Referral Programs that Work

Oct. 1, 2014
Breaking down three foolproof referral strategies

Shari Pheasant likens asking for referrals to parenting: “Are you going to bribe your child to clean their room or reward your child for doing it?” she asks. “Am I going to bribe my customers to give me a referral by paying them?”

As Pheasant notes, it’s no secret that referrals are an important source for business. Referral customers tend to come pre-qualified and spend more on their vehicles—but not when the program is predicated on discounting work.

As the co-owner of A Master Mechanic in Reno, Nev., Pheasant implemented a referral program at her shop more than 10 years ago, but quickly found that rewarding a current customer for a referral with discounts wasn’t the way to go.

“People don’t want to feel like you’re paying them for referrals,” she says. “They don’t like to ‘sell’ to their friends and family.”

It’s also not a particularly sound business practice.

“We’re trying to lift the industry to what it deserves to be,” she says. “A majority of shop owners aren’t charging enough for what they do because they don’t know how to add that value.” 

Instead, Pheasant has developed a referral program that packs a punch by involving the community. Pheasant, Warren Moy, owner of Larry’s Volvo in Seattle, and Gary Keyes, owner of E&M Motors in Stuart, Fla., detail three surefire ways to get referrals without resorting to discounts.

As told to Anna Zeck

Warren Moy

Larry’s Volvo

We are a family-oriented shop; we really try to cater to customers with families. We have a lot of moms that come into the shop, and we have balloons, Hot Wheels and books that we give to kids. When we decided we wanted a referral program, we knew that we wanted something that worked with our philosophy and our core values.

What we came up with was a program that, every time a current customer refers a new customer to us, we will donate $25 of the total ticket to the Children’s Hospital here in Seattle. In addition, we will match that $25 donation, so $50 is donated in the customer’s name. For the new customer, they receive $25 off his or her first service. We decided on $25 because it still worked in our budget, but it sounded significant. Matching the donation also shows our commitment and makes it seem more genuine.

When a new customer comes in, we ask them if they were referred, and if so, who referred them. We then send a handwritten thank-you note to the customer who referred them, letting them know that their referral came in and that we have donated money to the Children’s Hospital in their name. 

We promote this in a few different ways: We have a page on our website that explains the program, we have a laminated poster on our front counter, and we try to gently bring it up with customers. We also recognize a “Customer of the Quarter” on our website and our newsletter.

The program works because it’s more than a referral, it’s goodwill. We get roughly five referral customers a month from this program. I write the Children’s Hospital a check every year—usually around $1,200—and we’re written up in their newsletter and website. It lets the customer feel good that they’re donating to the Children’s Hospital. Everybody goes home happy because they did something good. When I was using discounts to reward referrals, the person who referred a customer never brought it up. But when they hear about this, they say, “I can do that.”

Shari Pheasant

A Master Mechanic
Reno, Nev.

I think the main thing to remember about a referral program is to not give away your own products for referrals. We don’t use referrals to give out more of our services. Instead, what we do is partner with businesses or events in our community. 

When a new customer comes in, I will send them a handwritten thank you after the job is complete and enclose either a gift certificate or two tickets to a community event we have decided to support that month. I often send the person who referred that customer a card and gift certificate, as well.

I believe that business success is requiring engagement in your community now. Referral programs that use their community to reward their customers, but also promote their community, is a win-win model. 

At the beginning of the year, I do our marketing plan. I spend 9 percent of our yearly budget on marketing and roughly 1.5 percent of that goes to the referral program. So it’s not expensive. I do, however, take time at that point to look at community events throughout the year and assign a theme to each month for the referral program. For example, we give away tickets to the Reno Aces minor league baseball games, dinners, or events going on in the community. In the Reno area, we are known for events like the Reno Air Races and Hot August Night. We’re promoting for people to be involved in our community. 

There are a lot of neat ways of building your business culture that shows your customer that you care about the community. Take a look around: What are the things your community is dedicated to? It could be kids, sports, certain issues. You’ve got to be creative and get to know your community. People want to go out and do things but they can’t always afford it. We think about it as the ability to give them an opportunity they didn’t otherwise have. By keeping it fresh and changing the offering, it shows that we are involved in the community on a continuous basis. 

We also partner with other small businesses in our community. There are a lot of small businesses just like ours in our community that want to be promoted. It’s what I call beneficial business: You’re doing each other favors by reaching each other’s clientele. For example, we have partnered with a local restaurant for buy-one-get-one-free coupons, but we will also pay for the first meal.

We are consistent but casual about it. We mention it on everything we put out there and we ask if they were referred on our check-in sheet. However, we look at it as relationship building. People want to feel welcome and comfortable, so that it feel likes a choice. Rather than bribing your customer, you’re showing that because they did something nice for you, you want to do something nice for them.

The program has been hugely successful. We religiously track our referrals. On a monthly basis, we get 52-69 new customers and 75 percent of those are referrals.

Gary Keyes

Owner, E&M Motors
Stuart, Fla.

We were looking for a way to get new, first-time customers back for their second and third visits. We figured that if you can get them back for a second visit, you’ve established a relationship and there’s a good chance you can turn them into a loyal customer. 

We have started a gift card program. Through our credit card processing company, we can design and order reloadable gift cards that look like debit cards. We went online and designed our own card that includes our name, logo and shop colors. The cards come with a magnetic strip, and just like they do when you buy a gift card at a store, you swipe the card through your credit card terminal and are able to add any dollar amount you want.

If a customer is referred or is a new customer, a few days after their visit, I mail them a handwritten thank-you card and enclose a gift card with $25 on it for their next purchase. When they come back and use the card, I can continue to reload it for any amount I want. For example, if there is more work that we want them to get done on their car, I’ll reload the card and say, “There are several items that we recommend that you still need. When you’re ready to have those items done, you’ve got a credit on this card.” 

We also use it if I have a customer drop a car off and they have a friend pick them up who has never been here before. I’ll go out and give the friend a gift card for dropping the customer off. That has turned into a number of new clients for us, too.

What I like about this method is that since they keep the card in their wallet, it’s top-of-mind awareness. It’s not something the customer is going to throw away. It’s a good hook to get them accustomed to thinking of us and the credit they have with us when they need something done on their car. It also doesn’t cost you anything until they come back and redeem it. We pay a small fee for reloading the card, but it’s less than a dollar per card. This method is very easy to track, as well. We’ve found we receive roughly 10 new customers a month through this program, and it has also helped us retain existing first-time customers. 

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