Referral marketing is an idea that is hardly new and has the potential for a low-cost / high-impact, yet somehow seems to be pushed to the back-burner by many small businesses.

The idea of referral marketing is simple. To help reach new customers, a business develops a referral program that offers some type of reward or cross-promotion.

A three-year study conducted in a large German bank found that referral programs increased loyalty and overall customer value. In fact, the bank saw a return of roughly 60 per cent on its €25 referral reward.

This seven-step approach will help you get started with referral marketing.

1. Identify your referral channels. This will help you identify where you need to build relationships and which organizations can best help you build rapport.
2. Crowdsource local opportunities. The idea of crowdsourcing has been popularized by the web, yet local businesses have done similar things long before the web emerged. Your referral program could be as simple as adding flyers from a complementary business and having them do the same for your company. Another thing that can work well, if you have a retail space, is to create opportunities for others in the community to showcase their products and services.
3. Look for complimentary opportunities. Do you run a retail store or offer a service that is complementary to others who reach your target market? In addition to direct opportunities, look sideways for less obvious companies that also reach your target customers.
4. Be alert to conflicting priorities. Before you reveal your ideas and strategy, do some probing to make sure the person you are talking to isn't already strongly aligned with one of your key competitors. The last thing you want to do is to reveal your strategy and tactics to your competitor.
5. Offer appropriate rewards. The simplest option is a simple payment. For example, a local math tutor offers a small payment for every time one of his clients refer him to another student. He's a great tutor, so it's easy for clients to feel comfortable providing referrals, with the payment being a small but nice bonus. Others will take the approach of doing a cross-promotion as an exchange, which can also work well when there is a share customer base.
6. Listen first. One of my greatest frustrations, especially when dealing with newer business owners, is that they sometimes talk at you, without making any effort to listen. These owners put their own needs first, are too pushy and then instead of cultivating an opportunity, they end up creating a wall between themselves and the people they could be working with.
7. Make it fun. Word of mouth cross-promotion is referral marketing at its most basic. You can expand from there and look for innovative, fun ways to collaboratively reach your target market. Incentives work well and when you sponsor or gift something that is part of a larger project where you can connect through shared values, that is even better.

As with anything, when trying something new like a referral program, it is important to build a measurement process into your program, so that you can evaluate and adjust your efforts. This can be as simple as asking new customers how they heard about you, or can be more complex and use things like tracking codes and online analytics.