Word of mouth is how most small businesses get a good share of their work, but it usually happens by accident. A referral scheme for a small business is simply a way of making it happen on purpose: asking happy customers to recommend you, making it easy for them to do it, and saying thank you properly when they do.
It is not complicated, but there are a few ways to get it wrong, including one that can land you in trouble with consumer law. Here is how to set one up that works.
When a referral scheme is worth doing
Referral schemes amplify what is already there. If customers are happy and the kind of work you do comes up in conversation, a scheme gives them a nudge and a reason. If customers are lukewarm, no reward will fix it; start with the service.
They tend to work well for:
- Businesses where people ask friends for recommendations anyway: trades, cleaners, dog walkers, childminders, tutors, accountants, wedding suppliers.
- Regular services where one customer knows several people with the same need, such as neighbours on a street for window cleaning or gardening.
- Businesses with a decent margin per new customer, so a reward is affordable.
- Business-to-business services, where a satisfied client can introduce a peer.
Choosing a reward
The reward should be worth having, affordable when you pay it for every referral, and simple enough that nobody needs to read the small print. Paying it when the referred job is completed, rather than when someone just gets in touch, protects you from paying for enquiries that go nowhere.
| Reward | Suits | Watch out for |
|---|---|---|
| Discount on the next job or visit | Salons, groomers, garages, regular services | Only works if they will buy again |
| Account credit | Subscriptions, cleaners, B2B services | Needs tracking so credit is applied |
| Gift card or voucher for a local business | Trades with one-off jobs | Keep receipts for your accounts |
| Free add-on or upgrade | Beauty, hospitality, car valeting | Make sure the cost is manageable |
| Double-sided reward (both people get something) | Most consumer businesses | Clear terms on who gets what and when |
| Charity donation | Professional firms, clinics, where cash rewards feel awkward | Say which charity and how much |
| Cash | Trades and B2B introducers | Can feel transactional; check tax treatment with your accountant |
How to ask without it feeling awkward
The best time to ask is when the customer has just told you they are happy: when they thank you at the end of the job, reply to your follow-up message with something positive, or rebook. Keep it light and specific.
Some wording you can adapt:
- In person: “Glad you’re pleased with it. If you know anyone else who needs work doing, I’d really appreciate you passing my number on. If they book, I’ll take something off your next service as a thank you.”
- By message: “Thanks again, Priya. If any friends or neighbours need a groomer, here’s a link you can send them. When they book their first appointment, you’ll both get money off your next visit.”
- For professional services: “We grow mostly through introductions. If you know another business owner who’d benefit from the same help, we’d be glad to have a no-obligation chat with them.”
Partner referrals: other businesses who meet your customers
Some of the best referrals come from other businesses rather than customers. A plumber and an electrician on the same kitchen job, a wedding photographer and a florist, a mortgage broker and an estate agent, a physiotherapist and a personal trainer: each meets customers who need the other.
A partner arrangement can be as simple as agreeing to recommend each other, or as formal as an agreed introduction fee. Whatever you agree, write it down in a short email so both sides know the terms. Only recommend people whose work you would be happy to put your name to, because a bad recommendation costs you trust with your own customer.
Some sectors have rules about referral fees and disclosure, notably regulated financial services, legal services and some health professions. If you are in one of them, check your regulator’s or professional body’s guidance before paying or accepting a fee.
The rules: reviews, promotions and clear terms
This is where schemes go wrong. Never link a referral reward to leaving a review. Under the Digital Markets, Competition and Consumers Act 2024, the unfair commercial practices rules that apply from April 2025 ban fake reviews and cover incentivised reviews that are not properly disclosed. The CMA’s guidance explains what that means for businesses. Google’s own review policies also prohibit offering incentives for reviews, and breaking them can lead to reviews being removed or your profile being restricted.
Keep the two things separate: ask every customer for an honest review in the same way, with nothing offered in return, and run the referral scheme on its own.
If you promote the scheme on your website, social media or printed material, it is a marketing communication and falls under the CAP Code, which the Advertising Standards Authority enforces. In practice that means:
- State the reward, who gets it and when (for example, “once the referred customer’s first job is completed and paid”).
- Include any limits: minimum spend, expiry date, one reward per new customer, and whether it applies to existing customers.
- Do not change the terms after people have acted on them.
- Keep the full terms somewhere easy to find, such as a short page on your website.
Tracking referrals so you can say thank you
A referral scheme falls apart if you forget who referred whom. Tracking can be simple:
- Ask every new customer how they heard about you, and add “recommended by a friend” with a space for the name to your enquiry form.
- Give each referrer a short code or a personal link they can share.
- Keep a list: who referred, who was referred, the date, whether the job went ahead and whether the reward has been given.
- Pay rewards promptly, and tell the referrer when you do. A quick “Thanks to you, the Jacksons have booked in. Your voucher is attached” often produces the next referral.
Making it visible
A scheme nobody knows about does nothing. Mention it on invoices and receipts, in follow-up messages, on a small card left after the job, in your email reminders, and on a simple page on your website that explains how it works. Our clients’ sites can carry a referral page and a “how did you hear about us?” field on the enquiry form, so it is clear which recommendations turn into work. Whoever builds your site, make sure there is somewhere for a referred friend to land that makes it easy to get in touch.