3 Steps to Setting Up a "Refer a Friend" Marketing Program
Hans Hasselfors
In today's world, it seems that almost any topic is open for
debate. While I was gathering facts for this "refer a friend"
marketing program article, I was quite surprised to find some of
the issues I thought were settled are actually still being openly
discussed.
As a small business owner, you may be considering the
implementation of a "refer a friend" marketing program. There are
several reasons why this is a wise move.
Basic marketing theory offers that word of mouth marketing is one
of the most effective, and least expensive, forms of business
promotion. Word of mouth marketing occurs any time one of your
current customers or clients recommends your business to someone
else, who then, on the basis of that recommendation, decides to
visit your business as well. Lead generation (getting the
potential customer to walk through the door) is often the most
time-intensive element of marketing. Once the potential customer
has chosen to "walk through the door", it becomes much easier to
convert them to a paying client.
In this form, word of mouth marketing costs almost nothing to
implement, and if your business is continually recommended, it,
obviously will continue to grow.
There are several forms that this marketing by referral program
could take. One is that of "refer a friend", which, as it sounds,
is based on the idea that your current customers can be rewarded
for referring their friends to your business.
When considering the implementation of this kind of marketing
strategy, there are several issues that must be considered.
First, consider the lifetime value of a business customer. This
value is computed by multiplying the income received by the
number of times in a year it is received by how many years the
customer remains in your business. For a business consultant, for
example, the income received might be $400 per hour, the number
of hours per year might be 100, and the average length of the
client relationship might be 10 years. So, for the consultant in
this scenario, the lifetime value of a customer would be
$400/hour x 100 hours/year x 10 years = lifetime value of
$400,000. This figure represents the amount that the business can
spend to attract and retain a client and still remain profitable.
It also implies that if the business can attract and retain
clients for less than this amount (such as using a marketing by
referral program), the business' profitability can increase
significantly.
I trust that what you've read so far has been informative. The
following section should go a long way toward clearing up any
uncertainty that may remain.
The first step in setting up a marketing referral program is to
understand the lifetime value of your customer. This will
indicate how much should be spent to attract new customers.
The second step is to tell your existing customers that their
referrals would be valued and appreciated. A simple way to begin
is to include a statement about this on all customer-facing
materials, including brochures, invoices, and receipts. Many
businesses create special "tell a friend" cards, which allow
someone to gift a friend with a service or product.
For example, a beauty salon may create "tell a friend" cards, and
ask their current customers to pass these out to friends who
might want to try the salon. In this model, the current customer
is able to be generous by sharing a "gift" with a friend, who
may, ultimately, sample the salon and decide to stay on as a
customer. For the price of a printed business card, and the cost
of the service or product, businesses can generate hundreds of
new leads, very cost-effectively. The key to this strategy,
though, is that the business must offer a product or service with
high perceived value and low actual cost. An example might be a
free haircut, or a mini-facial, or something similar.
The third step of this process is to define an internal system or
structure for rewarding clients for their referrals. The higher
the price points in your business, the more generous the rewards
should be. Consider creating a rewards schema which gives
customers greater and greater rewards for every two or three new
customers referred. Following through with the beauty salon
example, the first referral might entitle the referrer a free
haircut, but the tenth referral might entitle that referrer to a
full spa treatment.
Keeping track of referrals may be best done in some kind of
database or with customer tracking software. Build a referral
tree to understand which customers are referring the most new
business. Be sure to thank them promptly for their first
referral, and don't forget to continue to reward them for sharing
your business with others.
No matter what kind of business you run, a referral marketing
program can increase profitability.
Now you can understand why there's a growing interest in "refer a
friend" marketing program. When people start looking for more
information about the subject, you'll be in a position to meet
their needs.
About the Author: Hans Hasselfors is the founder of
http://www.SubmitYourNewArticle.com . You may find varied
marketing program articles in our free article directory.
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