Referral marketing is one of the most powerful methods of growing your business. Why? The opinions of friends and family are the most highly trusted form of advertising. If you want to benefit from the word-of-mouth magic in today’s digital age, then here’s your guide to actionable referral marketing tactics that will get new customers through your doors and keep them there satisfied while also saving you big bucks on expensive traditional marketing.
What You’ll Learn
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Why is referral marketing so powerful?
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How to launch and grow a successful referral program
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Key measures and resources for monitoring performance
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Referral marketing, the right way
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Common mistakes and how to avoid them
At the end, you’ll be equipped with what you need to create a referral program that brings results.
What is Referral Marketing and Why Does it Matter?
Referral marketing, put simply, is about getting your current customers to refer your product or service to their friends, family, or colleagues. It leverages the belief people have in their peers more than an ad. Consider the last time you tested out a new restaurant, reserved a hotel room, or downloaded an app. Odds are, someone has told you about it.
Here’s why referral marketing is so important:
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It builds trust. People are four times more likely to buy when referred by a friend.
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It works for conversions. Research indicates that referral programs can boost conversions by up to 70%.
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Cost-effective growth. Unlike paid ads, you only pay customers once someone refers sales to you.
Advantages of Referral Marketing
Increased Trust
Referral marketing is all about trust. Personal referrals from someone you know significantly lower the buyer skepticism that often comes with traditional advertisements or sales pitches.
Higher Conversion Rates
Referral traffic from a friend often converts higher as well because those visitors already trust your brand.
Cost-Effectiveness
With referral programs, you aren’t paying up front. Rewards are paid out only for new converted customers, so this is a low-risk, high-return approach.
Deepening Customer Engagements
Referral programs establish loyalty by encouraging your customers to be ambassadors of your brand. And they get to bask in their trust of you!
How to Create a Referral Program
Planning well and using the right tools to implement them will get you to have a successful referral marketing program.
Define Clear Goals
What are your referral goals? More customers? Increased sales? Establish clear and realistic goals to ensure that you are contributing to your broader marketing goals.
Choose the Right Incentives
Your rewards need to be enticing for your buyers and fuel the business too. Other perks being popular include:
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Discounts or Coupons
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Free Products or Services
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Cash Rewards
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Early Access to Features
Dropbox, for instance, offered free storage space for every successful referring—a cheap and very attractive incentive.
Select the Right Software
Referral program tools make it easy to manage referrals, monitor performance, and reward loyal customers automatically. Some popular choices include:
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ReferralCandy
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Yotpo
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Post Affiliate Pro
Your Referral Marketing Campaign Promotion
To get the biggest ROI from your referral program, you’ll want to market it far and wide (more on this in the next section):
Leverage Email Marketing
Email Prospects You already have a list of leads, if you don’t – break-in some email data and email your leads about your referral program. Always promote what’s in it for them and the simplest way to get involved.
Use Social Media
You reach will extend on social platforms. Leverage your content creatively and inspire sharing with great imagery and content. Here’s also where well-targeted paid ads will have massive results.
Feature It on Your Website
Your site is a sweet place to advertise your referral program. Get your visitors’ attention: supplement with banners, pop-ups or dedicated landing pages.
Partner with Influencers
Work with your niche influencers to promote your referral program. Influencers can access a dedicated and captive audience that believes in their advice.
Data Collection and Analysis
Without proper tracking, you can’t know whether your referral program is successful.
Key Metrics to Track
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Number of Referrals
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Conversion Rate
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Referred Customer Lifetime Value
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Cost per Acquisition (CPA)
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Retention Rate of Referrals
Tools for Tracking
Systems such as Google Analytics, HubSpot, or the tool you’re using to power your program is going to help you evaluate performance and find actionable insights.
Data-Driven Adjustments
Leverage gathered data to find bottlenecks and openings. For example, if you observe low referral activity, you may have to reconsider your incentive policy.
Successful Referral Program Examples
Take it from the pros and apply their strategy to your own business:
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Dropbox
Dropbox drove its growth even further thanks to a modest but highly-efficient program which gave 500MB of free storage to both current and new users for each successful referral. -
Airbnb
Airbnb motivated both the referrer and the referee by providing credits towards the next trip, in order to encourage investment from both sides. -
Uber
Uber’s “Give $5, Get $5” system meant sharing your app was too tempting not to for existing and new sign-ups alike.
Common Mistakes to Avoid
But even the best ideas can fail once they’re not executed properly. Here’s what to watch out for:
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Not Promoting the Program
Customers who don’t know about a program can’t join it. Make sure you use all communication avenues to get the word out. -
Overcomplicating the Process
Keep it simple. Simplify sign-ups and referrals to facilitate more participation. And no one wants to jump through hoops to get a reward. -
Providing Unattractive Inducements
Your rewards should be the correct mix of incentives for customers and sustainable cost for your business.
The Future of Referral Marketing
Referral marketing is changing. Now with the growing prevalence of AI tools and more sophisticated analytics, businesses can customize customers’ referral experiences and rewards in a way that’s never been possible. Furthermore, the use of video referrals, and the integration of social media is expected to become more common.
Start small but strategic. Setting up a referral program can be hard work, but it will be worth the effort. You will be on your way to success if you value simplicity, promotion and tracking.
