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Referral Business: What Small & Local Businesses Need to Know to Get Started

What is Referral Marketing?

Referral marketing is a powerful tool that your local business should be using as part of your overall marketing strategy. How powerful is it, exactly? For starters, new customers are four times more likely to purchase or do business with you if referred by a friend or someone they know.


If you’re a local or small business owner employing plumbers, electricians, or even general contractors, you should be thinking of more ways to drive referral business. Referral business occurs when your existing customers or business partners promote your business’s products or services within their own network. It’s a form of word-of-mouth marketing that attracts new business by leveraging happy customers to attract new prospects. 


In this article, we’ll dive deep into the power of a successful referral and how you can get started on growing your ranks of loyal customers today! 


Consumers trust online reviews as much as personal referrals. Signpost is used by thousands of small service businesses to build a trusted reputation online with reviews. Let us show you how our review software works.

The Power of Referrals

Referrals can do more than just generate buzz for your business. They can impact your bottom line and profits directly. Here are a few powerful stats to show just why your business needs to be building a referral system today:

A referred customer’s lifetime value is 16% higher than regular customers.

Referred customers show stronger signs of loyalty and are more likely to stay with your business (keeping your retention rates high) than non-referred customers. In fact, a study by the Wharton School of Business shows that referred customers provide more value for your business both in the short and long run. In the end, their lifetime value is 16% higher than customers who find your business on their own accord.

92% of customers trust referrals from someone they know.

It’s natural that customers are more likely to trust a referral they hear from a friend than other typical forms of advertising, like billboards or TV ads. With a friend or family member, their judgments and experiences feel more valid; there’s a layer of vetting when someone you trust shares a business with you! 


This is especially true in the home service industry. When prospects search for a business to provide a service in their home, they’re more likely to trust a friend who had a positive experience. Think about it: Would you rather hire the plumber your best friend used and loved or go with the provider from a billboard?

Providing incentives for your customer’s marketing efforts can boost referral success.

Did you know that approximately 50% of your customers are more inclined to provide your business a new referral if there’s a direct incentive involved? Customers know how valuable their word-of-mouth marketing can be, so they want to be rewarded accordingly! Consider offering a discount coupon or free service upgrade in exchange for a referral. Once there’s an incentive, customers will be more likely to pass on the good word! 

81% of customers online are influenced by their friends’ and family’s purchases.

Potential online customers are swayed by the buying decisions of their network. This means that your prospects are looking to their friends’ and family’s social media posts and online review platforms to influence their own purchasing decisions. Can you think of a time a friend or colleague posted a terrible experience with a business and your opinion of that business totally changed? Perhaps you even decided never to patronize this business again. This is how powerful digital word-of-mouth can be.


Still not convinced on the power of referrals? Check out our extensive statistics compilation here!

5 Ways to Generate More Referral Business

Growing your referral business through your existing customers and business partnerships is a great way to boost your acquisition rates and keep your business top-of-mind. Here are five strategies for increasing your number of referrals today! 

1. Create compelling referral programs 

How do you get more referral business? A referral program! 


A referral program can be a great way to reward your most loyal customers and attract new ones. But creating one from scratch isn’t always easy. Essentially, your business has to think of a self-sustaining program that 1) rewards your referring customers, 2) attracts and lands the referred customers, and 3) brings your business the best value. 


Here are some things to keep in mind to build a strong referral program, so all your customers come back for more: 


  • Come up with a strong referral program name

  • Promote attractive sign-up forms on your social media and online review platforms

  • Incentivize through referral rewards like promoter points, service gift cards, and discounts

  • Develop an efficient tracking system

  • Keep referral promoters engaged with exclusive pricing, offers, and incentives

Take a look at this example by Home8alarm.

 2. Engage with online review platforms

If your business has regular customers, ask them to review your business on platforms like Yelp, Google Business, and Facebook. 

Your customers and prospects are already spending time on these platforms. It’s one of the simplest and inexpensive ways to generate digital buzz and referral business. Imagine these platforms as a megaphone your customers use to spread the word about your business to their friends, family, and colleagues.

Source: Yelp

Pro-tip: Don’t focus solely on growing reviews from only your satisfied customers. Your goal should be to solicit reviews from all customers. When someone has a bad experience with your business, you can transform that negative feedback into a positive situation! How? Your business shows that it steps up to keep customers satisfied at all times, and you may even be able to retain a customer who might have otherwise left for good.

3. Launch social media contests

A social media contest is a great way to encourage your customers to participate in something on your business’s behalf. It’s a great way to promote your brand and get the word out there about your services while making your customers a part of the process. A social media contest done right can lead to increased brand awareness, more potential customers, and a bigger audience for you to market your services to. 


One of the best things about contests is that they generate free advertising for your business. They allow you to leverage the audience of other social media users for your own campaign!

Source: Virtual Assistant Team

As a home service business, you can incentivize existing customers to bring in more referrals by adding social sharing as a contest rule. Here are some high-level tips on what a successful social media contest would look like: 

  • Use the right platform: Find out which social media platform your customers are more active on and launch it there. 

  • Incentivize through the right prizes: Depending on your customer base and business type, the incentives/rewards can vary but ensure the prize has enough value to entice customers into participating while not being too expensive for your business to provide.

  • Focus on community engagement: Contests are a great way to build a wealth of customer data and engage directly with interested prospects. Collect customer information and encourage more leads through participation. 

4. Join a local or small business network

Source: Entrepreneurs’ Organization


Networking groups are an invaluable business resource for customer acquisition. Spend some to find out which small business networks in your locality are best suited and aligned to your needs. (For the top networking group for home service businesses, view our guide here!) Joining a small business network allows you to access other professionals in your niche, helping you grow your business referrals and strengthening your overall industry. 

5. Use the ol’ reliable method: Business cards

There’s a reason why people still carry around business cards. While some believe these are old-fashioned or outdated in the digital age, the power of this simple strategy still rings true. At a glance, your customers can see what your business is about and have your contact details handy for when they’re ready to reach out. You can ask your existing customers to distribute these to potential new clients, boosting your referrals. Or, you can ask other business owners in your network to refer you when the timing is right! 

You can easily create attractive business cards today by accessing templates online.

Let’s say, for example, you’re a roofer and network with your region’s real estate agents. A great way to get referral business is to give real estate agents your business cards and ask them to hand them out at opportune times! 

Win More Business with Signpost

It’s no doubt that referral marketing can do wonders for your business if done right. We’re here to help your business get there. Check out our in-depth referral marketing guide for more specific referral marketing strategies and tips you can use. Ready to start generating the buzz your business deserves? Get in touch with us today. We’ll help you spread the good word!


If you need review management software for your business without the headache, Signpost is a cost-effective solution. Start a demo today.

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