Word of mouth works when your product is the same every time, easy to describe in a sentence and easy to order for whoever hears about it. You can push it along with a referral programme, but only if you cost it: the reward comes out of contribution, and the referred customer has to earn you more than they cost. Like any way of finding customers, it needs measuring. If you never ask how a customer found you, you cannot tell whether word of mouth is working.
Why people recommend food
People recommend things that make them look good. Bringing a jar to a dinner that everyone asks about. Being the friend who knows where to get the good sourdough. For that, three things need to be true:
- The product is reliable. If it is great one week and flat the next, nobody risks their name on it.
- It is easy to describe. "The jam from the stall by the bakery, the one with the whole strawberries." If your customer cannot say it in one line, they will not say it.
- The other person can buy it. If the friend hears the recommendation and cannot work out how to order, it goes nowhere.
The first depends on your kitchen. The other two you can work on today.
Make it easy for people to recommend you
- Your contact on the label. A jar travels to homes you have never been to. If it carries your website, Instagram handle or order number, whoever tastes it knows where to go.
- A message ready to forward. One image with your products, prices and how to order. Your customer can pass it on in a second.
- A size made for gifting. A mini jar or a box of two is easy to bring to a dinner. It is a sample someone else pays for.
- Something worth photographing. If the product looks good in a photo, customers post it without being asked.
The guide on selling through WhatsApp and Instagram goes further into handling the orders that come in that way.
Referral programmes: how to cost them
A referral programme gives something to the referrer, the new customer, or both, once the new customer buys. It has one big advantage: you only pay when it works. If nobody uses the code, it costs nothing.
To see whether it pays:
- Work out the contribution per order of the product, after variable costs.
- Add up what the reward costs. A discount costs you price; a free product costs you its variable cost if you have spare capacity.
- Compare that cost with what the new customer earns you on the first order and on later ones.
If the reward is bigger than the first order's contribution, the programme only works if the new customer comes back. That is where keeping customers coming back comes in.
Worked example: jars of jam
You sell 340 g jars of jam for $8.00. Variable cost: $3.20 for fruit, sugar, the jar, the lid, the label and waste. Contribution: 8.00 − 3.20 = $4.80 a jar.
The programme: the referred friend gets $2.00 off their first jar. The referrer gets a free mini jar with their next order, which costs you $1.40 in variable cost.
Cost per referred customer: 2.00 + 1.40 = $3.40.
The new customer's first order: 4.80 − 2.00 − 1.40 = $1.40. Even if they never come back, you do not lose money.
If they buy one jar a month for six months:
- First month: $1.40
- Five more months: 5 × 4.80 = $24.00
- Total: 1.40 + 24.00 = $25.40
Compared with tastings at a farmers market: you hand out 40 tasting spoons at $0.25 each, $10.00 in all, and four people become customers. Cost per customer: 10.00 ÷ 4 = $2.50, paid whether or not they ever buy a second jar. The referral costs $3.40, but only when someone actually buys.
Neither is better by default. Tastings reach people who know nobody who buys from you. Referrals reach people who resemble your existing customers. What matters is measuring both and seeing which brings customers who come back.
Ask where every customer came from
On the first order, ask "how did you hear about us?" and note it next to the name. At the end of the month, count. Say 20 new customers: 9 from referrals, 7 from Instagram and 4 from the market.
Two months later, check how many from each group ordered again. That number matters more than the first count, because it tells you where to put your time and money. Alongside the rest of the numbers to check every week, it shows you clearly what brings customers who stay.
When word of mouth turns expensive
Word of mouth can cost you too:
- The friends' discount that never ends. If the referred customer only ever buys at the discounted price, your contribution per jar drops every month.
- More orders than you can make. If recommendations bring more orders than your kitchen can handle, deliveries slip or quality drops, and the recommendations turn against you.
- Customers far away. A referred customer across town can cost more in delivery than they earn you.
The guide on growth traps explains why selling more does not always mean earning more, and how to grow a small food business puts word of mouth in order with the other ways to grow.
Do it with the calculator
Put your recipe into the food cost calculator to get the variable cost per jar. With that figure you know how big a reward you can offer before a referred customer costs more than they bring.
Frequently asked questions
Should I reward the person who refers or the new customer?
Usually both, with different rewards: a small discount for the new customer so they try it, and a free product for the referrer, because a product costs you its variable cost rather than its price.
How do I know if a customer came from a referral?
Ask on the first order how they heard about you and write it down. If you use a referral code with the referrer's name in it, the record keeps itself.
Do giveaways on social media help word of mouth?
They bring followers, not always customers. If you run one, count how many entrants bought afterwards and what that cost you, the same way you would judge any other way of finding customers.