Referral marketing is a seriously underutilized method of driving traffic and revenue by small businesses, most likely because of their limited time, budgets, and tech resources. But referral marketing doesn’t have to be costly or complicated – it just needs to be well-planned, purposeful, and targeted at your ideal customer.

A well-conceived referral program can boost the effectiveness of your marketing programs. When people tell friends and business associates about your products or service, your business can reap numerous benefits. Here are some of the best reasons why you must have a referral marketing strategy in place.

To increase your sales

The simplest and cheapest strategy is to simply ask your customers for referrals post-sale. When asked, your customers could send you the contact details of people they know who may need your service.

Referral marketing should be implemented in your sales process and should not be a once-off marketing campaign. Make sure that all new customers are asked for referrals. The idea is for you to automate as much as possible to keep on having a flow of fresh new leads.

To attract new, high-value customers

Clearly most small businesses, or any other business these days, do not have the luxury of embarking on a marketing strategy that follows traditional conversion cycles. The suggestion is to employ a simpler, and ironically more effective, marketing strategy based on referrals. This will entail sourcing, organising, and contacting a business’ customer list of clients who have used the product or service before. This is not about asking your friends, “Do you know anyone who you can refer me to?” This is a sophisticated plan to create reciprocal interest in making referrals. By pursuing referrals in an organized and structured way businesses can turn their existing networks into active referral networks.

To build positive brand awareness and strong “brand advocates”

A referral marketing program is a strategy in which a business mobilizes its current customer base to increase exposure and bring in new business by offering incentives for referring friends. A customer is asked to tell their network about the company, and in exchange the company offers a reward for each referred friend who takes whatever the desired action might be – a signup, a request for more information, or a purchase

To promote ongoing dialogue with your best customers

By regularly connecting with your customers and asking for referrals, people are more likely to think of you next time they hear of someone needing what you sell. You could send birthday cards, but you could also send cards for Christmas, Halloween, and other occasions. People love the fact that he remembered their birthday, and he gets a constant flow of fresh referrals each month!

To create a channel for testing and launching new products or services.

You can also subliminally “convince” people to try out your products and services. Make sure that the experience is so impressive, that they have no choice but to purchase again (to relive the positive customer experience) – or better – refer your product and service to their other contacts.

If you have new products you wish to test, you can also use your brand advocates to help you develop the best possible products. And then again – wow them with your excellence, that they can’t help but ask for more… and eventually tell their friends about it.