Acquiring customers can also be the most difficult and expensive part of any business. But what if you could change your current customers into a strong marketing force? Here is where referral marketing should step in. “The tried-and-true model of growing a business leveraging your biggest fans also at play here…” This simple tactic lets you grow your business while staying profitable.
By the end of this post you will learn why referral marketing works, how you can use it, and the tools and tactics you need to get it right.
What Is Referral Marketing?
Referral marketing is a tactic used to encourage your customers to recommend your product or service to their contacts. Call it digital word-of-mouth marketing — on steroids. If you just sit there doing nothing to attract customers, those who have good experiences will actively refer your business to others and get rewarded for it under referral marketing.
And with higher perceived value promotions, such as premium bundles, partners can use them as part of a referral or loyalty program and motivate customers to not only make the same purchase again, but also to share their experiences with friends and family or on social media. Referral marketing is just word-of-mouth taken to the next level – it adds structure and process to word of mouth, to make it more predictable and usable.
Advantages of Referral Marketing
There are numerous reasons why referral marketing is so valuable — here are some of the most significant ones that make it essential for companies of all sizes and shapes.
Develops trust with prospective customers
Referrals are a credible source because they are from a trusted source. Most people value word-of-mouth recommendations from friends, family and work colleagues more than any ad or online review, anyway. Nielsen reported that 92% of consumers trusted recommendations from those they know. This confidence translates into greater confidence in your product or service.
Increases Conversion Rates
Lead referral leads not only have a better chance of closing; but often they result in a longer-term revenue stream. According to the Wharton School of Business, referred customers, customers obtained through referral, are about 25 percent more profitable over time. Why? Those who trust a recommendation from a friend need less convincing and are more likely to be a loyal customer.
Lowers the Cost to Acquire Customers
It’s far more affordable than typical advertising, after all. When your customers serve as advocates, you’re effectively creating free PR. Although developing and running a referral program may be expensive in the short term, they have always had and will continue to have a high ROI.
Enhances Brand Loyalty
By offering a product as a result for them telling others about it, you are building a deeper relationship between them and your brand. Referral rewards further heighten the positive perception of your business and help in converting a one-time buyer into a loyal, repeat customer.
Scalable Growth
Referral marketing is cut from the same cloth. Each and every newly acquired customer through a successful referral has the potential of becoming a new referrer (if you have implemented a referral program), and so on, and on, and on.
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Steps to Implement a Referral Marketing Strategy
Here are some of the things which should be employed as part of your referral marketing strategy.
As with anything, establishing an effective referral program doesn’t come by accident. It takes planning, imagination and a thorough knowledge of your audience. Here are some tips to guide your way to a successful program.
Offer Compelling Rewards
The reward is the jet fuel of your referral program. It doesn’t have to be substantial, but whether it’s access to discounts, free products or cash bonuses, your reward should be something that your customers are keen on. Think of the Dropbox referral program: They offered both the referrer and the receiver 500MB of free storage, ensuring that both people only contributed to Dropbox’s growth — every referral or every sign-up yielded 1GB of new users.
Keep It Simple
Do not require customers to jump through hoops to participate. The easier referrals are, the more likely people are to make them. Clear InstructionClick Friendlyrecommend links that are easily clickable and an easy-to-use site.
Create a Sense of Urgency
With a deadline to act, your patients will have a TRIGGER event to bring in those referrals immediately. For example, if you want to incentivize providers to refer early, double rewards for referrals generated in the first 30 days to send a message that it’s “now or never.”
Promote Your Referral Program
The best referral program in the world won’t operate if no one knows about it. Advertise it consistently with email campaigns, social media ads and on your site. Be sure to include easy-to-find calls to action that prompt your audience to share.
Personalize the Experience
Keep it special and personalize the messaging for different customer segments. Personalized invitations and invitations to targeted campaigns would make inviting friends more rewarding.
Using Referral Marketing in the Real World
The only way to know just how effective referral marketing is is to see it in real-time. Here are a few standout examples that have spurred businesses across sectors.
Dropbox
The dropbox double-sided referral program gave existing users 500MB of free space for each friend who signed up with their referral link. 500 MB has also been gifted to the new user. This easy to use, yet powerful, program helped Dropbox acquire new users at the rate of 3,900% over the course of 15 months.
Airbnb
Airbnb offered travel credits as part of its referral program to spur users to invite friends. If, for instance, a customer referred a friend, the referrer would get $20 in travel credit and the new user would get $40 off their first booking. It was this referral program that helped catalyze Airbnb’s explosive growth around the world.
Tesla
Tesla’s referral program transformed its customers into brand ambassadors, offering rewards like free Supercharging miles and unique vehicle upgrades. The exclusivity of these rewards inspired an already passionate Tesla community to tell their stories.
Campaign Referral Management Tools
It’s a lot of work to manage a referral marketing program, but you have several tools at your disposal that can help you streamline the process.
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ReferralCandy
Great for eCommerce etailers, ReferralCandy handles tracking referrals, payouts and the automation of referral campaigns. -
Talkable
This powerful software allows you to create and monitor a referral program with sophisticated tracking and analytics. -
Post Affiliate Pro
This is the perfect tool to custom develop affiliate and referrer programs. It has great reporting and it connects to all my other stuff. -
Friendbuy
Friendbuy creates the most seamless Referral Program on the market with customizable widgets that live on your site. -
Extole
Focusing on large businesses (including most of the Fortune 500), Extole offers a suite of features tackling the management and scaling of major referral programs.
How Referral Marketing Offers Long Term Value
Referral marketing is not a fad or a one-hit wonder. It’s a long-term strategy that offers a substantial return on investment by building trust, generating conversions, and solidifying customer loyalty. And with the right tools and strategies in place, it’s one of the simplest ways to grow your business organically, too.
Now if you haven’t thought of referral marketing as a “thing,” it’s time to give it some serious consideration. Tap into the generosity of your customers, reward them for sticking around, and see as your business grows sustainably.
