The Problems with Referral Programs (and How to Solve Them)

Referral programs are a great way for businesses to grow by getting their happy customers to bring in new ones. It’s like when you tell your friends about a cool new game you found, and then they start playing it too! But that doesn’t mean that they don’t come with problems.

In fact, many businesses find that their referral programs fall short of expectations due to a variety of common issues.

In this blog, we'll explore some of the most prevalent problems with referral programs and offer practical solutions to help you overcome these obstacles.

Common Problems with Referral Programs

1. Lack of Awareness

   One big problem is that customers don’t even know the referral program exists! If businesses don’t talk about it enough, how will anyone know to use it? Many businesses assume that customers will automatically know about the program once it’s launched, but without consistent and clear communication, participation rates can remain low.

   Impact: Low awareness leads to fewer referrals, meaning missed opportunities for growth.

2. It’s Too Complicated

   Some referral programs are too hard to understand. Maybe there are too many steps or confusing rules. A referral program should be easy to understand and even easier to participate in. If it’s not easy, people won’t bother with it.
   
   Impact: If it’s too complicated, people won’t use the program, and fewer new customers will join.
   
   

3.  Inadequate Rewards

   
   Rewards are super important to get referrals. If the prizes aren’t valuable or if you don’t offer any at all, people might not want to take part. Don’t believe us? 74% of people said that they wouldn’t refer without a reward, and 70% said that an uninspiring reward had prevented them from referring to a brand in the past. It’s essential to align your rewards with what your customers actually want.
   
   Impact: Without compelling incentives, customers have little motivation to promote your brand, leading to fewer referrals.
   
   

4. Poor Tracking and Management

   Keeping track of who referred who can be tricky. Without the right tools or systems in place, referrals can easily slip through the cracks, leading to unfulfilled rewards and frustrated customers.
   
   Impact: If referrals aren’t tracked well, people might stop trusting the program and won’t use it anymore.
   
   

5. High Program Costs

   Referral programs can get expensive if businesses aren’t careful. If the rewards cost too much or it takes a lot of time to manage the program, it might not be worth it. This is especially true if the program isn’t generating the expected number of referrals.
   
   Impact: High costs can make the program too expensive, so businesses might stop using it.

Real-Life Examples

Let’s look at two contrasting examples to illustrate these points.

Company 1: A contractor launched a referral program but didn’t get much engagement because they failed to promote it effectively. The program was mentioned briefly during the signup process, but without follow-up emails or reminders, hardly anyone knew it was happening. So, they didn’t get many referrals, leading to a disappointing ROI.

Company 2: A realtor made their referral program easy to use and offered a $250 reward to both the referrer and the new customer. They talked about the program everywhere—on social media, in emails, and in the store. Lots of people joined, and the store got a bunch of new customers.

How to Solve These Problems

1. Talk About Your Program

   Promote your referral program across all marketing channels and talk about it constantly. Don’t rely solely on a single email announcement. Instead, integrate your referral program into your website, social media posts, email signatures, and even physical marketing materials. The more visibility it has, the more likely customers are to participate.
   
   

2. Keep it Simple

   The program should be easy to understand and use. A simple process with clear steps will make more people want to join. Consider using simple referral links or codes that customers can easily share with their network. Then, keep the forms with the must need information - like a name, phone and email. You can get the rest of the information later.
   
   

3. Offer Appealing Incentives

   Choose rewards that people actually want. If you’re not sure what to offer, ask your customers. Cash rewards are a safe and appealing choice, so customers can spend their rewards how they want. 
   
   

4. Improve Tracking and Management

   Businesses should use tools that help them keep track of who referred who so everyone gets their rewards on time. Timely rewards help maintain customer trust and satisfaction.
   
   

5. Keep Costs in Check

   Set a budget and stick to it. It’s important to make sure the program isn’t too expensive to run. Businesses should plan their budget carefully and find ways to save money without cutting down on the fun. One tip is to look at how much other marketing channels cost to get a lead and use that as a benchmark for your referral reward amount,

Referral programs can be an incredibly effective marketing tool, but only if they’re managed properly. When customers are happy, they’re more likely to bring in new customers, and everyone wins!

How Locorum Helps

Locorum solves these common problems by making referral programs easy, effective, and affordable. With Locorum, businesses can quickly set up a simple program, promote it across multiple channels, offer exciting rewards and track referrals with ease — all while keeping costs down. This way, businesses can focus on growing through word-of-mouth without the headaches of complicated or costly programs.

Is your referral program delivering the results you want? Take a closer look at your strategy to see where you can implement some of the solutions we’ve discussed. A few small changes could make a big difference in the success of your program.

Get started with Locorum’s free trial.