When it comes to business only the strongest survive. There are lots of moving parts in the machine and if one part breaks down it jeopardizes the entire operation. That’s why 80% of businesses fail. But you don’t have to be one of them. The key to ensuring your business succeeds is simple: reduce costs and increase revenue. It’s simple but definitely not easy.
But what if it could be easier? It can be. Keep reading to find out how.
Your marketing program is the engine that runs the machine. Reduce the cost and increase the effectiveness of your marketing and the entire machine will run better. One of the fastest and most effective ways to do this is to multiply your sales by leveraging the power of customer referrals. A customer referral program is the secret weapon that far too many businesses fail to take full advantage of. Below I will explain just how powerful customer referrals can be when systematized and leveraged through a referral program.
A Customer Referral Program Will Reduce Your Marketing Expenses
If you’ve been in business for any length of time you know getting new customers is expensive. Think about it, how much does it cost you to acquire each new customer? Now multiply that by how many new customers you want to get next month to hit your target. How much better would next month be if you could acquire a portion of those new customers for the price of a cup of coffee?
With a customer referral program, you can. A customer gained through a referral only costs as much as the ‘prize’ you use to incentivize referrals. Allow me to illustrate. Let’s say you set up a customer referral for your coffee shop. With a good customer referral program, you can tailor the program to meet your exact needs but, in this scenario, let’s say you offer 1 free cup of coffee as an incentive to both the giver and the receiver of the referral. Now imagine that 50 of your most loyal customers referred 2 new customers each to your business. That’s 100 new customers for the price of 150 cups of coffee. To make this easier to conceptualize let’s price a cup of coffee at $3.00. That’s $450.00 for 100 new customers who have the potential to bring you increased revenue over an indefinite period of time. I want you to think about your current cost per new customer again. Multiply that by 100. Is it more than $450.00?
How much more? In this scenario, that would be your savings for the month. And that is the power of a good customer referral program.
Customer referral programs have proven to be more effective than other marketing strategies
There are multiple reasons a referral has more impact on a consumer’s buying decisions than other marketing mediums. The key reason is the trust factor. Consumers are bombarded by ads on television, the radio, online and in magazines. Due to increased exposure to advertisements customers are more sophisticated and more skeptical than ever. But studies have shown that 92% of people trust recommendations from people they know. This is why a customer is statistically more likely to buy from you if a friend refers them to your business. An article in the Journal of Marketing stated that the effect of referral-based marketing is 20 times that of event marketing and 30 times that of media appearances. Talk about turbo charging your marketing efforts!
A good referral program won’t only give your marketing plan more power but also more precision. Referral based marketing is more targeted than most other forms of marketing. You would probably only refer a friend to a dive shop if you knew they were into scuba diving and in the market for new equipment. With a referral program, you reach customers who have an immediate and specific need for what you offer. How powerful is that?
Your customer referral program can go viral
Customer referrals lead to more customers and more customers lead to more referrals. Let’s take a look at how quickly a good customer referral program can multiply your sales. Let’s say you have 200 regular customers and 25% of them refer 2 customers each.
Don’t worry I won’t force you to do mental math! That would be 50 of your most loyal customers referred 2 new customers each. Now you have acquired 100 new customers for free through your referral program and you still have your 200 original customers who are now more loyal than ever. When customers refer your business to their friends it reminds them why they love your business and over time they become even stronger ambassadors for your brand.
But let’s get back to the scenario. After you acquired your 100 free new customers you now have 300 customers total. If 25% of those customers (that’s 75 customers) refer 2 new customers that’s 150 new free customers from this round of referrals. Add that to your customer base of 300 and now you have 450 customers.
Now what would happen if 25% of those customers referred 2 new customers each? It would break down to 112 customers referring 224 free new customers total. Now you have multiplied your customer list to 674 people and it all started with just 50 people telling a couple of friends about your business!
Household names like Dropbox and Uber became the companies they are today because of their referral program going viral.
Your customer base can continue to grow like a snowball rolling down a hill as long as you have a good referral program in place.
So now you have an advantage that many business owners don’t have. You know how you can reduce costs and increase revenue by leveraging the power of customer referrals. But knowledge without action will get you nowhere.
Want to see the power of technology being leveraged to create and automate referral programs? Just request a live demo of the Sparkage platform today!