Customer referrals are vital to small and home-based service businesses. When you need to increase sales but can't afford a salesperson and have limited selling time, focus on existing clients and let them do the selling for you. Most business owners understand the value of referrals, but not many are doing what it takes to get them.

Providing excellent service is important, but don't always generate referrals. To get all your clients to recommend you, you'll need to give them an incentive to do so.

And you can do that with a referral program. Referral programs are often refer to as affiliate programs. It's just an agreement in which you pay your affiliates a commission for each client they refer to you. Many web businesses use them as a low cost way to acquire new customers. Even large companies like Amazon and Yahoo have one. But what if you're not selling on the web?

Don't worry, with just a little more time and effort, you can create an offline referral program as well.

How do you track referrals?

Referral tracking is your biggest challenge in setting up a referral program. On the web, referrals can be track by software automatically. For your offline program, you'll need a database to keep all your affiliates' information and their referral history. To track referrals, you can simply ask your new clients if any one referred them. Usually, they'll tell you without asking.

You can also use a coupon referral method. Assign your affiliates a unique referrer ID and create coupons for them. Each coupon will contain their unique ID. They can then distribute the coupon to prospects. When new client comes in with a coupon, you can easily identify the affiliate using the ID.

If you have good selling skills, consider also accepting lead referrals. Lead referrals are much easier to get since your affiliates don't have to do any selling. They just provide you with the contact information of a prospect that needs your service.

Where do you recruit affiliates from?

Without affiliates, your program is useless. A good source of affiliates would be your current clients. If you don't have any yet, sign up a few friends. But be sure to choose a good incentive.

Cash commission is the most common incentive, but not always the most effective. Your customers may value a discount on future purchases more than a percentage of the sale. Find out what motivates your affiliates the best. Using the right rewards can increase your referrals dramatically.

How much will it cost to run a referral program?

That depends on your commission and the distribution method. Offering an item as reward and mailing them out will obviously be more costly than making payments on paypal. But the cost should be very small compare to the profit you will be earning.

As long as your commission is below your profit margin, you'll be making money. If your affiliates are not referring any clients, it doesn't cost you anything.

Measuring the effectiveness of your program

Once your program is up and running, it's important to measure its effectiveness. There are several areas you should examine to make sure your program is at maximum efficiency.

Check the number of active affiliates. Not all your affiliates will send at least one referral per pay period. But if you have very low number of active affiliates constantly, make some adjustments. Try creating a different sales message or use another coupon.

You can also talk to your most profitable affiliates for their effective referral methods and publish them to your other affiliates. Provide them with all the sales materials they'll need.

When you make their job as easy as possible, they will send you more referrals.

Ben Wong is the founder of Repher.com, a web based management platform for offline referral and affiliate programs. For more information, please visit http://www.repher.com.