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CPR Level Up: Referral Programs Pros and Cons

Updated: Dec 4, 2023

In about six weeks, the proverbial clock strikes midnight, and just like clockwork, you are in the business 2024 calendar. OK, so what is the plan? If you have been astute about Leveling Up your business, you would have reviewed most of the postings for this series and commenced thinking strategy for 2024 with your business plan serving as a roadmap.

As we continue CPR's Level UP series, we know that all businesses welcome referrals regardless of stage. Today's post, CPR, explores Referral Programs and the pros and cons of the program. A referral program is a strategy that encourages customers or employees to recommend a product, service, or company to others. The benefits of implementing a Referral program may include the following:

  • Increased sales, revenue, and customer retention, as people trust the recommendations from their friends and are more likely to stay loyal.

  • Access to better and more valuable customers, as word-of-mouth influences every step of the consumer's journey and expands the customer base.

  • Improved reputation and user-generated content, as referrals create positive buzz and feedback for the brand.

  • Cost-effectiveness and higher hiring frequency, as referrals reduce the need for expensive advertising or recruitment campaigns.

Much like every business strategy, there are pros and cons; today, we will explore a few of the upsides and the downsides of a Referral Marketing program.

Pros 1. Customers Become Salespeople Your happy customer is one of your biggest supporters. They will endorse your product or service without resistance. Typically, they want to share the experience with others and thus will endorse it to family, friends, and business associates. Transforming happy customers into an army of (essentially) unpaid salespeople is a no-brainer. 2. Unique, Qualified New Leads Not everyone will see your ad or notice your social media post. But even if they don’t, your current customers have a network of people who pay attention to them. That means when they refer one of their people to you, you have a new lead that is far more likely to be interested in what you sell because their friend, your customer, has already vetted them for you. 3. Loyalty Your customers will become even more loyal if you reward them for that loyalty, and the customers that you earn from the referral program will likely be equally loyal because the way they entered into your orbit comes from the word of someone they trust. 4. Increased Sales As Tesla and many others can attest, referral programs are money-makers. 5. Cachet Referral programs have a specific prestige factor. If your customers love you so much that they are willing to recommend your business to their tribe, that is not nothing. Cons 1. Margins Some businesses, restaurants, for example, operate on very tight margins. As such, there is little wiggle room to add discounts for referrers, especially if they become serial referrers. 2. Overhead Of course, there will be costs associated with your new marketing program. Not only will there be the administration and operation of the referral program itself, but if it works like we want it to, there will be added overhead costs needed to manage increased sales. 3. Interest Referral programs only work if customers like your business, product, or service enough to recommend it to others. If your business, for whatever reason, does not command that kind of loyalty, a referral program would likely be a waste of time, money, and effort. If you have not implemented a Referral program, please do so because people instinctively trust recommendations from someone; they know more than mass advertising messages. A customer referral is much more effective than any general campaign. For 2024, CPR endorses implementing a Referral program if you have not already done so. Stay tuned for additional strategies for 2024.

Warm Regards,


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