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You probably already know how powerful word-of-mouth advertising is–perhaps you even swear by it. However, word-of-mouth marketing doesn’t always come easy–especially for small businesses. In order to encourage word-of-mouth marketing, many businesses create customer referral programs.

Businesses that create referral programs can incentivize loyal customers to promote their offer, track brand advocates, and boost both customer retention and acquisition.


But it can be tough to take something as fluid as referrals and turn it into a manageable program complete with analytics as well as real-time results.

We’ll walk you through the following to help answer these referral program questions:

  • What is a customer referral program?
  • Why do small businesses need referral programs?
  • How do I create a customer referral program?
  • Three stellar examples of referral programs.

With the right strategy, you can motivate customers to talk about your business and be in control of the process.


What is a customer referral program?

Let’s start with the basics. A customer referral program is a word-of-mouth marketing strategy that encourages your existing customers to refer people to your business.

Customer referral programs can come in different formats–either by incentivizing your current customers through discounts, branded items, or other rewards, or simply by creating a process for asking for referrals.


The benefits of creating a referral program

Why focus on referrals?

First off, 83% of consumers say that they trust recommendations from friends and family when it comes to choosing a product or service. So when you get your customers to do the talking for you, you have a better chance of bringing in new customers through their network.

Secondly, referral programs also aid in lead generation as it rewards your customers for doing your lead generation for you. Referral programs are a great way to acquire highly qualified, brand-specific leads that will most definitely result in sales.

referral program - customer loyalty callout

We’re not just talking fleeting sales, but referrals boost customer loyalty as well. In fact, referred customers are 18% more likely to remain with a business.

In short, some of the main benefits of creating and running a referral program for small businesses include the following:

  • The leads your business acquired through referral programs are likely to stay as loyal customers.
  • The leads acquired will have more trust in your business.
  • The leads acquired have a higher probability of buying from you.


How to set up a customer referral program for your business

So, we know referral programs are an amazing way to generate qualified leads in a particular industry. But with every business being unique, how do you integrate a referral program into an already complex sales funnel?

Follow these simple steps to create a customer referral program for your business.

1. Choose your referral incentive

When it comes to the best referral marketing strategies there is no receiving without giving. You have to first decide on a reward that works for your business.

Think like the customer. What kind of offer or incentive will motivate them to talk about your product or service with a family member or friend? Try to answer their question of “What’s in it for me?”

It can be as simple as giving a flat fee in return, or more complex like a point system contest.

For example, in the retail industry, most loyal customers want discounts. Stitch Fix, a subscription clothing service brand ran a referral program capitalizing on this by giving customers a store credit of $25.

referral program - incentive example

Image source

By offering a compelling incentive, you can increase your chances of getting referrals–and growing your customer base!

It is also helpful to think about the typical cost of acquiring a new customer. If you find that you usually end up spending $50 to get a new customer, then giving a $25 discount or gift card would be well worth it to get a new customer through a referral.

2. Make it easy for customers to give referrals

If there’s one thing I’m sure that you’ve learned in running and building a business, it’s this: always make it easy for the customer to give you their money (or in this case, that sales-boosting referral). The aim is to ensure that the process of referring new customers to you and receiving the rewards is as seamless as possible.

There are certain tools that’ll help you implement ease-of-use that we’ll get into later. But here are two primary examples:

Social sharing

Social media is a great (and easy!) way for customers to share information about your business, so you’ll want to ensure that your program is shareable online.

Make sure it’s seamless for the customer to share a referral link or information about your referral program on social sites or over email. You can do this through a customer referral program software, by using special links for referrals, or by creating a referral page on your website.

For example, this resort shares a referral page for those who recently booked a stay with a pre-written message and an easy way to share on social media or through email. They also outline the reward referrers get after completing the action.

customer referral program - make it easy to give referrals


Keep it simple

Again, the fewer hoops customers have to jump through the better. Even your most loyal customer will not participate in your program if they get on board only to later discover that there are five more steps they have to go through before getting their referral reward.

3. Promote your referral program

Just like establishing a new product, you need to spread the word about it before you expect anyone to engage. One of the ways to promote your referral program is via time-based or automated email campaigns. With this, you can send post-sale customers an email inviting them to share your referral link to their family or friends for discounts on their next purchase.

You can also promote your referral program on your own social media sites and through your website.

For example, this business promoted its referral program on social media and encouraged its customers to share with their networks.

referral program - company example


The business included a special referral page link that allowed customers to easily share on their social sites to get more referrals.

referral program - facebook post example

4. Use time-saving tools for your customer referral program

There are plenty of online tools that can help you promote, automate, and set up a customer referral program easily.

Most referral program solutions handle aspects like post-purchase pop-ups, referral widgets on your website, and even embedded signup forms.


Don’t wait to set up your next customer referral program

You now have the tools and confidence to identify the ways a customer referral program can fit your business needs. With a bit of creativity and online support, you can make your old-school word-of-mouth marketing come to life with a full-fledged, measurable referral program.


About the author

Raul Galera is the Partner Manager at ReferralCandy and CandyBar, two tools helping small- and medium-sized businesses run customer referral and loyalty programs. He’s been working in the tech sector for the past seven years and regularly writes about marketing, e-commerce, and tech.

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