Friends and Family
Discount Programs: A
Guide for Small
Business

3 Ways for Small Businesses to Offer Discounts to Friends and Family

Though a friends and family discount program certainly isn’t essential, it can be an effective way to stimulate sales in the early phases of your business, and a nice gesture to show your appreciation for your friends and family’s moral support.

Here are three practical ways to consider approaching friends and family discounts as a small business:

1. Flat Percentage Discounts

Offering friends and family a flat percentage discount, such as 10% or 20% off their purchases, provides a straightforward way to promote your discount and make sure it’s easy to understand. The consistency of its cost also makes it easy to factor into your financial projections, and ensure that the discount remains sustainable in the long run.

If you’re an entrepreneur who deals in high-value services, for example tattoos or photography sessions, a flat percentage may be a little too generous in relation to your profit targets. For many business models, however, the simplicity of a flat percentage discount often provides the most manageable and sustainable way to give back to friends and family.

2. Vouchers

Creating and distributing friends and family vouchers is another popular way to run a friends and family discount for your business, providing greater flexibility for you to tailor each discount to your changing business circumstances, or the individual you’re sharing the voucher with. Aside from this, vouchers are finite and have an expiration date, giving you tighter control over how much you’ll budget for your discount and ensuring that the offer isn’t abused long-term.

The main drawback of a voucher system is the fact that it requires a proper management system, leading to more complex responsibilities on your part. However, if you’re able to free up the capacity for this, it can be a great way to maintain control over your friends and family discounts.

3. Samples and Freebies

Most small business owners operate on thin margins, but if you’re especially concerned about the impact of a friends and family discount on your bottom line, giving your friends and family samples and freebies instead of a monetary discount could be the best way to create a friends and family offer.

Offering early access, samples, or free introductory services is generally more affordable on your part than a standard discount, and gives you the flexibility to decide how much of a product or service you can afford to share for free. The fact that it doesn’t generate immediate revenue means it won’t be especially sustainable in the long-term, but can still be an effective way to give back to those close to you while generating interest in your business.

The Pros and Cons of a Friends and Family Discount Program

When it’s implemented the right way, a friends and family discount can act like many other small business promotions, helping you to grow your sales volume and creating loyal repeat customers. If your approach is too hands-off, however, it could lead to unsustainable expectations, and more than a few awkward conversations when you have to roll back your discounts.

Before you think about mapping out a friends and family discount program for your business, it’s important to familiarize yourself with the real-world effects this may have on your bottom line.

Here’s some of the key benefits and drawbacks to be aware of when handling your friends and family discounts.

Pros

Word of Mouth Marketing

As you may have heard before, word of mouth marketing is one of the most powerful marketing channels you can seize as a small business owner. Customers generally value the recommendations of people they know and trust more than anonymous reviews they find online, and creating the most positive customer experience possible will help you stimulate this promotional channel.

Making sure your value offering is as refined as possible will help to maximize the chances that your friends and family go on to recommend your business in their social circles, and help you gain more customers thanks to their personal seal of approval.

By offering friends and family discounts, you’ll give your friends and family one more reason to love their experience with your business, and naturally turn into brand advocates.

Stimulating Sales

Even though your friends and family support your goals to start and grow a business, this may not be enough to convert them into paying customers. However, offering discount just for them could be the ideal way to get them over the line and purchase your product or service.

Gaining immediate sales through friends and family discounts can be an especially effective way to stimulate sales in the early stages of your business when your regular marketing campaigns are still gaining momentum, as the personal connection to your brand will help to convince your friends and family alongside the monetary value of the discount.

Gaining Feedback and Support

Stimulating business from your friends and family can also be a great way to develop your value proposition through detailed feedback and suggestions for the future of your business.

As you already have a personal rapport with your friends and family, running them through your customer experience in the context of a friends and family discount program can open the door to honest, unreserved feedback, which may be harder to get from strangers.

Cons

Potential for Abuse

One of the most obvious drawbacks of running a friends and family discount is the potential for your discount offer to be abused by the people you’re offering it to.

Many small business owners have no problem offering a friends and family discount when they’re first starting out, especially in a “side hustle” format where their business isn’t their main source of income yet. However, when you’re able to make the leap into running your business full time, constantly giving away your products or services at a reduced rate can start to eat into your operating capital and limit your business’s potential to scale.

Undervaluing Your Business

Offering a friends and family discount can be an effective way to generate some sales quickly and easily. However, if you’re too liberal in deciding who qualifies as “family and friends”, you could give your brand a reputation for discounted rates, meaning that a lower and lower proportion of your customer base expects to pay full price.

If you wind up undervaluing your business through friends and family discounts, it can be very hard to transition to your standard rates and expect new customers to buy from you without a major discount.

Unpredictable Margins

Many small businesses have to operate on thin margins, and having a clear idea of your available capital for covering operating expenses can be crucial for short and long-term planning.

When you’re trying to develop your small business and your situation has the potential to change quickly, the last thing you need is to account for discounted purchases that go up and down sporadically. Offering a friends and family discount that’s loosely managed without clear boundaries can be a major cause of unexpected expenses, and hurt your flexibility as an entrepreneur.

3 Examples of Friends and Family Discounts From Big Brands

While all small business promotions can be hard to balance, there are many examples of successful brands that have made a friends and family discount program work for them.

Here’s a look at three examples of friends and family discounts done right to help inspire the way you develop your program.

1. Hilton Hotels & Resorts

The world-renowned hotel brand Hilton maintains a friends and family discount of 50% off for non-business stays for the friends and family of its employees.

While the business doesn’t publicly disclose how many “friends and family” any one staff member can designate, all beneficiaries need to be approved by Hilton managers. Customers using the friends and family discount can apply it to up to 30 room nights per year, which they’ll also earn loyalty points for.

Why It Works: With its yearly limit and internal review system, the Hilton friends and family discount is tightly controlled to ensure the discounts don’t have too much of an effect on the business’s capacity or profit margins. Furthermore, the fact that beneficiaries earn loyalty points for using the discount increases the chance that they’ll become returning customers and make full-price bookings in the future.

2. Ford

Ford runs a friends and family discount known as the A&Z Plan. This allows both current and former Ford employees, as well as their spouses, siblings, in-laws, and other relatives, to access four unique PIN codes per year that provide discounts on any Ford purchase at a registered dealership.

Why It Works: The A&Z Plan’s core benefit is that it has clear rules regarding the number of times that it can be used per person per year, making it easy for the company to forecast the cost of running their friends and family discount, and account for this in their broader financial planning.

Aside from this, there’s no flat discount rate tied up in the program, with the real monetary discount depending on the vehicle being purchased. This gives the company greater flexibility to control the impact of the discount and ensure it always remains affordable for the business.

3. Verizon

The Verizon friends and family discount gives their staff unique discount codes which friends and family can use to access reduced rates when switching to a Verizon Unlimited phone plan, or switching their internet provider to a Verizon Fios Gigabit Connection.

Why It Works: While Verizon’s friends and family discount doesn’t impose limits on how many times their staff can use their codes, it keeps a limit on the cost of discounts by only making them eligible for two specific products. Furthermore, the Verizon Unlimited and Verizon Fios Gigabit Connections require customers to sign long-term contracts, helping to solidify the value of any discount code that’s redeemed.

Best Practices for a Friends and Family Discount Program

Friends and family discounts can be a major asset for any small business owner, but they need to be managed closely to minimize any negative impacts to your business.

Here are four best practices to bear in mind when you’re looking to set up friends and family discounts.

Define Your Rules Early

Friends and family discounts that change from one shopper to the next is a sure-fire way to get into some awkward conversations.

If you’ve decided to offer a friends and family discount, make sure that you define the rules of this promotion as early as possible, and make them explicitly clear to eligible people. This will let everyone know where you stand as a business owner, and help you manage the expectations of friends and family who want to participate.

Some key things to think about when defining the rules of your discount program include:

• Who exactly is going to qualify for a family and friends discount.
• Whether your discount will be a fixed percentage, or depend on the product or service.
• How often you’ll allow it to be used.

Systematize Your Discounts

When you look at most successful brands’ friends and family discounts, you’ll notice that they’re all managed systematically to help keep track of how much discounts are being used and prevent staff and customers playing “fast and loose” with their discounts.

Making sure you’re equipped with tools like our own free CRM system will help you designate friends and family within your customer base and streamline your discount management for an all-around healthier cashflow.

Treat Your Business Like a Business

While there’s plenty of rewards you can reap through a friends and family discount program, it’s important to remember that your margin comes first and you still need to treat your business like a business.

If it’s too hard to determine if a friends and family discount is sustainable in the long run, it may be worth considering alternative value propositions, such as offering early product access to friends and family or exclusive freebies when they spend a certain amount at your business.

Don’t Devalue Your Product/Service

We’ve already explored how a friends and family discount can help stimulate word of mouth marketing and give your business a much-needed boost in its early stages. However, it’s important to make sure this isn’t tainted by an overly-generous offer that doesn’t reflect the value of your product or service.

Make sure your discount is informed by thorough research within your industry to determine what a reasonable discount looks like, and avoid lowering standards with an impractical discount rate.

Making Your Friends and Family Discount Work For You

Friends and family discounts and other small business promotions can be a tough balancing act to pull off. However, with the right amount of planning, you’ll be able to create a program that delights the friends of your brand, stimulates sales, and keeps your costs manageable.

For more support on developing strong customer relationships, be sure to check out our CRM for small businesses and other great software solutions.