When Your Referral Rewards Program Goes Wrong

The horror stories are enough to scare any small business owner into inactivity. That one business that was doing great with an excess of capital decided to enact a new referral program and the next news you heard was how they overextended their offer and were swept up and down the creek into bankruptcy. It can and does happen. When your referral rewards program goes wrong there can be a few good reasons why.

Reward or Discount Overextension

Several businesses in recent years have suffered due to their mismanagement of referral reward systems such as Groupon. While it may seem easy to blame Groupon or other similar sites for this loss, it really does come down to the bad planning or projections of the business owners or management that can cause these business eating discounts or rewards to turn into a bankruptcy waiting to happen. When creating your reward system, this is actually the most critical element. Balancing reward versus projected profits. Increase inventory and staff to meet the projected needs of the referral system, and executing the plan. If any one part of these three fails, so too does your referral rewards program.

Poor Follow-Through

Just as with any other relationship, communication is key. Without this key, relationships die and fade away. It is much the same with referral partners. Frequent and consistent contact is required to continually develop and deepen the connection between the business owners and managers and the consumers. Ask the referrals what method of contact they prefer and the best time to contact them. Make sure your contact with them doesn't become a harassing burden that comes with lengthy and droning calls, but keep a quick thirty second to one minute script that employees can stick to that simply lets consumers know that you are there for them and ready to assist them anytime. The next time they need products or services that you offer, you will be on their mind. Failure to follow up in any type of referral rewards program is one of the leading causes of program failure.

Lack of Understanding

A lack of understanding on the part of your employees whose goal it is to spread the word about your referral program or on the part of the consumers whom the referral program is being shared with can be the end to your referral rewards program and fast. Make sure guidelines and rules are short and sweet. Once you create the list of program guidelines, have a brain storming session with your team about which elements are critical to cover and which can be left to logic and reason. However, it can be very detrimental to be vague or sketchy when it comes to the reward itself. If you need to trim guidelines, do so from the functional end before trimming the reward option. Most prospective consumers will simply see this as a tricky method to lure them in and escape the obligation of reward, and in most cases, they would be right.

Remember, your referral rewards program is focused on bringing in new consumers and building your business. The moment your referral program seems to be costing you customers, or draining your capital, it may be time to reevaluate your methods and brainstorm some new ones.