Word-of-mouth is a key factor when it comes to growing a business. In fact, referrals and recommendations make up 65 percent of new opportunities — a percentage no business can afford to ignore.

If you’re a small business leader, it’s a best practice to ensure client referrals are an integral part of your marketing and sales strategy. With a strong incentive program in place, your business will be able to generate more leads and increase customer loyalty in one fell swoop.

Before discussing how to put an effective referral strategy in place, however, it’s important to understand why customers find referrals so compelling and why some companies’ referral programs fail to get off the ground.

Why Referral Programs Work

In the quest to grow and scale, it can be easy to forget that there are actual people behind sales numbers. When that happens, the focus moves away from bolstering customer relationships and toward boosting those numbers in any way possible. While this might spike numbers for a little while, it will ultimately harm growth in the long term.

A strategy that centers around referrals can help businesses avoid this pitfall. It focuses on the people behind the numbers and makes it clear to clients that you believe you deserve their business.

A word-of-mouth approach can lead to higher conversion rates than other marketing strategies, especially for younger generations. According to McKinsey, 63 percent of Gen Zers trust recommendations from friends more than any other source. Because the internet has made it easier than ever for people to provide such recommendations, the value of referrals is only trending upwards.

So, if recommendations are so powerful, why do some referral programs fail to generate growth?

Why Some Referral Programs Fail

More often than not, a company’s referral strategy fails because it commits the cardinal sin of marketing: Failing to consider what the customer wants.

If your incentives aren’t something your customers are interested in, your referral program will never get off the ground. In order to create a successful referral strategy, you must first understand what your customers care about and what they want from you. This is the foundation upon which you can build a truly reliable program for growth.

Once you have that solid foundation, you can move on to the next steps in creating a referral program that will speak to your customers and help drive growth for your business.

4 Tips to Get the Most Out of Your Referral Program

Here are four insights to help maximize the effectiveness of your referral program:

1. Create a robust incentive program.

While some customers might be happy to recommend you without expecting anything in return, you need to make your program transactional to develop a consistent stream of referrals.

Create an incentive program based around data on what your clients want. Make sure that it ties in with what you do best. Because this can vary significantly between industries and target demographics, it’s crucial to conduct your due diligence before rolling out a program. If you can demonstrate to customers how referrals benefit them, you’ll have a much better shot at success.

2. Encourage customer loyalty.

The longer people have been customers, the more likely they are to refer you to their families, friends, and colleagues. Likewise, when you create a customer loyalty program, you build up a base of brand evangelists you can rely on.

Offer incentives such as discounts or exclusive offerings for loyal customers. This encourages more people to stay with your company and increases their likelihood of telling others about these benefits. You can even tie your referral strategy into this loyalty program by offering long-term customers bigger incentives for bringing in new customers.

3. Work on your timing.

Believe it or not, the time and place you choose to ask a customer for a referral can make the difference between a yes and a no. Make sure the person you’re approaching is currently happy with your service. Remember: A long-time customer isn’t necessarily a satisfied customer.

Consider asking for referrals during regular check-ins or carving time out for reps to make referral-centric calls. This way, you can gauge the satisfaction of each person before you ask for a recommendation. Don’t send out referral requests to new customers. They are unlikely to recommend your product, and your request may leave them with a bad impression — something that can be extremely damaging when your relationship is new.

4. Take advantage of social media.

While social media is an excellent way for customers to get their recommendations out to large audiences, its usefulness goes beyond its ability to scale.

For one, social media can be extremely helpful in qualifying the leads that customers bring you. If you’re a B2B organization, for example, you can visit company pages on Facebook and LinkedIn and even look up information about the specific members of an organization that you’ll be dealing with. This research will help you separate real leads from red herrings and provide information that can help you figure out precisely what potential new customers want.

Social media also provides another avenue to reach customers and ask for referrals. Rather than targeting a specific customer, you can have your marketing team post messages that inform everyone of your incentives for referrals. This will help you push your request out to a broad audience of people who can then choose whether they want to participate. It’s a low-risk approach that can yield high rewards.

A successful referrals program is essential to healthy growth. This is especially true for small businesses working with limited time and budgets. By making the effort to set up a program that benefits both you and your customers, you can set your business up for long-term success and create a base of satisfied customers who will be with you for the long haul.

Contributed to EO by Eric Watkins, the president at Abstrakt Marketing Group, a business growth company that provides lead generation solutions.

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