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The #1 Trick to Double Your Revenue With Zero Ad Spend — Harnessing Referral Growth Like a Pro
October 2024
My very first full-time business was as the owner of two hot dog 🌭 stands that were located in front of Lowe’s Home Improvement stores in the East Bay Area and Sacramento Valley. I opened the first location in 2001 and the second location in January of 2002. Combined, we had revenue of $500,000 per year. When adjusted for inflation, that is $890,000 in today’s dollars. 💰 For many, that may sound like an amazing business 💥 . While it was a good business, I hated the fact that at the start of each month, I was not guaranteed any new customers. Every month I would hope and pray 🙏 that I’d have enough business to pay all my expenses. During some of the slow months, I didn’t have enough revenue coming in to pay all the bills. I quickly sold that business and started a company that had recurring revenue.
Income uncertainty or unpredictable revenue create tension and stress 😟 for you, your family, and for the business. For me, income uncertainty is the stuff nightmares are made of. When I’m evaluating business opportunities, my preference is to invest in companies that have recurring revenue 🔄 , but that doesn’t mean you can’t have income certainty if you don’t have recurring revenue. If you incorporate the right systems, processes, and out-of-the-box thinking 💡 in your business, you can create income certainty even if the business model norm for your industry doesn’t traditionally have
recurring revenue. Let me explain. 🤔
Dan Kennedy, with whom I coauthored the “No B.S. Guide to Maximum Referrals & Customer Retention,” taught me that most businesses make a sale to get a customer, but the smart business gets a customer to make a sale. You can create a referral flywheel where each time you get a new customer, they refer another new customer to your business 👥 . Over time, this has a compounding effect 📈 . A referred customer is more likely to also refer another new customer; as you continue to grow your business, the flywheel starts turning faster and faster. Once your number of referred customers overtakes the number of new customers you get from other media sources, you’ll see your CAC (customer acquisition cost) start to drop ⬇️ . The flywheel approach to referral marketing works for businesses that don’t have recurring revenue models and works even better if your business does have recurring revenue models because you get a greater compounding effect on revenue 💵 .
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Before I jump into the mechanics of building your own referral marketing flywheel, let’s look at the psychology 🧠 behind why investing in this marketing strategy is so important to long-term success and profits. The why all comes down to the numbers 📊 . Eighty-eight percent of people trust recommendations from friends and family more than any other type of advertising. The other 12% of people clearly don’t have good friends 👎 and hate their family. The transfer of trust from a friend or a family member to you increases the lead conversion rate by 30%. To put that another way, if you get 100 leads per month via other marketing channels and close 35% of those leads, you’ll have 35 new customers that month. If you got 100 leads that came in as referrals, you’d close 46 new customers that month. Over a 12-month period, the leads that come from referrals would generate an additional 132 new customers when compared to the leads generated via other traffic sources 🚀 . In addition to the extra 132 new customers, referred customers also spend over 200% more 💰 when compared to those acquired via other traffic sources. If we continue with our scenario, if you had a referral marketing campaign that generated 100 new leads per month, you’d have a 46% close rate, but those new customers would also spend double the amount of money. Isn’t that effectively the same amount of revenue as if you had generated 92 new customers from other traffic sources?
Building and Implementing Your Referral Program: Best Practices for Small Businesses In this article, I want to give you a starting point for building your referral program. This isn’t a stopping point 🚦 but a starting point. Use this information to create the foundation for your program and innovate from here. Basic Referral Program 🎁 How It Works: A referrer earns a reward after the person they refer makes a purchase. Often, both the referrer and the new customer receive incentives, which can vary. 🎉 1 Example: Give both the referrer and the referred customer a $50 credit toward their next purchase. Best Use Case: Ideal for businesses starting their first referral program or those seeking a simple and easy-to-track system. Why It Works: Reciprocity motivates participation, especially when both parties benefit. 🤝 It’s also straightforward, encouraging customers to refer to others without complex rules. Tiered Referral Program How It Works: Rewards grow as customers refer more people. Each tier provides greater incentives to encourage repeat referrals. 2
If you incorporate the right systems, processes, and out-of-the-box thinking 💡 in your business, you can create income certainty even if the business model norm for your industry doesn’t traditionally have recurring revenue.
This is why having a referral marketing system can have a massive impact on your business and profits. 🌟 In the rest of the newsletter, I’ll share what’s working on creating your referral marketing system. Next month, I’ll go over what’s working to market and promote your referral program. 🗓️
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Example: After five referrals, a customer receives $50; on the second referral, they receive $100, 💰 etc. Additional referrals provide larger incentives or a grand prize to motivate your customers to send as many referrals as possible. Best Use Case: Suitable for businesses aiming to build long-term customer engagement and maximize word-of-mouth over time. 🕒 Why It Works: The sense of progression motivates customers to stay engaged and actively participate in the program for bigger rewards. 🏆
Best Use Case: This structure works well for high-ticket 🏷 B2B businesses or services with long sales cycles, encouraging customers to stay involved throughout multiple steps. Why It Works: A multi-step structure nurtures referrals through the entire funnel 🔄 , improving conversion rates while keeping the referrer engaged.
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Gamified Referral Program How It Works: Adds elements of competition or fun 🎮 to encourage
engagement. Limited-time campaigns, leaderboards, or prize pools create excitement and drive referrals. Example: Offer a special reward to the customer who makes the most referrals within a specific month 📅 or run seasonal referral competitions. Best Use Case: Perfect for businesses with an active and engaged customer base 🗣 that enjoys friendly competition and interactive campaigns.
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Multi-Step Referral Program How It Works: Referrers earn rewards at different milestones 📍 within the sales
funnel. For example, one reward might be given when a referral books a demo and another when they make a purchase 🛒 . Example: Reward $50 when the referral schedules a consultation, and an additional $150 when the purchase is complete.
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HAVE A LAUGH
Why It Works: Gamification boosts engagement by making the referral process fun and memorable. Customers are more likely to participate if they can compete for exclusive rewards and recognition 🏅 . Combining Multiple Program Types for a Unique Approach How It Works: A hybrid approach combines elements from different models 🤹 . For instance, you could implement a multi-step referral system within a gamified campaign to maintain engagement throughout the customer’s journey. Example: Create a leaderboard 🏆 that tracks referral milestones (like booking a demo or completing a purchase), with higher value prizes awarded for completing more steps. Best Use Case: Works well for businesses aiming for high engagement 🔥 and greater flexibility in their referral programs. Why It Works: Combining multiple models provides both structure and excitement 🎊 , allowing businesses to engage customers in various ways and drive consistent growth. Two things to keep in mind 🧠 when choosing the best option for your business: Don’t be cheap with what you give for the referral. As we discussed in the opening article, the value of each referral is as much as double 💰 the value of a new customer you’d get from other marketing channels. In addition, you don’t have anywhere near the same marketing costs to acquire a referred customer as you do a new customer from other marketing channels. When choosing the reward, many companies opt for free products or services. While this can work, typically tangible items like trips ✈ , purses, or the latest tech toy 📱 work very well. Once you decided on the right referral marketing strategy for your business, we now need to market your program. Keep an eye out for next month’s newsletter 🗞 where I will cover what’s working to promote your referral program, plus some other tips and tricks to help you maximize your referrals 🎯 . 5
–Shaun
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