Why You Should Use a Referral System

Recently I joined a gym, not normally my kind of things, but I did and currently I am enjoying it quite a lot. After joining this gym a lot of my friends and people I know joined. This got me thinking that a referral system could have come in quite handy, for me, as I would have earned some money from getting more people to join. As well as this it would encourage more people to get their friends to go to the gym, as they have the opportunity to get a cheaper gym membership. And of course, more customers equates to more revenue.

What is a Referral System?

A referral system (otherwise known as an affiliate system) is normally used online. It’s a way to try and encourage you to help a company get more customers, so they therefore make more money. They are normally used online because they are so much easier to manage, with automated payment options and systems to work it all out. What happens is that when you sign up, you get given a referral (affiliate) code/number, which you then give to your friends and family and when they sign up, buy the product or use the service, you get credited some money from that sale.

Why Use a Referral System?

There are disadvantages to a referral system, of course, but in my opinion the advantages strongly outweigh these problems. The following list is the advantages I have come up with. If you have any more, please leave them in the comments section.

• An extra incentive for people to use your services/buy your products
• Free promotion, as people will tell their friends and family
• Sell more for less. You have to do less work to get more customers
• Easy to manage. If you have a system thought out, it is very easy to manage.

The top three are all quite similar, it gives people an extra reason to buy your product or service, because they know they can get some money back from it and maybe make some money off it. As well as this, if they are making money off it, so will you because a referral system only has to give a small percentage of each sale to the referrer, so you can guarantee you are still making a decent profit margin from each sale.

Why Not To Use a Referral System?

This is the section I knew I would struggle to write. Why wouldn’t you use one? The obvious points are that it costs money to set up and also it will take time to implement. As well as this it will mean that you make less profit from each sale as you usually would. However, by getting the right amount of new customers from the system, you can easily make back this money and get more.

In my opinion these disadvantages are very small and if you do have some spare time and money, I think a referral system is an important area which you could look into and put into your business. Even if most of your customers don’t use it, every one or two customers who come through from a referrer will help boost sales.

Can This System Be Used in Any Business?

No. That’s the straight answer. Businesses who sell their products in supermarkets, for example, can’t use a system like this because it can never be managed. The only way you can really use a system like this is if you run a membership business, like a gym, or an online business where sales are monitored through hyperlinks and cookies.

All I can finish off with is that if you are in the right type of market, not only will a referral system hopefully get you more customers; it will also give you a USP. People are much more likely to buy an identical product/ use an identical service if they know that they have a chance of making that money back.

If you would like to mention anything else about referral systems, please use the comments section below. I would love to here your opinions on the subject.

Image: Women on Exercise Ball by adriarichards