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When most people hear the word ‘referral’, their mind usually races to Ponzi or pyramid schemes they’ve fallen for in the past.
As such, they want to avoid anything to do with ‘referring’ at all costs, given its image and their experiences.
If that’s you, we feel you!
However, that’s way different from what referral marketing is.
“So, what is referral marketing?”
Well, that’s what we discuss in this guide.
More specifically, we’ll talk about what referral marketing is, how it works, and all related concepts needed to understand it and use it to grow your brand.
Let’s get right to it!
Referral marketing is a marketing strategy that involves getting loyal customers or brand advocates to recommend your brand to their network in exchange for rewards.
The rewards offered to customers can come in the form of:
…and more!
Let’s explain it a little bit further.
You know when someone close to you excitedly shares a product or service they’re using or have just discovered?
That right there is referral marketing.
But in this case, the brand begins the process by asking customers to refer people.
Simply put, referral marketing is an intentional action by brands to get customers to take on the role of advocates as opposed to a spur-of-the-moment act initiated by satisfied customers in word-of-mouth.
We’ll expand on this concept in the chapters that follow where you’ll learn about:
Let’s continue!
Referral marketing is important because your products and services are recommended to others by people they know and trust.
Thus, increasing the chances of boosting brand awareness and maintaining a loyal customer base.
A 2015 study showed that 83% of consumers trust recommendations from people they know.
We can also say that referral marketing is important because:
We’ll share some more reasons why referral marketing is important with statistics later in this article.
“So, how can I get started?”
We’ll look at that in the next section!
The concept behind referral marketing is quite simple.
It involves getting your happy customers to invite their friends, family, and colleagues to buy your products or services in exchange for a reward.
As stated earlier, this reward can be:
You can tell customers to either get people to join the referral marketing campaign or buy your products.
We’ve added a video that explains how this marketing strategy works:
Now, here are a few things to keep in mind before launching a referral campaign:
Before we move on, how about we show you some statistics so you see more reasons why referral marketing is needed?
Let’s face it, consumers are now avoiding traditional ads more than ever before.
About 65% of people in an IPG survey hit the ‘Skip’ button on video ads the first chance they get.
A Hootsuite report shows that over 40% of internet users use ad blockers with about 22% of them saying the ads are either annoying or irrelevant.
What does that tell you as a marketer or small business owner?
You need an alternative form of marketing that’s less invasive and more trustworthy.
That’s where referral marketing comes in and here’s why:
Based on the stats above, it’s safe to say that launching referral campaigns means:
Let’s continue!
We’ve said so much already about referral marketing and its benefits.
To make things more interesting, we decided to add some practical examples.
Let’s get started!
Everyone knows Airbnb—the Uber version of home rental services—and how successful they’ve become.
But, how did they get there?
Here goes:
When Airbnb launched its business in 2008, they were met with one challenge from its target audience.
People felt it was a scam and they were right to feel that way considering it was a new business model.
So, what did Airbnb do?
They created a refer-a-friend program that turned current customers into brand advocates.
Airbnb’s referral incentive was a $25 travel credit when referred friends leased an apartment and a $75 travel credit when they listed their property for rent on Airbnb.
The result?
Over 2k new members joined from the closed beta test of this referral program.
When it went live, its customer base went from 20k visitors to 80 million in seven years.
Dropbox is a file-hosting storage service that helps you save files online.
Their initial release date was in September 2008 and they had only 100k registered users then.
The following year they had 4 million users and then in 2017, 33.9 million users alongside $1 billion in revenue.
What brought about such an increase?
They launched a referral campaign similar to PayPal’s refer-a-friend program.
It was a two-sided referral program where people were rewarded with free storage for referring people in their network and also for accepting a referrer’s invitation.
Here are some other things they did:
In just 15 months, Dropbox experienced a 3,900% increase in growth.
Mastic Spa, a cosmetic brand, wanted to:
So, they decided that creating a viral giveaway was the way to go.
How did it go?
The campaign ran for 5 days and they gave products for hair, body, and face to winners.
People who participated were asked to invite their friends.
What was the result?
Let’s move on!
The main difference between referral marketing and affiliate marketing is that in affiliate marketing, business owners pay third-party brand advocates or affiliates to bring in customers. In referral marketing, on the contrary, brands incentivize their existing customers to invite people to use their products.
They’re quite similar marketing strategies, which you can use to increase customer acquisitions.
Here’s how they differ:
As we mentioned, both strategies are similar in the sense that they:
Now, let’s look at some other concepts associated with referral marketing.
A referral program is a systematic process of rewarding customers to share or promote your product with their friends and family.
You’ll be leveraging customers who’ve enjoyed using your product and already started referring people so they can do more.
That’s why referral programs are also called word-of-mouth marketing.
Because they involve regular people giving recommendations to other people.
Let’s use this analogy to help you better understand referral programs:
“You have a hair stylist that’s so good at their job that you have to refer your friends and family to them.
The hairstylist sees that your recommendations have increased their revenue as they’ve been able to get more than two customer referrals from you alone.
They decide to scale it, so they tell you that for every new customer you bring, you’ll be entitled to a reward.”
That right there is a referral program.
Of course, you’ll need to set up systems (referral program software) to automate the entire process for your customers but you get the general idea.
Let’s continue!
A referral code is a unique identifier that can consist of numbers, alphabets, or alphanumeric characters assigned to participants in a referral program. It can even be the participant’s name.
Anyone who wants to join your referral program needs one so you can keep track of every activity they initiate and see who has:
In addition, this unique code ensures program rewards are automatically distributed to the participants and the referred customer.
Here's an example of a referral code:
How does it work?
Well first, you need to create a referral program. Then, you can:
A referral link which is also similar to referral codes is a unique link given to customers who want to participate in your referral program.
It lets you keep track of the referred clients your customer has brought.
How’s it different from a referral code?
Well, a referral code is a part of the referral link.
More specifically, the code is the unique identifier within the referral link.
Here’s what a referral link looks like:
It can also be shared via social media, email newsletters, or blogs.
Creating a referral program is an interesting way to grow your business as you’ll be leveraging the recommendation of people who’ve enjoyed using your product or service.
Aside from the fact that it’s cheaper than most marketing methods and generates a high ROAS, what else do you stand to gain?
Well, referral programs can help you:
Statistics show that of 83% of people who are willing to refer, only 29% of them do so.
So, creating a referral program can get them to take action as they’ll be getting a nudge from you asking them to share, alongside a reward to motivate them.
“How does that get me more referrals?”
Well, you’ll be optimizing the entire referral process by providing:
Doing this will boost the number of referrals you’re getting as it will be much easier to refer people.
And it’s even better if they share on social media as 71% of consumers are more likely to purchase from you.
Also, considering the referrals are based on word of mouth, referred customers are more likely to purchase from you as the trust level is high.
There are still other benefits, but we’ll pause for now as we’ve got more interesting concepts to share with you.
Let’s continue!
So far, we’ve been able to explain what a referral program is and how beneficial it can be to your business.
But we get the feeling you probably think there’s only one type of referral—the ones that come through word-of-mouth.
Well, word-of-mouth is definitely on the list but there are others too:
You get word-of-mouth referrals when your customers speak to their network directly about your business and get a reward in return.
It’s efficient and cost-effective as people trust recommendations from people they know more than they trust brands.
To get customers via social recommendation, you need to ensure you’ve got an amazing customer experience and constantly share valuable content so people can see how beneficial your product is.
What’s different is that the recommendation will be coming from you and it will be a personalized email with their name on it.
In that case, they’ll proceed to check for reviews about your business online.
If they like what they see, they’ll buy from you. So, they’re review referrals.
The incentives, however, need to be something they can use so they can be motivated to do more.
That said, let’s show you how to set up a referral program.
Before we explain how to build a referral program, we’ve got a couple of things you need to keep in mind:
Now, let’s get practical!
In other words, what exactly do you want?
More sales? Brand awareness? Or more signups, perhaps?
If your objectives are defined, it’ll be easy for you to know what needs to be done to make them happen.
Do you want one person to receive the incentive (referrer or referred customer) or two persons (referrer and referred customer)?
Once you’ve made that decision, you want to now decide what type of incentive it should be. Perhaps cash, discount, or free products?
What types of images should be used? How about the messaging? What’s the best way to reach them?
If you don’t have the answer yet, you’ll need to carry out research to know what your audience responds to.
You’ll be able to:
Templates are predesigned documents or formats that comprise some of the most important elements and layouts in the format.
They’re usually filled with:
All you have to do is quickly fill out and edit the template as you see fit.
Why are we talking about this?
Well, using a template for your referral program can help you provide customers with a delightful experience on their journey to becoming brand ambassadors.
What’s more, you wouldn’t have to spend time and resources trying to build a program from scratch.
As mentioned before, rewards are an important part of referral programs.
You could say that they’re the life force upon which referral programs are built.
Let’s look at different types of referral rewards or incentives you can use.
The prize will be a gift to your users as a little extra of your product or service in exchange for referring you to their friends.
If you want to nail this, offer 2-sided rewards so both the referrer and the referred have something to gain.
These kinds of rewards provide valuable info to your ambassadors.
This makes them feel special and a part of something big. Plus, they’ll have a good insight into what is coming.
Let’s keep moving!
Referral tracking is another crucial process in your referral campaign. It involves measuring and monitoring your campaign results.
You’ll be collecting data from the entire process such as:
Referral tracking helps you manage the entire referral process.
Why is it important?
Well, it lets you:
What else do you need to keep in mind?
You’ll see, let’s keep going!
How do you know if your referral campaign is effective?
Is there any indicator that you keep track of so you know if your referral marketing is working for you or if you need to restructure?
Well, that’s why you need to track metrics.
Here are some referral metrics to keep track of.
If you’re still reading this, it’s because you want to get results from your marketing efforts.
Let’s take you through some best practices so you know what needs to be done to have a successful program:
If your customers love the incentive, your campaign is as good as successful. It should be seen as an appreciation for their hard work.
You can do this by providing different options for them to share and optimize the program for mobile users.
Up next, let’s share some ideas for your referral program that we believe you’ll find useful.
There is a wide range of options available if you want to run a referral program.
However, we’ve put together five that we recommend based on experience and stats.
They include:
You can run contests or sweepstakes so customers can participate and the winner is given a reward.
Let’s move on!
“Say I’m ready to get started, how do I get more people to participate in my referral program?”
Great question!
We’ve added a video that answers this if you’d like to see it:
Anyway, here’s how you can get started in written text:
Buying from you is, first of all, a sign that what you are selling has motivated them to stick around (this was the key).
So, you’ll need to:
Set up automated emails: This allows you to build automated flows that include dynamic content, according to your customer’s purchase history.
A good approach would be to offer in your email a product or service the client has visited in the past but never purchased, as an incentive to sign up for your referral marketing program.
Retarget: Apart from your existing customers, you can use retargeting as a method to capture the email addresses of people who visited your store but left without making a purchase (new customers ahead).
If you treat your message and targeting with care, chances are that the right people will land on your landing page.
There are two options available for this:
That way you increase your chances of greater conversion rates, as people get what they expected when they clicked the ad.
Some other ways to promote your program are through:
Author’s Note: You can run a Facebook giveaway campaign, asking people to like and comment and then lead them to a landing page for the giveaway.
Read more about promoting your referral program here.
Now that people know about your campaign, how do you get more referrals?
That’s what we will discuss next!
There’s no doubt that referrals can help you grow your brand. Having one or a few of them trickle in doesn’t get the job done.
So, how do you get more of them?
To begin with, you need to:
People need to have this kind of experience whenever they interact with your business.
And that’s even if you have a great product, as they complement each other.
Great experiences spark conversations with their network and that, in turn, brings referrals.
We know you’re probably thinking about how this can increase the number of referrals you have.
But remember, you’re dealing with people and if there’s one thing people like, it’s being treated with respect and value.
What are we saying?
Have a great customer support system in place!
Listen to them when they’ve got suggestions and make them feel very comfortable.
This sort of one-on-one relationship will get them to share your business with their friends.
Sometimes, all you need to do is ask your customers for referrals. While they can do that without being asked, they might forget.
The best time to ask them is just after they’ve made a purchase, especially if you’ve got an automated process.
And when you ask them, ensure the payout or reward is attractive too.
Referral programs are mainly a business-to-consumer (B2C) marketing tool.
You know, brands get customers to bring in new customers.
However, you can also create a business-to-business (B2B) focused referral program. It follows the same principle except that your customers are other businesses.
If you give users a great product or customer experience, they’ll be more than happy to share it with other people in their network.
Simply put, a B2B referral program is a referral marketing system designed to get other businesses who’ve used your product or service to refer you.
This type of referral program is based on elements that relate to ecommerce businesses.
How does it work?
You create a referral link or code and give it to your customers after they’ve:
They then share this link with their network for a reward.
eCommerce referral programs can help more people know about your business and buy from you.
Software-as-a-service (SaaS) companies can also create referral programs for their brands.
People who use your service will get rewarded every time they bring someone on board.
They’ll be given a link to share and when people sign up using that unique link, they get rewarded.
In most cases, SaaS startups or brands create a two-sided referral program where both the referrer and referred customers get rewarded.
We saw Dropbox do that when they started.
SaaS referral programs can help raise awareness for your brand, increase customer loyalty, and more.
Let’s continue!
Here’s another concept you need to know and that’s because having a referral marketing strategy ensures that you have an effective referral program.
So, what is a referral marketing strategy?
It’s a detailed marketing plan about your referral program that has full details about what you want to do regarding:
You can think of it as a detailed guide describing how you want the program to run.
Great referral programs like the ones we shared above have one thing in common—they pay attention to details.
And you should too if you want your program to be successful.
That said, here are some mistakes you want to avoid:
Boring incentives: You need to lure clients with rewards that are enticing enough to make them take the time to sign in to their social media accounts and refer to their network.
Making it complicated: The longer your explanation, the less likely your clients will learn and participate in your campaign. Developing a complicated process can also make it look like you’ve got something to hide.
Setting the program on autopilot: Failure to review a campaign is one of the biggest mistakes we see.
It may mean that you chuck money out of the window and continue to fund a referral program that does not do much to bring you customers.
If you want to avoid that, make sure to review your campaign’s performance in order to improve it.
Giving up too soon: Stick with it! No matter what kind of referral marketing strategy you’re implementing.
Whether you’re trying email marketing or starting a simple campaign to increase click-through rates, marketing programs need time.
Be consistent, tweak your program, but most importantly, don’t give up.
Let’s move on, we’re almost there!
Finally, let’s talk about referral marketing software.
Referral marketing software is a digital tool that helps you create and launch a referral program with ease.
It simplifies things for both you and your referrers.
Aside from building referral programs, the software will help you keep track of how it’s going and measure the success of your marketing campaign.
The software you choose needs to be easy to use and user-friendly so customers don’t have a hard time navigating your program.
It’s time, let’s tie this up!
And there it is—everything you need to know about referral marketing!
We know it was a long read so if you felt overwhelmed at any point, you can take a break and come back to this when you’re less ’whelmed.
If this has made you think it’s time to create a referral program for your business, feel free to book a demo with us so we can help you get started.
Sounds good, right?
Thanks for stopping by and good luck with your referral campaign!
Written by:
Nik has launched products in many industries for himself and clients. He's responsible for growth at Viral Loops, and he has worked in marketing since he was 17. Passionate about applying psychology to marketing. Favorite number: 42. Let's connect on LinkedIn
