Referral marketing. You’ve no doubt seen the term in your efforts to grow your business. You want to craft the best possible marketing strategies for your content and products. Referral marketing can be highly effective and is a great way to build hype around your business.
But what exactly is referral marketing? How is it used? And is it really that effective?
The truth is, referral marketing is one of the most powerful tools in your marketing toolkit when it comes to increasing conversion rates and building revenues. With 82% of Americans seeking recommendations from their social networks for all types of products, you can’t afford not to capitalize on that market.
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Here, we’ll define referral marketing with real-world examples of how it’s used to ultimately take you through referral marketing best practices. By the end of this guide, you’ll have actionable strategies on hand that you can apply to your own marketing approach.
Referral Marketing Defined
So what is referral marketing?
The answer is relatively simple, though it can take many forms. Referral marketing is the process of incentivizing and encouraging satisfied customers to share your brand with their friends, family, colleagues, and acquaintances.
The act of receiving a personal referral from someone you know is a powerful force in encouraging your business. Wouldn’t you be more likely to patronize a company that your friend recommended rather than one you’ve only seen banner ads for? Studies show that people act on referrals, making them a wonderful strategy for business growth.
Referral marketing tends to feel organic, even if it’s tracked and managed by automated systems complete with rewards. When you hear about a product from someone you know, it carries greater power than many other forms of advertisements. That’s because referrals carry with them natural risks and rewards.
Those who take advantage of a business’s referral program and promote products and services across their own social networks need to actually believe in what they’re promoting. If one advertises something they’ve never used or know little about, they run the risk of losing credibility and face. Referral marketing works because an individual is often much more believable than a company with a clear agenda.
But referral marketing only works with products and services that are truly worth the hype. Getting people talking requires quality, otherwise, your marketing strategy will hit a dead end. Step one of any referral marketing strategy comes down to crafting a business model that people want to share in their social networks: products and services that truly make life better.
Then, to encourage shares and word-of-mouth recommendations, businesses can offer incentives and loyalty programs to show appreciation for loyal, passionate customers. At Woorise, for example, users earn a 30% recurring commission for referring business to the platform.
In short, referral marketing creates a win-win-win scenario. Businesses win by growing their user base. Customers that refer their associates win by receiving incentives. New users win with a product that satisfies them.
This makes referrals a valuable marketing strategy, one many businesses have taken on to great success.
Best Referral Marketing Tools
- Viral Loops
- Mention Me
- Genius Referrals
- Referral Rock
- Referral SaaSquatch
How Referral Marketing Is Used
Referral marketing exists in a wide variety of forms. Companies from all kinds of industries find ways to bridge gaps, incentivize customers, and generate the word-of-mouth press they need to scale their business. In the highly online, social media-driven landscape of modern retail, referral marketing means exploring platforms and promotions to perfectly pair offerings to services.
Companies have had great success with all sorts of approaches to referral marketing. Here are just a few real-world examples of how businesses are using referrals to generate leads and build revenues.
Affiliate marketing is an offshoot of referral marketing that uses the power of social media to generate buzz around products and services. Social media is a powerful means of connecting with people within and without our personal networks. Through its use, we build greater networks of friends and acquaintances that may benefit from the products we use.
Affiliate marketing channels the organic advertising opportunities of our social networks to offer methods of earning for both businesses and the everyday consumer. In the software-as-a-service (SaaS) space, this is especially valuable, as the revenue generation opportunities can be long term, resulting in passive income for savvy users.
ConvertKit is one example of a business making good use of affiliate referral marketing. The platform offers webinars and email marketing tools on a subscription basis. To help draw in business, ConvertKit created an affiliate program that rewards users for recommending the tool to others. Affiliates in the referral program can earn a 30% recurring commission for as long as referred users stay subscribed.
Affiliate programs offer opportunities to partner with customers and community members. The potential of this approach makes for a dedicated user base and a self-sustaining marketing system that continuously generates new leads. Any business looking into the power of referral marketing should look into affiliate programs to explore the potential benefits.
Referral marketing is commonly used in combination with bonus offers for customers. All kinds of incentives can be built into a referral program, making the joy of sharing a great product even greater. For passionate customers, incentive programs may even become a lucrative source of secondary income or discounts, keeping them dedicated to your product as an active ambassador of your brand.
Done correctly, referral marketing can be a cheap method of advertising that offers greater value to your customers. While there is a virtually unlimited number of ways to incentivize likes, shares, and word-of-mouth promotion of your services, certain approaches may make more sense for your particular business model.
Common types of referral incentives for effective marketing strategies include:
- One-sided incentives. Determine whether the new customer (the referred) or the existing customer (the referrer) gets the incentive. Choosing one over the other comes down to immediate business goals and your product type. For example, one-sided incentives to existing customers can be great for maintaining a dedicated user base. Alternatively, incentives for new customers can be excellent for business growth.
- Two-sided incentives. This entails rewarding both the referrer and the referred upon successful business growth and can be difficult to achieve in terms of resources and tracking. However, if your business has the ability to offer two-sided incentives, few strategies are as valuable.
- Tiered incentives. Building up the rewards your customers get upon successful referrals can be a great way to maintain their interest in your product. By starting with lower-quality incentives that rise in value the more your customers refer new business to you, you can gamify the referral process for great success.
Each of these incentive options encourages passionate customers to spread the word and get rewarded. Your choice will come down to your business model and the resources you have available to you, but any approach has the potential to grow your brand.
For example, Harry’s shaving company used a tiered referral incentive approach as a growth strategy to stay competitive and generate new subscriptions. By offering free products for referrals—the more referrals, the higher the product value—Harry’s incentivized their customers to grow the company while creating a useful and feasible client experience.
The success of referral marketing often comes down to the hype businesses are able to generate for a product. There are many ways to make a product appealing. Successful marketing strategists will understand their target audience and craft all kinds of appeals in order to make an experience worth sharing.
A fantastic example of this was the marketing strategy employed by fashion company Girlfriend Collective. This clothes retailer offered a limited-time promotion in which it was giving away $80 leggings for only the cost of shipping. In the process, the company shared its message and commitment to sustainability, resulting in a shopping experience some labeled “too-good-to-be-true.”
But it was true. Girlfriend Collective, for about the cost of a traditional marketing experience, built a word-of-mouth campaign that resulted in 10,000 orders on day one. They achieved this by understanding their audience, their concerns, and their belief in a quality product. Then, they leveraged the hype they created to let customers advertise for them across the internet.
Through examples like these, we see how referral marketing can be used to generate powerful advertising that few other strategies can match. People trust and look to the people they know for recommendations. Making use of this trust by encouraging your customers to share information about your products and services can mean revenue boosts and unprecedented lead generation.
But is referral marketing really that effective?
How Effective Is Referral Marketing?
When it comes to the power of referral marketing, the data speaks for itself. According to Social Media Today:
- 78% of B2B marketers say referral marketing creates leads of good to excellent quality
- 60% of marketers say referral marketing generates a higher quantity of leads
- 54% say referral marketing comes with a lower cost-per-lead
- 88% of marketers make use of referral and loyalty marketing software
The use of referral marketing is widespread and developing all the time as marketers across industries look to reap the benefits of a successful approach. As we have demonstrated, when companies put together a working strategy for referral marketing, they often achieve greater results than they might from a traditional marketing approach.
The effectiveness of referral marketing, however, can depend entirely on how well you understand your audience. With the right insights and innovative approaches, the sky’s the limit with referral marketing.
Consider these referral marketing best practices when considering your own referral marketing strategies.
Gather and Analyze Data
No marketing strategy is complete without data analytics. That goes for referral marketing, as well. Data analytics is the process of gathering and analyzing data for actionable insights regarding a customer base and business practices. It is a staple of modern business, promoting business growth, enabling informed decisions, and helping to predict business trends.
In referral marketing, data use is essential in two key areas: ensuring your product or service offering is worth a recommendation and understanding what incentivizes your customers.
Collecting and analyzing data—whether it be through Google Analytics or social media insight platforms—allows you to tap into how your customers are receiving your content. You can even directly reach out with surveys and questionnaires aimed at informing your choices for a referral marketing strategy.
In a 2019 survey, 91.7% of Fortune 1000 companies indicated that data use was necessary to remain competitive. For a competitive referral marketing strategy, you’ll need to apply customer data.
Without experimentation, the business world would remain static. The same goes for marketing approaches.
You may have gathered all the data in the world and painted a comprehensive picture of your target audience. Still, that is no guarantee for a successful referral marketing strategy. You will never truly know what aspects of a campaign take off and what elements don’t until your content is out there in the world.
Companies like Harry’s or Girlfriend Collective may have had data and competitor experience on their side, yet their successful referral campaigns still required a great deal of experimentation. In the case of Girlfriend Collective, neglecting traditional marketing for product giveaways came with a lot of risk and little assurance that the approach would be effective. Yet, the web traffic they generated crashed their site and Facebook’s share feature.
Companies looking to emulate success like this will need to experiment based on their own data-driven information and audience insights.
Constantly Assess and Review
Finally, your efforts to produce effective referral marketing techniques will come down to consistent assessment and review of your information. From your data application strategies to your customer incentive program, you need to balance the books and craft worthwhile processes for generating leads and retaining business.
For example, one key strategy to employ in managing incentives for SaaS sales is to create a documentation plan for incentive information that is easy to track and manage. Without helpful platforms for financial data, it can be easy to lose track of incentive information and create problems with your customers. This will undermine the usefulness of your referral marketing strategy, potentially negating your gains.
Review all your data, practices, and budgets at set intervals throughout a fiscal year. In turn, you’ll have the information you need to craft an efficient referral program.