Affiliate Marketing

Referral Marketing: The Ultimate Guide for Small Businesses

In recent years, referral marketing has emerged as one of the best tactics to drive highly-qualified leads for businesses.

Now that sounds like a dream come true for B2B or B2C business owners, doesn’t it?

As customer acquisition costs keep rising, businesses find getting new customers in a highly competitive market very challenging.

And that's why entrepreneurs and marketers need to find inexpensive yet highly effective marketing techniques to attract more buyers.

Enter referral marketing.

Getting an army of satisfied customers to advocate for your products and services is one of the most successful marketing techniques to attract potential customers.

What’s more, referred customers are a notch better than others.

Simply put, referral marketing is a real deal. Businesses like Dropbox, Google Workspace, Tesla, Airbnb, and hundreds of others have seen tremendous growth owing to their successful referral marketing campaigns.

But before you jump into investing in referral marketing software to kickstart your referral program, you need to get a good understanding of this technique.

In this post, we’ll understand what referral marketing is, its benefits, and uncover expert tips to create a strong referral marketing strategy.

Let’s get rolling.

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 campaigns 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 campaign 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’s refer-a-friend program. It offers exciting rewards to its existing as well as new customers.

Image via Athletic Greens

Importance of a Good Referral Program

The benefits of a well-crafted referral marketing campaign are plenty.

Let's take a quick look at how it can benefit your business.

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 too.

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 is a great boost to your brand’s reputation which can be a great way to drive even more conversions.

6. Minimal Effort at Your End

Advertising your products or services requires a lot of planning and effort from your end. But in referral marketing, all the hard work is done by your loyal customers.

Once you take the time to create and implement a powerful referral marketing campaign 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.

6 Tips to Build an Effective Referral Marketing Strategy

Here are 6 proven and actionable tips to build an effective referral marketing strategy for your business.

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?

94% of customers who are happy with a company are likely to 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 too.

2. Set Clear Goals

At the outset, it is important to set clear and specific goals for your referral marketing campaign. 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 visibility and brand awareness?
  • 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 marketing campaign with them. With explicitly set goals, you can easily determine the KPIs and measure the performance of your program too.

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 take into consideration like 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 starting off new, 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:

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 campaign 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 of time 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 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 get into action.

That's how you’ll be able to generate more conversions in a limited period of time.

6. Invest in Feature-Rich Referral Marketing Software

Kickstarting a referral marketing program and monitoring its progress can be time-consuming and challenging.

Fortunately, there are several top-notch referral marketing tools that 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 get better results out of it.


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 6 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

Q3. What are the different types of referral rewards?

A. Some of the most commonly referral rewards used 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 you can consider for your business.

  1. Referral Factory
  2. Talkable
  3. ReferralCandy
  4. Ambassador
  5. 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.

If you have some questions about referral marketing, head over to the comment section.

Gaurav Sharma

Gaurav Sharma is the Founder and CEO of Attrock, a results-driven digital marketing company. Grew an agency from 5-figure to 7-figure revenue in just two years | 10X leads | 2.8X conversions | 300K organic monthly traffic | 5K keywords on page 1. He also contributes to top publications like HuffPost, Adweek, Business2Community, TechCrunch, and more.

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