Top 5 Must-Dos for a Successful Referral Program

” Research on referral program success rates shows that broad promotion of a company’s referral program is a significant step in getting customers to refer multiple times. “

Organizations looking to develop a referral program have a lot to consider. Everything from finding the appropriate technology to determining the best date for launch to figuring out their reward structure, it all takes deliberate thought to make sure the right decisions are made. Of all the moving parts to consider, following these top five must-dos will ensure your program is a success:

1)  Devote the time, money and resources needed to set the program up right the first time

Companies often think launching their referral programs as pilot studies and then growing them into more robust programs later is the way to go. Typically this is because they either don’t have the IT resources available to create important integrations, or they don’t have complete buy-in from corporate. This is a mistake because referral programs need to be designed and implemented from the get-go to be full-fledged functional and efficient tools for the audiences they serve. Approaching a referral program with “one toe in the water” will net potentially inconclusive and often mediocre results. If the referral program is going to be an integral part of the enterprise, then find a way to incorporate all the parts of the enterprise necessary to ensure program adoption and success right from the start.

2) Understand IN PRACTICE how leads are currently making it into the sales funnel

When a potential customer came in with an existing referral program that needed improving, their executives explained how the sales process worked: sales reps were currently using a home-grown referral database to enter leads and then managing those leads using their CRM. 

The home-grown referral database was unsophisticated and the data proved hard to track referral marketing success. They needed a more streamlined approach whereby the sales reps could simply enter leads into the referral program and have them sync to the CRM, updating automatically as the sale progressed. It turned out, reps had never utilized the home-grown referral database at all; instead, they were entering the leads directly into the CRM.

After developing a new process to “streamline” things, they had inadvertently introduced a whole new step in the sales process. This is not an uncommon discovery for companies when they start to dig into the details of how their sales processes work.

Before considering a referral program, companies need to truly understand how their sales team interacts with the tools they are provided when it comes to current customers and potential leads. There are ways to successfully integrate referral programs into CRM systems that can streamline the work being done and increase ROI without introducing a change in the organizational culture or sales process.

3) Make the call-to-action for customers crystal clear

Drop-offs in referral program participation often occur in two spots: the registration point for customers and the call-to-action point for leads. This happens because customers may be drawn to what the referral program is offering, but if the message is vague or cumbersome at the point of decision to join, they are less likely to complete their registration. Similarly, leads may click through the emails or social posts from their friends, but if they can’t tell what they get for providing their personal information, the drop-off rate will increase.

A company with a successful referral program used the following headline in their recruitment emails to customers: “Get a $20 card and 1000 reward points when you get your friends to buy our product.” In the body of the email, there were three steps to achieving the reward. 

The message is simple: 1) Tell your customers what you want them to do. 2) Tell them how to do it. 3) Tell them what they will get for doing it.

4) Promote the referral program everywhere customers go and promote it constantly

Research about referral program success rates shows a broad promotion of a company’s referral program is a significant step in getting customers to refer multiple times. On average, twenty percent of customers will register for the referral program, then a significant proportion of those who register for the program will only make one successful referral during the lifetime of the program. Customers who have a positive experience with the referral program are twice as likely to successfully refer again, and one-fifth of any company’s customers who register for their referral program will refer successfully multiple times. 

One of the key values reoccurring referral customers bring to a company’s sales process is their knowledge of others who are in the market for a particular product. However, timing is critical. If a current customer gets a referral program invitation email from a company but has no referral in mind, the email will be ignored. However, weeks later, the same customer may identify a referral and will need to be able to easily find a link to the company’s referral program, preferably on the website or through the online account pages.

The average number of days between successful referrals for customers who refer more than once is sixty-three. Companies must advertise their referral program everywhere their customers go and promote it constantly through as many channels as possible in order to gain results. Without frequent and continued promotion, referral program success is left completely to chance.

5) Follow FTC compliance and IRS tax laws

Companies with referral programs need to be aware of the various laws and regulations around solicitations (CAN SPAM), promotions, and rewarding. There are two regulatory considerations companies need to keep in mind:

First, the Federal Trade Commission recently passed a law under its 16 CFR Part 255, “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”  The regulation states if a person makes a post on any social network (such as Facebook, Twitter, Instagram, Pinterest, or LinkedIn) and stands to gain a profit from the endorsement or testimonial, he or she must at a minimum include a statement such as, “This is a paid endorsement,” or “#paidad.” Your referral program Terms and Conditions should include this language so you can be certain your program is compliant with the most current statutes and you are protected against legal action.

Second, depending on the amount of the referral reward and the rigor it takes to achieve it, companies need to consider how much money any one customer could potentially earn in a calendar year.  The reason for this is simply the IRS. If a customer receives over $599.00 per year in rewards, to be compliant with US tax laws the company who paid those rewards must collect a W-9 from that person and submit a 1099 to the IRS on the customer’s behalf.  There are referral program vendors that will track 1099 information and disseminate the paperwork as needed to be certain you stay compliant with US tax laws. Be sure to ask if these are features of their platform when talking with a potential referral program vendor.