Hey everyone š and welcome to issue #5 of The WBB Playbook.
Quick intro for the new folks; Iām James and each week Iām tackling a different topic related to selling and/or marketing craft beer.
This week Iām looking at a topic close to my heart - how to get your customers to do the selling for you š
Before we start, if youāre enjoying the emails, then Iām sure you know someone else who would too. Iād be really grateful if you would forward this on or even better, share by popping your thumb on the button below.
Todayās Playbook is inspired by a simple maxim:
Word of mouth marketing is the best marketing you can receive.
We trust what our friends say, so if they say something is good and worth trying, then weāre more likely to try it.Ā
Simple.
And sure, itās nice when people recommend your product to their friends and colleagues.
But you might not always want to rely on them just doing so, out of the kindness of their heart.
Most of the time, itās better to be proactive and put processes in place to make sure that word of mouth works for you.
Or, to put it another way - how to get your customers to do your selling for you.
Clarification: for the purposes of this post, Iām talking about a referral scheme for your trade customers, although you can apply the same thinking to your consumers too.
A good referral scheme will (i) increase your revenue; (ii) save you money on new customer acquisition and (iii) build love & sales within your existing customer base.
You know who loves referral schemes? This guy āļøāļø
Elon Musk believes that each customer should generate three more.
And he should know, just check out a couple of his most successful schemes...
PayPal
When Paypal was starting out, they gave money away to new and referred users. They would give you $20 for signing up, AND $20 to anyone you referred.
It worked so well they had to reduce the amount of money they gave away.Tesla
Teslaās referral schemes are legendary. One of the most generous saw them giving $1000 to Tesla owners whose referrals resulted in the purchase of a Model S. The friend would also get $1000 with each person being able to earn up to $10,000 in referral bonuses in this way.
But Elon doesnāt just love giving away money.
Customers who brought in 5 referrals got an invite to the Gigafactory grand opening party. 10 referrals earned you the right to purchase a special āfounder seriesā Model X!
These may seem like distant examples but thereās no reason why you canāt and shouldnāt apply the same thinking to your trade customers.
How much should you spend on a referral programme?
Before we jump further into the step by step guide to creating a referral programme, itās important to first understand how much you should be investing to acquire new customers.
To do this, you need to first work out how much a new customer is worth to you per year.Ā
To illustrate the point, a good pub customer might buy an average of 2.5 kegs per week from you (at Ā£80 per keg) which equates to approx Ā£10,500 p.a.Ā
How much should you be willing to pay to secure this customer?
To be honest, this is kind of up to you.
Thereās no hard and fast rule, but 10-15% of a new customerās annual spend in referral bonuses seems reasonable.Ā
Just remember to make sure youāre looking at the lifetime value of that new customer - is that a year, two, maybe three years?Ā
If we go back to our example above, that would mean you should be willing to invest Ā£1.k - Ā£1.5k in referral rewards to whoever brings them to you.
If Ā£1,000 sounds like a lot to secure a new customer, then think about it a different way.Ā
If your margin on kegged beer is 50%, but you spend 10% of new revenue on acquiring them, youāre still hitting a healthy 40% gross margin.
In this scenario, youāre spending Ā£1,040 to generate Ā£4,160 gross profit. Thatās not a bad return on investment.
If your scheme brought in 10 new customers, then you would have Ā£35k worth of incremental gross profit and it would only have cost you Ā£3,500.
On top of that, if that customer stays with you for 2 years, then suddenly your cost of acquisition can be split over 2 years, which means they only really cost you just over Ā£400 to acquire, which feels like something of a bargain.
Whatās more, all that š° you spent on referral bonuses didnāt just disappear into the ether (otherwise known as Google & Facebookās pockets).
It went to one of your existing customers in the form of cash and stock, which in turn has strengthened that relationship and probably lengthened it by a year.Ā
Win š Win š
Ok, so now youāve worked out how much you want to spend, time to put the process in place.
Hereās how:
Make a list of your top customers.
They are the ones most likely to feel comfortable referring you. These are probably anywhere where you have a permanent listing in whatever format.Create the offer.
Keep it simple, keep it easy to understand. Something like this:
āRefer a great trade account to us, and weāll give you 10% of their monthly spend back in discounts & free stock!ā
To illustrate how this would work:
Don at The Dog & Donut refers on his mate Jin at The Crooked Brewer. Jin spends Ā£1k in month 1 with you. Happy days for you. But happy days for Don too as heās now entitled to Ā£100 of rewards the following month, which you provide in the form of free stock and discounts. Whatās more, because Don has a vested interest in Jin spending more with you, he may well go the extra mile to encourage Jin to prioritise & push your brand on the bar.Once Jin finds out how much Don is earning in referral bonuses, he decides he wants a piece of it and so recommends your brand to Carrie at The Wonky Donkey.
And so on, and so forth. You get the drift.
Personally, I think you should allow multiple referrals to mean multiple bonuses but you probably need a couple of rules in place particularly around the minimum term & quantity that a new customer has to order for the referral bonuses to kick in.Add a competitive element to the programme.
A good way to up the ante is to create a really great prize that goes to the trade customer with the most referrals in a given time period.
This could be a brew day with you, at which they make their own beer to sell.
It could be a private party for all of their staff, fully hosted and paid for by you.
It could be their own bespoke glassware that can make them stand out.
Ideally the prize should be something unique, and not cash based. It should also be something that rewards the whole team, not just the owner.
If you fancy going all in on the competition, you could even create a league table and send it out to the accounts that have made referrals so they can see where they need to up their game.
Youād be amazed at how effective the prospect of beating your rivals to the top prize can be as a motivator!Promote the scheme.
Youāve gone to the effort of creating the programme. Make sure you tell people about it.
Include it in your trade mailer. Email your top accounts personally with the details. Talk to them about it face to face or over the phone. Include one pagers with their invoices.
Remember to present it for what it is - a way for them to earn tangible cash rewards.Manage the programme.
There is probably software for managing this but to be honest, you only really need a good old spreadsheet to keep track. Keep on top of whoās referred whom, what the spends are, what the rewards should be and which ones have been claimed.
Thereās definitely a bit of an admin burden here but in the grand scheme Iād say itās worth it. Plus, if your customers are doing your selling then you should be gaining back some time.
And so, thatās a wrap on referrals 101.
Have you successfully used any referral schemes to grow your trade accounts?
Iād love to hear about them - please hit reply and shoot me back an email.
Thanks as always for reading The WBB Playbook. In the spirit of referral, please do share this if you found it useful. And yes, I am working on implementing a referral scheme for this very newsletter so watch this space š
If you have any thoughts or comments about any of the posts, please do hit reply and let me know. Iād love to hear from you.
Oh, and if you can spare 3 seconds, it would be great if you could click one of the 3 feedback options below - it helps me judge whether Iām on the right track content wise.
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