Money Movement

How to Offer Your Customers Referral Discounts

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    • FNBO

      Apr 26 2021

How to Offer Your Customers Referral Discounts

Referral programs work as powerful word-of-mouth marketing tools. Asking your loyal customers to spread the love for your small business in exchange for a discount or reward can make a difference for your bottom line. Consider the fact that customers who are referred to you are four times more likely to buy.

Like any loyalty program, a referral program that incentivizes loyal customers to spread the word must balance discounts and rewards with profit. What can you offer as part of your referral program that will increase business without devaluing your products or hurting your bottom line?

Here are some tips on how to offer a referral reward program to maximize profit and gain new customers.

Determine the value of a new customer.

For any rewards program to be profitable, the discount or incentive you offer must be less than the value of a new customer to your business. For example, pretend you run a $5 off campaign, and earn $1,500 during the promotion. Add up the number of customers who redeemed their $5 off coupon. If only 30 people redeemed their $5 off offer, your cost for the campaign was $150. The ROI is $1,500 divided by 150, multiplied by 100: in this example, that’s an ROI of 1000%. When you factor in that referral customers are 18% more likely to become loyal customers, that return starts to look even better.

The best way to determine the value of a new customer is to use a code to “tag” new customers who come through a referral. This gives you the ability to see their lifetime value, as well as adjust your discounts if you see your program is losing you money.

Find a low-overhead way to keep track of referrals.

Referral programs work best when they don’t cost money to implement. Plastic loyalty cards or punch cards can drain your operating budget. If you’re implementing a referral discount that counts on bringing a certain number of people through the door, you will want to think through a budget-friendly way to keep track of your referrals.

An app like Clover Rewards can give you the ability to tailor your rewards to specific customers, thereby saving in ways that might not have high visibility to other customers. You simply collect your customer’s email address at the end of a purchase and the program will email the referral offer out for you. It’s an efficient process: the customer refers you to friends, and if the friends buy, they all get rewards.

Be creative with your rewards.

Referral rewards don’t need to be solely financial. Be creative about what the perks are for bringing in a friend or family member. Discounts or freebies are nice, but what about something more in-depth? Offer an exclusive experience that resonates with your brand, a service that doesn’t add to your costs…be creative! Non-cash incentives, like a session with an in-house stylist or an invitation to an exclusive event can be more effective. A study by the University of Chicago found that non-cash incentives are 24% more effective at boosting performance than cash incentives.

Reward the new customer—not just the referrer.

If your budget can handle it, expand your referral program to reward not just the initial referrer, but also the referee. When shopping at your store is a win-win for everyone, it makes it easy for customers to share their love for your business.

Monitor what works.

Many business owners feel awkward asking for referrals from their customers. If you’re hesitant to get started, start with a limited time referral offer to judge how the program performs. Use analytics to inspect performance, see who is using it, how, and learn how much your incentives really cost. If the program seems successful, it can always be extended. Broadcasting that this is a limited time offer has the added benefit of boosting activity up front; create a sense of urgency and see how your customers respond.

Ready to get started? Connect with an FNBO Merchants Services Advisor today.


The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.