
- Between 45-60 years of age.
Note: If you have data, use it! If not, that’s ok. This process should be light to start, try to think of your best customers and draw a profile.
2. What do the Ideal Advocates want?
The second thing to know is your Ideal Advocate’s interests and understanding the value of a new customer.
Your Reward should be tailored for your Ideal Advocate. What would they prefer, an Amazon Gift Card (cash), a discount or a gift item?
If your Ideal Advocate is likely to come back for a service in the near future, we recommend offering a discount. Or if you offer an item that is popular among your customers you can use it as a gift. On the other hand, if it’s unlikely they will be back in the next 2-3 weeks, an Amazon Gift Card might be a better fit.
Another important consideration is if they are paying for the service or if it’s paid by someone else (i.e paid by insurance or the company’s owner). If they don’t pay for the service, a Gift Card would be a better incentive than a Discount. If the customer does pay for the service, then a Discount can be considered.
Example – You own a health and wellness clinic. Most of your services are covered by the customer’s insurance. You should offer an Amazon Gift Card for every Friend referred.
The reward needs to be substantial enough for the Advocate to take the time to invite their friends. We found that successful LocalReferrals users offer at least 5% of the Life Time Value (LTV) of the customer. So if your customer is expected to spend $400 during their lifetime as a customer, you should provide a reward of at least a $20 value.
3. Don’t forget the Friend
The reward for the Friend is arguably just as, if not more important than the one for the Advocate. We recommend offering double sided rewards:
Advocates need to feel like they are providing value to their Friends. If the Friend doesn’t get an incentive, Advocates might feel like they are promoting your services strictly for personal gain, which will reduce the odds of them taking part in the program.
Getting the Advocates to promote is only half the challenge. The Friends referred need a good incentive to get in touch and schedule their first appointment.
Think of this incentive in the same way just as you would with a promotional discount, except the Friend is likely to fit the same profile as the advocate so you have a better understanding of how to target them. The incentive type should follow the same rule as the reward type: Think of who is paying for your service and what will get them through the door. Will it be a discount, gift card or an awesome gift on their first appointment?
The key takeaway from this article is to ask yourself: What do I need to offer my current customers to get as many new customers as possible?
Each business has different customers, who will behave differently based on the reward offered. So it’s important to first, think about who that customer is. Second, about what reward type and value should be used. And finally to find a way to make the program double sided, so both Advocates and their Friends get value from the program.