BUSINESS INSIGHTS

How I Did It: Built a Successful Customer Referral Program

3:00 Minute Read

by Arash Fayz, co-founder and executive director, LA Tutors 123, Beverly Hills, California

Arash Fayz, co-founder and executive director of LA Tutors 123

We started our test preparation and tutoring company more than a decade ago to provide teens with the academic help they needed. We were founded in the Los Angeles area, but today we also have tutors and offices in New York City and San Francisco, and provide online tutoring to people in about 10 foreign countries. We will work with anyone from first graders to older adults.

“Word of mouth” marketing has always been crucial to our success, and even in the beginning, about one-third of our business came from referrals—without us asking for them. After all, families looking for tutors usually turn to their friends, neighbors, co-workers or relatives for recommendations. But about five years ago, we decided to become more proactive and strategic by creating a customer referral program.

Motivating factors

Not many other tutoring companies we know of have a referral program, but it seemed like a smart move. It’s much easier (and less expensive) to bring on a customer who has been referred by someone they trust than someone who, say, stumbles upon our website on a Google search. And while most of our customers would gladly refer their friends or family to us, they may not be actively thinking about it. By creating a referral program, we’re reminding them that we love getting referrals while showing how much we appreciate them.

So, we started giving every current customer who refers a new customer one free hour of tutoring—which has a $100 to $225 value, depending on the type of tutoring they receive. We also added a unique twist: We also give the referred customer a free hour. The idea is that we wanted to give those newly referred customers special treatment and thank them for trusting us with their business.

Around the same time, we also started a customer referral program for schools—which are a big part of our customer base. Every time a school refers a student to us, we give back 10% of that student’s spending to the school as a credit that they can put toward providing free tutoring to their students.

Showing appreciation

The referral program has helped us increase referrals by about 15%, and today about 50% of our revenue comes from referred customers. We don’t put a cap on referral incentives, so some of our customers have referred more than 10 people and racked up more than $2,000 worth of free tutoring.

Beyond just giving them the tutoring credit, we also send them a nice email thanking them for the referral. Many customers seem to appreciate that small gesture just as much as they do the free hour.

Today about 50% of our revenue comes from referred customers.

We keep track of our customer referral credits using two customer relationship management (CRM) platforms—one we built internally to keep track of tutoring needs and credit the free hour, as well as Salesforce (which gives us a more holistic look at the customer relationship). We can easily go into Salesforce and see how many referrals a particular customer has made, which helps show us the long-term value of that relationship.

Lasting impact

While many of our customers would refer other people to our business regardless of whether we incentivized them to do so, it’s incredibly important for us to show them appreciation for doing so.

With so many tutoring companies out there, it’s important to make a strong, lasting impression on our customers, even after they no longer need our services. Our customer referral program has become a key way to do that.