Ever since the word “marketing” came around, it became closely associated with the word of mouth. In its essence, recommending a product or a service to a friend or a family member has been the most effective way of letting someone know (and perhaps purchase) those said products or services.

Enter referral marketing. If you are a successful company or a startup which had a recent boom in virality and sales, you will need to ensure that you have a good rapport with your customers so you can generate new, better customers. Referral marketing is best utilized in a community where trust is key; there has to be some degree of confidence in customers’ motivation to tell their friends about your business. It’s almost a situation where everybody wins. You, as the business, get free marketing for your store, your customer gets social validation for recommending something great, and the person referred gets a recommendation from a trusted source.

Among the plethora of online shops and B2C agencies using popular platforms like Shopify and WooCommerce, any company could find themselves entangled thinking about what to do to grow their business further and how to significantly reduce the cost of acquiring new customers AKA their CAC. Referral marketing programs have proven to skyrocket them and take their overall marketing strategy into great frontiers.

In this guide, we will discuss referral marketing programs, how they can benefit your business, and how to build a widely successful referral program.

Referral Marketing, Explained

It is no surprise that there is immense power to referral marketing. It is defined as the means of acquiring customers and growing sales through the referral of one person to another or more than one either in real life or online.

In social psychology, this is known as reciprocity. The existing customers on a website or at a physical shop are usually given an incentive to make them promote the business, where there is a win-win for both parties involved. This could also be done on social media, in which case affiliate marketing (basically, the step-sister of referral marketing) comes to play. But let’s keep this for another post.

Types of Referral Marketing Programs

When it comes to direct, online referral programs, there are usually two types of reward system to give out to your customers:

The one-sided reward: This means that only the customer referring your business to another is the person that will get rewarded.

The Dual-sided reward: This means that the customer and the person referred receive a reward for participating in the referral program.

Or you could only reward new customers who are yet to make a purchase on the website. Although, for most companies, the two-sided structure yields the most referrals. Whatever one you choose, you may want to consider first your budget, what type of market you are in, and the stage of the product and business are in.

In all cases, the revenue is guaranteed. Whether you are a small store or a large corporation, referral marketing is one of the cheapest and slickest ways you can promote your business while making the customer an active member of your community.

What Types of Incentives Advocates Prefer

It is hard to decipher what customers actually want from referrals. Luckily, an intelligence report by Gartner’s third annual L2 found that cash is king. The report found that overwhelmingly 77% of people say they prefer to receive cash compared to other types of incentives. This is how companies like Uber or most delivery apps have seen great success in offering cash bonuses for referrals, and it’s a great fit because the rewards stay in their account for future use.

But just because the existing customers and the referred customers want cash, that doesn’t mean that’s what you should give them. Instead, the incentive should appeal to advocates and fit your business model. You should not give away money haphazardly. You’re in business to spread brand awareness, grow your customer base, and retain as many of these customers as possible.

Other incentives to consider:

• Coupons
• Service upgrades or freebies
• Company swag (i.e. certain accessories and add-ons)
• Gift cards (i.e., Amazon, Apple, Visa)
• Donations to charity

How Your Business Can Grow with Referral Marketing

Now that you have digested the essence of referral marketing, it is time to take an in-depth look as to why your startup or company can wholly benefit from a referral marketing program.

Let’s start with some statistics: McKinsey & Co, an American management consulting firm, says referrals influence up to 50% of all purchasing decisions. Not only that, referrals generate more than two times the sales of paid advertising. Boston Consulting Group corroborates this, by mentioning in a study that consumers rely on word-of-mouth 2x to 10x more than paid media.

That’s not to say that paid ads and social media marketing don’t perform well and that you shouldn’t invest in them. But for what it is worth, referral marketing has to be a priority in your overall strategy nowadays more than ever.

Other reasons to consider:
Acquiring New Customers for Less Money

New customer acquisition is tough. The advertising costs can be too high, the company budgets are tight and consumers are looking around for the best deals and discounts.

It is already pretty hard to find customers and get them to use your product. You are already paying for company expenses and the budget to advertise for prospects can be exuberant on its own. To overcome this challenge, businesses can choose and work on a referral marketing program that can satisfy both the consumer’s and their needs.

You can also keep these prospects and make them come back to your website to shop again or browse through it. After thoroughly investigating what your audience likes and their behavior on their website, you can tailor a fitting program with zero hassle and a very high ROI, and indeed, a fulfilling loop.

Also, worth noting that the daily email newsletter Morning Brew’s referral program built an audience of 1.5 million subscribers. That’s right, 1.5 million.

It Is All Automated Marketing

Hiring for a new marketing position or spending money on an ad strategy to accelerate your position in the field can be cumbersome. Referral marketing programs eliminate that.

It takes less than 15 minutes to set up your referral program. This way, it becomes an automated marketing channel that you can rely on. What’s more, you can use the same program to remind your customers to send referrals after their purchases, through an email or a text, and you can collect new leads without lifting a finger.

Building a Valuable Database

Speaking of leads, isn’t the number one goal of lead generation is making more revenue and driving awareness to what you do? Because of so, referral marketing can be a great weapon to achieve what most marketers look forward to the most in creating demand: a huge database of customers that match their target profile who might have opted in to receive emails.

You can target these leads in your future campaigns. After buying your products by means of a sweet referral, you can nurture this with high-quality, targeted content, and it won’t be long until they convert into a loyal customer who loves your brand.

At the beginning of the 2000s, Paypal’s referral program helped the company achieve 7–10% daily growth and a user base of over 100 million. PayPal gave away money in exchange but the results were spectacular till today.

Referred Customers Have a Bigger Lifetime Value

In marketing, customer lifetime value (CLV or often CLTV), or life-time value (LTV) is the projected revenue that a customer will generate during their lifetime for your business. Neil Patel of NP Digital agency explains in a video that the onboarding process of any website is the most essential step in making sure that your customers stay loyal to your brand.

If you add a marketing referral program to the mix, you will be going to the next level with your onboarding process for a prospect when they sign up on your website or when they are purchasing a product – whether they are in the Cart or in the final stages of buying.

More Brand Awareness and More Business Solutions

It goes without saying that referrals can be placeholders for any conversation, be it virtual or not. This gives your brand a shining spot when a satisfied customer or a new one actually refers it to another and so on and so forth. The more your customers talk about your brand, the more people learn about you and your products or services.

In addition, if your referral program has a discount on the customer’s next purchase, then there is a significantly higher chance of that customer coming back to buy again and give in to more sales on your store or website.

Thrive! Resumes’ founder, Joni Holderman, gets 82% of new business from referrals. “I offer clients a free resume update when they refer to a colleague who purchases a resume. It’s a win-win. I get great new clients who are an excellent fit, get to stay in touch with valued clients, and the costs are about the same as I would pay in marketing to acquire a new customer.” She mentions on her LinkedIn page.

How to Set up Your Own Referral Marketing Program on Your Store

You need to first make sure that you know what your goals are for your referral program. Perhaps you want to drive (more) sales to your website. Perhaps you want to increase new sign-ups to free trials or provide monetary or non-monetary returns on app downloads. Deciding how many actions to kickstart this program, and how you will measure them and judge success are all the key here.

And mind you, not every business offers the same incentives. Let’s say you run a business that offers technicians on-demand who are offering multiple services like house cleaning, furniture cleaning, pest control – Most of your customers will not need these tasks to be done again more than once or twice a year. In this scenario, you may offer a cashback incentive or a gift card, but not future credit. This is why referral programs often work best when they are run by online stores.

Know Your Audience and Their Behavior

A very important key to the success of any startup is to know where their audience is from, how they act on their website, and what makes them come to their products/services – their motivations. Putting this in the context of a referral program, this means offering rewards and incentives that motivate them to share your business’ offers with friends. Put yourself in the customer’s shoes and ask yourself: “if I were the person receiving this offer, would it motivate me to take action?”. Or better yet, survey your audience and get hints from them!

Launch the Program and Spread the Word

It is now the Eleventh Hour! The time has come to launch your new customer referral program. In order to ensure a successful launch, you’ll want to plan well in advance and work on promoting the program very well, and keep your sales and marketing teams hooked on every update. Keep your referral messaging clear and easy to understand, and make sure the elements, from the way they look and feel, are in line with your business.

Be sure to advertise the referral program across multiple channels beside your website, like emails, newsletters, and social media. Here are a few tactics you can use for your new marketing referral program through multiple platforms:

• Ensure the referral program can be found in either one or more of these top five locations: Your top navigation bar, your sitemap (bottom navigation), your checkout process (ideally right after the purchase), in your emailed receipts and/or invoices, and in all your email footers.
• Your design and copy matter. If the referral program’s design and copy are not attractive enough, you instantly lower your chances of getting customers to click on it. Always lead with money or credit. If you are offering $10 or $20 off, put it in big bold letters. You want to grab the website visitor’s attention to prevent them from going to a competitor
• Add the CTA (call to action) button to your website. Include a pop-up CTA banner before a person leaves your website with a mention of the referral program.
• When designing your referral program’s banner and CTA for a mobile device, make sure it adheres to responsive design and fits perfectly on a screen in an effort to make the process just as easy.
• Share your referral CTA link rather than opening a new tab and having to share it from that location and make it possible for users to share referrals via email, text, or messaging apps.
• Consider sending an email to every customer who has purchased from you in the past 30-60 days to retarget them for your referral program
• Launch a mini-