WHY SHOULD BUSINESSES INVEST IN LOYALTY OR REFERRAL PROGRAMS?

When you’re in a good place with clients you enjoy working with and a network of other small business friends to rely on, it’s a great life. But finding new ways to build your business and strengthen those relationships is always important. That’s where loyalty and referral programs come in.

WHAT’S THE DIFFERENCE BETWEEN A LOYALTY PROGRAM AND A REFERRAL PROGRAM?

While they may sound similar, there are a few key differences between loyalty and referral programs that you should keep in mind before setting one up in your business. Let’s start at the beginning–what is a referral program? 

REFERRAL PROGRAMS

How many times have you mentioned a brand to a friend when they’ve been looking for a specific product or service? That action was a referral. Otherwise known as word-of-mouth marketing, referrals are a way for people you know to spread the word about what you do to potential new clients and let them know why you’re great to work with. 

It’s not just clients who can send new business your way. If you’re a freelancer, you can get referrals from other freelancers, both in your industry and outside of it, or even agency partners. It’s incredibly common to pass along the name of someone you know and trust (that’s key, never accept or pass on trash referrals!) when your own book of business is full. Having a dedicated referral program set up is about incentivizing people to share your name within their network. 

LOYALTY PROGRAMS

So then what is a loyalty program and how is that different? Unlike referrals, loyalty programs are all about keeping your existing clients happy and encouraging them to stick around. Coffee punch cards are a great example of loyalty programs in practice but they work just as well for service-based businesses (e.g. buy 5 pages of copy and get one free).

Generally speaking, if you’re a retail or product-based business, loyalty programs will be more effective, whereas service-based businesses typically do better with referrals. 

BENEFITS TO LOYALTY AND REFERRAL PROGRAMS

Why should businesses use loyalty and referral programs? In most cases, the positives that come with increasing your work pipeline will outweigh the potential downsides.

When it comes to referral programs, you’re more likely to get continued business sent over from individuals who feel like they’re also benefiting in some way. Even if it has no direct impact on their business whether you win the client or not, everyone loves to be thanked and feel like they’re appreciated. However you choose to show your gratitude, referral programs are a great way to keep building your relationships within your business network. 

Referral programs can also save you a significant amount of time. Reaching out to prospective clients, cold pitching, following up on emails...it all takes a huge chunk out of your day and isn’t earning you any hard cash. Having a steady stream of referrals coming in helps you to land recurring work without you doing the hard graft on the frontend. You also have a higher chance of closing the deal as the prospective client has social proof of your expertise from the referrer. Really, it’s a win-win for everyone.

Continuing to see an increase in your project pipeline is also a major benefit to loyalty programs. When your clients are satisfied, they’re more likely to sign on for additional work (which is also a huge win for your client retention rates). By incentivizing your existing clients to continue working with you, you not only guarantee more income for yourself but you also help to build your contractor-client relationships that could benefit you later down the road.

Loyalty and referral programs don’t have to operate in isolation. In fact, it’s quite likely that loyal customers will be the people who send you some of your best referrals. When it comes down to it, the most important factor to remember is, “What’s going to be the most valuable for my business?”

HOW DO YOU IMPLEMENT A LOYALTY OR REFERRAL PROGRAM?

The first area that you’ll need to nail down is the type of incentives you want to offer. For service-based business, these will typically center around some form of service enhancement or discount. Offering a free consultation call after X number of referrals, a free round of edits for both the referrer and new client, or discounting a service for the referrer at a set percentage for the first month are good starting points. 

These types of incentives also work just as well for loyalty programs. For current clients, rate freezes when you increase your prices are a great way to show your appreciation for their continued business. 

Alternatively, offering a commission for referrals can be a good option. As an added bonus, you can write off your commission fees as a fully deductible business expense come tax time. As with anything financial, speak to your accountant before making any final decisions.

There’s no right or wrong when it comes to who benefits from these programs. In some cases, you might want to provide an incentive to only the person who made the referral, whereas in others you could offer something to both the referrer and the new client.

No matter what incentives you choose to use, the point is to make your customers or business associates feel special and appreciated. 

HOW TO START ROLLING THE PROGRAM OUT 

Just like you would with the launch of a new product or service, getting the message about your new referral or loyalty program out into the wider world is crucial. Start with your network of close business friends and your top tier current clients by sending them a short email to ask directly for a referral. If you’re approached by other freelancers about the services you offer and a potential referral in the pipeline, that’s a great opportunity to let them know about the program incentives.

Remember that you don’t have to offer a referral or loyalty program to everyone. There’s nothing wrong with keeping the details to the closest people in your network if lead quality is an ongoing issue for you. 

You can also change your program at any time, and The Vander Group’s referral system is a prime example of this. Initially, we only offered a cash commission of 10% of the new client’s first month’s invoice to our referrers but when COVID-19 hit, we began to offer a 20% gift card option to a local business of the referrer’s choice. Putting some cash back into local businesses (wherever that might be!) that our network cares about when small businesses were closing left and right has been a big success.

Ultimately, your loyalty or referral program has to work for you and not the beneficiaries. Trial your new plans with a handful of current clients to gauge interest and make the necessary adjustments before you broaden your reach.

Interested in setting up your own referral program but still have a few questions?