Referral marketing only works for big companies with huge customer bases.
At least, that's the misconception floating around.
The truth is that referral marketing is one of the most powerful marketing solutions small businesses can use for sustainable growth.
While big brands spend a fortune on ads, you can leverage what already makes your small business special: genuine, strong customer relationships. Since these existing customers already recommend your offerings to their friends every day, you just need to make it easy and rewarding for them.
This is a strategy that brands like Tesla, Airbnb, and Dropbox have mastered.
But before you get into referral marketing, you’ll need to understand what it is and how to get it right.
Let's find out!
Table of Contents
What Is a Referral Marketing Program?
Referral marketing is a highly effective marketing technique to encourage existing customers to recommend a brand and its products to their connections.
Businesses lure their happy customers into actively marketing their business by rewarding their recommendations.
When you incentivize these loyal customers, you can successfully attract more leads for your business.
And why does referral marketing work?
Because consumers value the opinions and recommendations of real people, be it friends or strangers, more than paid ads or branded messages.
Referral marketing strategies leverage the power of such trust to drive more qualified leads for businesses of all kinds.
Typically, referral marketing programs are of two types.
1. One-Way Referral
This is one of the most commonly used referral program models where the company rewards an existing customer (referrer) for recommending their store, product, or service to their friends and family.
Here’s SoFi adopting this model for its various referral marketing programs.
Image via SoFi
2. Two-Way Referral
As the name suggests, this type of referral marketing strategy has two-way rewards. The company offers incentives to both the referrer and the referred customers upon sign-up or when they make their first purchase.
Take a look at Athletic Greens’ refer-a-friend program. It offers exciting rewards to its existing as well as new customers.
Image via Athletic Greens
Exactly How Does Referral Marketing Work?
Referral marketing leads to increased sales and customer retention, among other things. However, to fully reap the benefits of this digital marketing strategy, you should implement it properly.
Here are the steps involved in starting a referral marketing campaign:
1. Identify Potential Advocates
Remember, referral marketing is all about word of mouth and who you'd want to be your advocates.
It's smart to start with your existing customers, especially the loyal ones who purchase from your store repeatedly because they love your offerings. These customers will most likely refer others because they already trust your brand.
Moreover, research shows that consumers have a higher chance of trusting the recommendation of a friend or family member than a brand.
You can also segment your customer base according to order value, engagement, or customer satisfaction. This data can help guide you in identifying a referrer persona for future targeting.
2. Create Irresistible Incentives
After determining your potential advocates, think about what matters most to them. Then, offer it as a referral incentive to motivate them to spread the word to their friends and family.
After all, they’re using their time and energy to actively market your brand. It’s only fair that they get something out of it.
These goodies could be in the form of discounts, cash, or freebies for both the referrer and the referred customers. This is a two-way referral model that increases participation because it’s mutually beneficial.
3. Make Sharing Effortless
Once you create your referral program, make it easy for your advocates to share it. It shouldn’t take more than a few steps. Provide unique referral links that track exactly who refers to whom. Customers can share these via social media, email, or messaging apps.
The simpler it is, the more your customer base will participate, and the more new customers you stand to gain.
4. New Customers Convert
When someone uses a referral link to make a purchase, they become a referred customer. You then use an effective referral software to automatically:
- Validate the sale
- Track which loyal customer made the referral
- Trigger the appropriate rewards
5. Reward Everyone Instantly
The system automatically delivers the promised referral incentive to the original customer — the referrer. It also rewards the new customer, often with a welcome bonus. You don’t have to lift a finger or handle any manual tasks to make it happen.
6. The Cycle Repeats
As more satisfied customers participate, your customer base grows organically and brand awareness spreads through trusted recommendations. In the process, you gain high-value customers who stay longer.
Benefits of Referral Marketing
Now that you understand how to start a referral program, let’s discuss why you should be doing it in the first place. Aside from revenue and customer retention, what are the benefits of referral marketing?
Let's take a quick look.
1. Save Money on Customer Acquisition
As the competition gets tough, your customer acquisition cost keeps increasing. When compared to paid ads and social media marketing, refer-a-friend programs are a lot more cost-effective.
The rewards or incentives that you pay to the referrers are quite economical when you consider the customer acquisition costs involved in other methods. The reason here is that you only pay when you gain a customer, not otherwise.
2. Increase Sales by Incentivizing Your Loyal Customers
Referral marketing programs are a great way to engage your existing customers. When you reward these brand advocates for their support, you are creating opportunities for repeat purchases.
Referral rewards will give them a good reason to go back to your store to make a purchase. Thus, referral campaigns boost the chances of potential recurring revenue.
3. Retain Existing Customers
Retaining existing customers is more important than attracting new ones, and referral marketing programs can help boost your customer retention rate as well.
Customers who engage in your refer-a-friend program are more likely to stay loyal to you for a longer time, thanks to the rewards you offer.
4. Referred Customers are More Valuable
When potential customers come to your website as a result of word-of-mouth marketing, they already carry a positive opinion about your products, services, and exceptional customer service.
Additionally, the referral rewards work as a bait for them to buy from you. Finally, they can become potential referrers too, which can make them valuable for you.
5. Boost Brand Reputation
How do customers recommend your business to their connections?
They might do it through word-of-mouth, email, personal messaging apps, social media, or other channels.
And each time they do so, they are highlighting your business or product’s top features. Such social proof examples are a great boost to your brand’s reputation, which can be a great way to grow your brand and drive even more conversions.
6. Minimal Effort on Your End
Advertising your products or services requires a lot of planning and effort. But in referral marketing, your loyal customers do all the hard work.
Once you take the time to create and implement a powerful referral marketing strategy using a good referral marketing tool, your job is pretty much done.
Your brand advocates will create viral content, refer their friends, and send a flood of qualified leads your way.
Tips to Build an Effective Referral Marketing Strategy
Now you know the benefits of referral marketing to your business. Now, here are six proven and actionable tips to build an effective referral marketing strategy.
1. Deliver a Share-Worthy Customer Experience
The success of a good referral marketing campaign solely depends on your customers. They will only recommend your products and services when they enjoy the experience you deliver.
Before you begin crafting your referral marketing or word-of-mouth program, focus all your energy on creating an exceptional customer experience for your existing customers.
Be it offering great products, personalized recommendations, free shipping, special deals, or great customer service, work towards impressing your existing customers. It would also be a smart choice to invest in any of the HubSpot alternatives for your CRM needs and then use it to manage your relationship with them.
The reason for all of this?
A study by Qualitrics found that 86% of customers who are happy with a company will likely recommend it to others.
Image via Qualtrics
Once satisfied with your CX, the buyers will proactively share their experiences with their connections and influence their buying decisions as well.
2. Set Clear Goals
At the outset, it is important to set clear and specific goals for your referral program. These will serve as reference points to structure your referral program.
Certain questions you need to ask yourself while setting referral marketing goals are:
- Do you want to gain more brand awareness and visibility?
- Is trust building your goal?
- Do you want your existing customers to make bigger purchases?
- Do you want to expand your customer base?
- Would you like to boost your conversion rate?
Once you define your goals, it becomes a lot easier to align your referral program with them. With explicitly set goals, you can easily determine the KPIs and measure the performance of your program as well.
3. Choose Your Referral Rewards Wisely
When it comes to referral rewards, the ‘one size fits all’ formula doesn't work. The rewards that are suitable for one kind of referral marketing campaign may not be all that effective for another.
That's why identifying your referral rewards is vital for the success of your campaign.
There are several things you need to consider, such as the interests of your target audience, your referral marketing goals, your industry, and so on.
What’s more?
You also need to decide who gets the rewards, whether it's going to be only the referrer or both the referrer and the referred customers. You can even create different customer segments and develop different reward plans for them.
Let’s take this referral marketing program by Quadrant Fitness as an example. As they are specifically targeting fitness enthusiasts, a free monthly subscription makes for a great referral reward.
Image via Instagram
If you’re just starting, it's a good idea to research some of the top referral marketing examples in your industry and choose your rewards based on the insights you gather.
4. Promote Your Referral Marketing Program
So you’ve created an attractive referral marketing program. That's just the first half of the process. For a really successful word-of-mouth campaign, the secret is to promote, promote, and promote.
And there are multiple avenues to promote your referral marketing program. These techniques can be very effective in creating buzz for your campaign:
- Alert your customers through newsletters
- Run a limited-period email marketing campaign
- Highlight benefits through blogs
- Create short videos and posts for social media
You can also create a dedicated landing page on your website for your referral marketing program, which provides all the required details to your customers as well as referred leads.
When you are asking your customers to refer a friend, you should also educate them about the ideal customers you are looking for.
Always remember to keep your referral marketing form crisp, apt, and easy to share. That’s how you ensure better ROI from your referral program.
5. Create a Sense of Urgency
A referral marketing strategy can only be highly productive when you create a sense of urgency in your customers.
No matter how you promote your program, you should explicitly communicate that your offer is for a limited period, and they wouldn't want to miss it. This helps you tap into their fear of missing out (FOMO).
Take a look at this Oberweis referral campaign. Not only does it offer exciting rewards for both the referrer and the new customers, but it also clearly states that it is a limited-period offer.
Image via Instagram
When you create email copies or social media content with CTAs that create a sense of urgency in your customers, they are more likely to take action.
That's how you’ll be able to generate more conversions in a limited period.
6. Invest in Feature-Rich Referral Marketing Software
Kickstarting a referral marketing program and monitoring its progress can be time-consuming and challenging.
Fortunately, several top-notch referral marketing tools can help you automate the entire process.
Right from offering hundreds of customizable referral campaign templates to designing a campaign, monitoring it, and awarding flexible rewards, these tools are packed with truckloads of features.
Such software is also capable of collecting rich referral data and analyzing it to help you improve your campaign on the go.
Investing in such referral marketing software would be profitable, as you can not only streamline the whole campaign but also get better results out of it.
7. Leverage Social Proof and Testimonials
A successful referral program thrives on trust. With that, what do people trust more than plain old brand messaging?
Real experiences from satisfied customers.
So, encourage them to share reviews, testimonials, and user-generated content (UGC) about your referral program and rewards on their social media. This will help you expand your reach.
You can even leverage influencer marketing, particularly micro-influencers, to target an already engaged audience and boost your brand awareness and referral marketing efforts.
When you feature these stories in your marketing channels, you’re telling the world that real people are benefiting from your brand, and not just from your offerings. A good example is this testimonial on Ultimate Toys’ site.
Image via Ultimate Toys
8. Optimize for Mobile
Whether at work or chilling at the park, people take their mobile devices anywhere they go. So, what better way to get referrals than to make sure your campaigns are optimized for mobile?
In fact, over 60% of the global internet traffic comes from mobile devices. That’s a staggering, yet expected, number.
Image via Statista
You can make your referral program mobile-friendly by making referral links easy to click and share on mobile apps, SMS, and social media. Streamline those referral forms and buttons, and allow customers to send SMS reminders and push notifications.
Your current customers are less likely to participate if they can’t do it on the go — or from the comfort of their couch.
Plus, mobile accessibility lets you maximize your customer acquisition efforts by meeting customers where they are. And it’ll be easier for you to track referrals on the go.
9. Use Referral Tracking to Optimize Performance
You’ve probably heard time and again that data is king, right? Well, when it comes to a successful referral marketing strategy, that fact remains.
Data will help you understand what’s working and what to ditch. Thankfully, modern referral tracking solutions can help you monitor referral conversion rates, track referrals, and analyze key metrics.
It’s also important that you A/B test different referral incentives, messaging styles, and CTA placements to see what resonates best with your audience. If certain marketing channels or rewards perform better, you can allocate more resources there or replicate them.
You should also continuously monitor your referral strategies and update them according to recent trends, particularly with customer behavior and preferences.
Top 5 Brands Getting Referral Marketing Right
Let’s explore some brands that are winning at their customer referral programs.
1. Casper
Image via Casper
Casper nails referral marketing by offering a 30% discount to both the referrer and referred customers. This classic two-way referral model builds customer loyalty while driving new customers at minimal cost. This strategy also maximizes the referral campaign benefits, leading to higher customer engagement.
Their clean interface makes the referral process seamless. It just requires the customer's name and email to generate and share the unique referral link. Because it only has a few steps, it removes any friction and makes the process effortless for existing customers.
Plus, they offer discounts rather than cash back, keeping customers engaged with their brand.
2. Dollar Shave Club
Image via Dollar Shave Club
Dollar Shave Club's referral marketing strategy is a bit different.
For every successful referral, customers get 500 points, which they can redeem for products. This innovative referral rewards system keeps customers engaged and ensures they continue to purchase from the brand.
And it’s easy to join!
Customers simply share a referral link, allowing them to refer friends through email or social media. It benefits both parties, as new customers can try a starter kit for just $5. This approach lowers the entry barrier, making it easy for potential customers to say yes, a win for customer acquisition.
3. Dropbox DocSend
Image via Dropbox DocSend
DocSend's referral marketing program offers a $15 referral incentive. The catch, however, is that the referred customer must fully set up their account for you to get the reward.
DocSend integrates the entire referral process into the platform so you can encourage customers to join via email, Gmail, social media, or a unique referral link.
What makes it stand out from other customer referral programs is the way the brand keeps it alive and effective by sending reminder emails to referred customers. It also provides a reliable way to track referrals.
4. Ultimate Toys
Image via Ultimate Toys
Dubbed the ‘Ultimate Referral Program,' Ultimate Toys' referral program integrates a QR code-based referral process. This approach makes it easy for potential customers to inquire about a purchase.
As a loyal customer, you receive a personalized QR code on your Sprinter, linked directly to the brand's referral form. Once the customer submits the form and buys the vehicle, you receive an impressive $5,000! There are also VIP incentives for top referrers.
5. DoorDash
Image via DoorDash
DoorDash's B2B referral program targets the existing customer base with a cool $1,000 referral incentive. However, unlike other programs, the reward goes to the customer who refers a restaurant that completes 15 orders in 60 days.
That said, their referral program page clearly outlines the terms of the program, building trust with restaurant owners.
This referral marketing plan wins by solving a real pain point — helping small businesses grow — while leveraging word-of-mouth marketing. Plus, the referral page is clear and minimalistic, making it easier to understand and follow.
FAQ
Q1. Is referral marketing different from affiliate marketing?
A. Yes, referral marketing is different from affiliate marketing. While referral marketing relies on the power of word of mouth of customers to promote a business and its products, affiliate marketing relies on affiliates or third-party publishers to do the same.
They both have different promotion models and reward patterns and are targeted at different target pools.
Q2. What are the steps to create a successful referral marketing program?
A. Here are the nine steps to create a strong referral marketing program.
- Choose a customer referral template
- Set your goals
- Determine the referral rewards
- List possible referral sources
- Identify the channels to promote your campaign
- Track the progress and improve your referral program
- Make your referral program mobile-friendly
- Feature real experiences from current customers
- Track your referrals to optimize program performance
Q3. What are the different types of referral rewards?
A. Some of the most commonly used referral rewards by businesses include –
- Discounts
- Cashback or cash rewards
- Free products
- Store credits
- Free subscription period
- Gift cards
- Branded merchandise
Q4. What are some of the top referral marketing software?
A. Here are some of the top referral marketing software programs you can consider for your business.
- Referral Factory
- Talkable
- ReferralCandy
- Ambassador
- Mention Me
Q5. Is referral marketing suitable for all kinds of businesses?
A. Yes, businesses big and small can leverage the benefits of word-of-mouth marketing. They can encourage their loyal customers to recommend their products and services to their connections.
That being said, each business has to find out the most effective customer referral model to attract new customers and grow.
Master the Art of Creating a Strong Referral Marketing Program
It is proven that referral marketing is an extremely effective and budget-friendly marketing technique. Word-of-mouth marketing can bring you referred leads that not only have a high conversion rate but also have a better lifetime value.
Now, those are great reasons for you to consider referral marketing seriously for your business.
Go ahead and build a strong referral program based on the tips shared above. With substantial research and good referral marketing software, you can soon master the art of referral marketing.
Want to make sure your referral traffic actually converts? Attrock’s landing page optimization services are designed to turn referred visitors into loyal customers. We can help you unlock the full potential of your referral program, starting from your landing page!
Leave a Comment