The complete guide to reaching more locals through word of mouth.
Sometimes called “referral marketing”, sometimes called “refer-a-friend”, it simply used to be called “word of mouth”; customers who love what you do sharing your business with a friend.
If you ask me, word-of-mouth is the best way to grow your business. Always has been. Always will be. So, how do you implement a referral marketing program for your local brick & mortar business?
This article will walk you through what you’ll need, some examples, and a few things to consider. BTW, if you’re looking for an inexpensive app that will automate all this for you, check out Pollen. It was created specifically for brick & mortar shops, to help them reach more locals through word of mouth. If you already know about the power of referral programs and just need some ideas, check out our article on brick & mortar referral program ideas here.
Try our referral marketing app made just for brick & mortar shops.
First thing’s first…
What is referral marketing?
Referral marketing for brick and mortars is a program that incentivizes customers to share your business with friends, and earn rewards when they do.
Simply put, referral marketing is any type of marketing that rewards your customers for telling other people about your shop. This can be done in a number of ways, as we’ll see below. But that’s it, at it’s core.
Why is referral marketing so powerful for brick & mortars?
When it comes to digital marketing, it’s fairly difficult for “low-cost” shops to find marketing channels with a good ROI (return on investment).
Think about it this way:
You run a coffee shop where it costs you $.25-.50 to make and serve a single cup of coffee. You sell that small coffee for $2. You make (roughly) $1.50 in profit.
But it may be that pay per click campaigns on social media or search platforms cost you $2.00-$3.00/click. For everyone who clicks, 1 in 10 will come in and buy a coffee to try you out. That means that you paid between $20 and $30 to make $1.50 in profit. Now, that new customer may come back for the next 10 years, in which case it will have been worth that initial investment, but that’s a pretty steep price to pay.
Now let’s look at referral marketing:
Let’s say you tell a customer, “Give your friend a free coffee, and if they come in to get that coffee, I’ll give you a free coffee.” Remember, we said it costs you (roughly) $.50 to produce that cup of joe.
So how much did it cost you to gain a new customer?
That’s significantly cheaper than running PPC ads wouldn’t you say?
Now obviously that’s using some really quick and rough estimates, but you get the idea.
The benefits of referral marketing are…
- It’s cost-effective. For many small, local, brick & mortar shops it’s going to be far less expensive to gain a new customer through referral marketing than paid ads.
- It builds the most trust with new customers. When raving customers recommend you to their friends, there’s already some trust being built in your brand. Think about it, which mechanic do you trust more: a) the one your friend raves about and goes to, or b) the one you saw on social media ads? For most people, it’s going to be “a”, all day.
- It’s fairly easy to run. Using a tool like Pollen, you can get started in minutes, and it basically does everything for you.
Types of referral marketing.
When it comes to referral programs, there are a few ways to structure your program.
2-way referral programs.
This is my personal favorite and used heavily by major tech companies like Uber, Airbnb, Everlane, and more. Essentially, a 2-way referral program rewards the customer (the “referrer”) and the friend being referred (“the referee”). The catch is, the customer doesn’t get the reward until the friend actually tries out the product. In this case, until the friend actually sets foot in your brick & mortar store and uses their gift.
An example of a 2-way referral program is, “give your friends 50% off their first haircut, and get a free haircut for every 3 who come in.”
2-way referral programs are advantageous because:
- everyone wins
- your ROI (return on investment) is better, because you’re only rewarding customers if you benefit from it
- it incentivizes the friend to come in
A 1-way referral program.
A 1-way referral program is where you reward customers for sending something to friends, or when the friends come in and make a purchase. The difference here is that, as the name implies, it’s 1-way, meaning the friend (referee) doesn’t get anything out of the deal.
A good example of this is a barbershop, that runs a program saying “refer 3 friends, and get a free haircut.”
The problem with this method is that there is no incentive for the friend to come in to your store. So while it may seem like it benefits you, the business owner, because you’re giving away less product/services, it may significantly reduce your conversion and the amount of referrals you get.
Build a custom referral program for your brick & mortar.
What you’ll need.
To run a successful referral marketing campaign, you’ll need a few things:
- A way for customers to easily refer friends to you (hint: the business card/paper coupon thing is kinda out…). This could be something like a paper card or coupon, or you could use a service like Pollen which lets customers refer friends to you right from their phones. Either way, you need some method of helping customers pass on your gift to their friends.
- A way to track how many new customers come into you. This is crucial. You need a method of tracking which friends came in (referees), and who referred them (referrers), so you can tally up when you should reward that customer who referred them.
- A way to reward customers who send enough friends. After a customer refers enough friends, you have to fulfill your promise and reward them. Again, this could be manually keeping track of it (not recommended) or using an app that tracks it for you.
- A way to make sure friends can’t redeem multiple free gifts at your location. This is crucial. If you don’t use a tool like Pollen, you’ll want to make sure that you’re limiting one free gift per friend. Otherwise, what will inevitably happen is that many people share the same friend, and they’ll all reach out to that person with your gift. So make sure you’re limiting it to one per person.
- A way to run and track multiple referral programs if you have multiple locations. If you have multiple shops at multiple addresses, you’ll probably want to know which redemptions took place at which addresses. This will help you measure how each location is doing, and keep track of what gifts or rewards got redeemed there.
How much money can referral marketing make your business? A lot. (Try this calculator)
Like I said, the main benefit of referral marketing (specifically for small, local business) is that it provides great return on investment. The critical thing to keep in mind here, is that you have to factor in that the customer will come back.
If all you do is look at the immediate, first-visit-profit, you’re not going to see the real value.
Here’s an example:
Your referral program brings in 5 new customers all year (yep, just 5… we’re aiming low to make a point) to your coffee shop.
Those 5 people come back once a month, and spend $10 (again, super easy math and low numbers).
That means that your referral program made you $600.
5 customers, times $10/month = $50/month.
$50/month times 12 months/year = $600/year.
Oh, your referral program will actually bring you, 10 new customers, this year? That’s $1,200.
See what I mean by profitable?
The more profit you make per item (like haircuts or dresses) the more you stand to gain. Of course, that also means you’re giving up more in gifts to get people in the door, but you stand to gain a lot as well.
See how much money referral marketing can make your business.
What can kill your referral program?
If referrals are so great, why doesn’t everyone use them? Or, put differently, what would cause your attempt at referral marketing to fail?
Here are a few things that might hurt it’s performance:
- Lack of promotion. Your customers can’t refer friends to you if they don’t know about your program. You should be promoting in-store, out of store, online, and everywhere your customers are paying attention.
- Lack of regular promotion. You just launched your program 3 months ago, and it was going well, but it started dying out. What happened? People forgot about it! You need to regularly remind your customers (I’d recommend monthly) or else they may forget or lose interest.
- You made it unattainable. If you make it too hard to get rewards, your program will fail. For example, saying “refer 15 friends and earn a free coffee” is a bad idea. Nobody is going to have the patience to invite that many people to come. It’ll be unattainable, and they’ll give up.
- You were stingy to your referrers. “Refer 5 friends and get 10% off” is a crappy program. Sorry, it just is. You’re asking your customers, who pay you hard-earned money, to tell their friends about you. If you gain just a few customers, you’re going to have a great return on your investment. So reward your customers. Make it worthwhile. If you can give them some big thing for free (a free drink, a free sandwich, a free dinner, a free haircut) then do it.
- You were stingy to referees. Listen, it’s just not worth people’s time to go out of there way on their normal route, to try your coffee shop for 10% off. Sorry, $.20 just isn’t worth it. Make the gift generous. Get them in the door. Make them an offer they can’t refuse.
Stick with it, and take the long view.
One nice thing that pay per click ads and the like having going for them is instant gratification. It’s like a jukebox or an arcade game. You drop your money in, and you get a result. Might not be the cheapest or most effective, but you can see that your money is working.
For some of you, the hardest part will be persevering and giving your referral campaign a fair shake.
But 1, 2 or even 3 months is tough to evaluate. If you run it for 6 months, you’ll have a true idea of the kind of return on investment it’s making you.
For example, what happens if you cancel at month 3, but at month 4 or 5 you were about to gain 2 new customers that would become regulars at your shop? Or, if you cancel before the new customers can tell their friends about you? Bottom line, it takes time, so give it time.
Ready to build a program of your own? Try Pollen free for 2 weeks!
I’m the creator behind Pollen, a referral and loyalty app for small, local, brick and mortar businesses. I literally built Pollen for shops like yours, to help you make great money, for one low monthly cost. My heart is to help local businesses like yours thrive.
If you want to learn more, you can visit Pollen and check it out here.