Building an Effective Referral Program

We all love referrals. They are the ultimate compliment to a business. When a satisfied client tells a friend to use your business, it’s many times more effective than when the business promotes itself.

That’s because the advice comes from someone the friend trusts. It has immediate credibility. Something else happens during this exchange of information. The person referring your business actually becomes vested in your service. They automatically have tied their reputation to yours by recommending you. This deepens your relationship with the client in a very special way, and treated correctly it can really impact your business. It can also be a huge negative if you don’t perform up to expectations.

Recently, I recommended a contractor to a friend who needed a small potting shed built next to their home. The contractor I recommended had completed several small projects for me all to my satisfaction, so I felt comfortable suggesting their service.

Creating a referral system that works can be highly satisfying. You just have to be committed to doing it right.

Several weeks later I ran into the friend who had contacted my referral to build the shed. I asked how the project went and she confided in me that the contractor had built the shed facing the wrong direction, and then defended the mistake when my friend confronted him. She decided not to make an issue of it, but was clearly disappointed.

When she told me this, I had an interesting reaction. I was very embarrassed and apologetic for recommending this contractor. I felt responsible for her disappointment and the poor service she received. I also felt that she may have less confidence in my opinions in the future, and this bothered me.

Very soon my embarrassment turned into anger with the contractor for not living up to expectations. As a result, I went from a loyal client to one that would never risk the embarrassment of recommending his service again. I felt as though I couldn’t trust him again, even though I had been satisfied with his services in the past. I wasn’t even sure if I would continue to use him for my own projects in the future.

It wasn’t just his failure to service my friend, he had also never bothered to thank me or acknowledge my referral. This probably wouldn’t have even entered my mind had he lived up to expectations, but now all types of small things about his approach to business began to be a part of my thoughts. I’m almost sure he has lost me as a client and the weird thing is that I was happy with his service before I recommended him.

I think my experience demonstrates the fragile nature of referral marketing. It is important to understand that there is a very real risk involved when a good client vouches for your service. It really ups the ante on your level of commitment to your service. Asking someone to recommend you doesn’t only mean coming through for the new client, but much more importantly you must prove the worthiness of the recommendation to the client who referred you. Not doing so exposes your company to a huge loss.

Now that you are scared into taking this type of marketing seriously, let’s talk about the tremendous upside of well handled referrals!

Imagine how I would have felt if the contractor I recommended had performed a service that my friend raved about when we met. Not only would I have felt great that I helped her out, I would have felt like my suggestion was valuable to her. It would have given me the mental momentum to aggressively suggest this contractor many more times. This means it would have significantly deepened my relationship with him and perhaps even made me an ambassador for his service. Why? Because I would feel good every time I recommended him and his service made my friends happy- thus making me look good.

Now imagine if the contractor understood how much my endorsements meant to the growth of his business. Not only did he clearly understand his obligation to perform to a high level to make us both look good, he also knew that recognizing my enthusiasm for his service would encourage me to continue referring him. What if he had picked up the phone and personally thanked me for vouching for him? What if in that brief conversation he took the time to reassure me that he would make sure that this referral was very happy with his service for both our sakes? It sure would make me feel good about his commitment to me as a client- I would feel very special.

Now, how would I have felt if in the next week I would have received a coupon or gift certificate as a thank you for the new business I brought his way? I think I might have been fired up to find him even more clients. And how would I have felt if in addition to giving me a gift certificate for future business, he gave the person I referred a small discount because they had trusted the referral? I’m going to feel even more special because I look like one of his best clients to my friend. My friend might even be tempted to also refer because there is the possibility of more discounts in the future!

Too many discounts? Worried that the contractor is giving away too many profit dollars? Remember this was free advertising. This sale didn’t cost him anything and he never would have gotten it if it wasn’t for the referral. Why wouldn’t he do everything possible to make it happen again? The discounts are great. They encourage future referrals and communicate a thankful attitude for the relationship. But they are not nearly as important as being absolutely SURE the referred client was satisfied with the service. This is the key to building lasting business relationships.

referral program

A referral program can benefit greatly by using special “thank-you” coupons that reward the person who provides the referral as well as a discount for the new client who was referred to you.

Here are several keys to building a great referral program:

  1. Encourage current clients to refer your service.
    Be bold enough to ask them to refer you to their friends and family. Do this by letting them know that you need as many clients like them as possible, and that their help would be appreciated.
  2. Have an organized method of asking clients to refer.
    Make sure you have a system in place that encourages EVERY client to refer their friends. Make it a policy to ask when your team completes a sale. Use signs and flyers that ask for their referrals and the benefits they can get by referring.
  3. Create a benefit package to encourage more referrals.
    Reward clients that refer and tell them up front they will be rewarded if they refer someone who uses your service. Make the reward something worthwhile since this type of marketing is so valuable to your business.
  1. Reward those who refer immediately and aggressively.
    When someone comes in and uses your service because they were referred, reward the person who referred them IMMEDIATELY- not at the end of the month or when you can get around to it. Make it a priority and a celebration. Call the person or email them with a sincere thank you, and let them know their reward is on the way.
  2. Reward the new client who was referred.
    Adding this feature to your rewards program has a couple of key benefits. First, those who refer get to tell their friends that if they mention their name they will get a discount or a designated reward on that first purchase. This creates a special feeling for the person who is referring because their name gets their friend a reward. It also entices the friend to use your service because not only were they referred; they also get a discount on their first visit.
  3. Create a follow-up system to be sure the new client was satisfied.
    Don’t forget how much you have to loose if your service doesn’t match up to the new clients expectations. Ensure this doesn’t happen by building a follow-up policy that allows your clients to give you honest feedback about your service. Be sure your staff is trained to correct any and all problems that could surface.
  4. Track the results of your program.
    Add your referral program to your marketing plan analysis. Just like any other program you use, it’s important to know how many referrals you are getting, what the dollar value of each referral sale is, and how many discount dollars you offer to support the program. Doing this will help you analyze the growth and profitability of your new program.

Building a referral program is an important part of growing your business. It’s most effective feature is the deep relationships it builds with clients that become ambassadors for your success. Understanding your responsibility in that relationship is the key to building this type of program. Build it correctly and it will become one of the most satisfying programs in your business.


  1. Wonderful article. I never thought of a referral program. Can’t wait to implement this. One question…Do you let someone use multiple gift certificates on the same framing project if they have referred multiple friends? Lets say someone refers 3 friends to you for framing. Do they have to use the certificates on 3 separate framing projects, or $75 off one framing project? It would probably be worth it to let them use multiple certificates on one project if they had referred multiple people that generated sales for you, but I wondered what you policy was.

    • Great question Randy. I look at it this way. The client who referred 3 others to your service is not issued those credits until the new clients have actually placed orders. In a typical shop, new clients represent less than 10% of total orders placed. This valuable client just found you 3 new clients who have the potential to place many more orders with you.
      I would gladly let the referrer use all three of his certificates any way they choose- even if they wanted to group them all together. Placing any type of restriction on this reward could diminish the value and discourage a real advocate for your business.
      I hope you find success with this program!

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