Complete guide to Referral Marketing: How to use referrals to get more customers

Referral marketing is an increasingly popular way to grow your business. But if you're not sure why it's so important, or how to do it right, we've got you covered!

In this guide, we'll teach you everything you need to know about referral marketing—from what it is and how it works, to the different types of programs that are out there, and how to implement them in your own business. 

We'll even show you some examples from companies that have had success with referral programs. Let’s get into it!

What is referral marketing?

Referral marketing, often known as word-of-mouth marketing, is a strategic approach used by businesses to tap into the power of satisfied customers and brand enthusiasts. It involves encouraging these loyal supporters to actively recommend your products or services to their personal networks.

This cost-effective marketing method leverages the trust and credibility existing customers have with their friends and family, making it a potent tool for acquiring new customers and boosting brand growth.

What are referrals?

Referrals are a marketing strategy that encourages existing customers to recommend your product or service to their network of friends, family, or colleagues. 

If a customer is happy with your product or service, they'll tell their friends and family about it—and if those people like what they hear, they might become customers too. Your customers are your biggest fans, so why not let them be your marketers?

Why is referral marketing important?

Referrals are one of the most effective forms of marketing. They're also one of the most cost-effective, because you don't have to spend lots of money on advertising or marketing. In fact, they're so effective that some studies show that referral programs are more effective than social media advertising…
 

Why? Because people trust their friends more than they trust ads. 

And yet, only 15% of companies actually have referral programs in place. One reason for this is that they don't work if they aren't done right. This is why we've created a guide with everything you need to know to get it right the first time. 

Why should you consider a referral program?

• 65% of new business comes from referrals
   
• People are 4x more likely to buy when referred by a friend
   
• Consumers rely on word-of-mouth 2-10x more than paid media - a Boston Consulting Group study shows that 66% of the respondents consult friends and family, and 50% consult customer opinions online before purchasing. This is 2 to 10 times more often than they consult the media, and more than they refer even to company websites…
   
• Referrals and customer loyalty: A loyal customer is one that is likely to keep recommending your business to others, so it's important to make sure that you have a system in place that encourages this behaviour.

Do referral programs increase customer loyalty?

Referral programs wield a powerful influence over customer loyalty. When customers are referred to your business by a friend or associate, studies show they're 18% more likely to remain loyal. 

This loyalty translates into increased revenue, as affirmed by research published in the Harvard Business Review. In essence, well-executed referral programs can significantly bolster customer retention and foster lasting brand loyalty.

Benefits of referral programs

• Enhance Brand Awareness: Referrals can enhance your brand awareness by increasing your reach and opening up new opportunities for sales.
   
• Build relationships with existing customers by rewarding them for recommending your business
   
• Increase purchases by making it easy for new customers to enjoy the benefits of your product or service
   
• Cost-effective & profitable: a form of marketing where customers do the work for you
   
• Keep retention rates high: Referrals help keep customers engaged with your company, which leads them to stay longer than they would otherwise.
   
• Effective: Referrals can drive more revenue because referred customers tend to be more engaged with your brand than non-referred ones.

What is referral marketing B2B?

B2B referral marketing, also known as business-to-business referral marketing, is a strategic approach where you harness the advocacy of satisfied clients and partners to promote your brand, products, or services within the professional realm.

This method operates similarly to B2C referral marketing, relying on word-of-mouth recommendations or formalised referral programs to drive growth and establish valuable connections in the business landscape.

Referral loyalty program examples

• B2B customer referral program
   

Referrals play a major role in B2B marketing for this cloud collaboration service. When a customer refers a friend to sign up for an account, they get 100 credits that they can use straight away. The referral program also uses upselling, giving customers extra credits every time a referral upgrades to a more expensive subscription. 

Unlike many platforms that only reward the referrer once the referee has purchased something, Airtable will give out credits even if the new customer only signs up for a free account. The company also gives bonus credits for downloading their mobile app - a great way of making sure as many customers as possible add the app to their phones. 

 

• B2C customer referral program

The ride-sharing service is used by millions of people around the world. Uber’s referral program makes it easy for the brand to bring new customers. When a new customer signs up using someone’s referral code, their first ride is free. 

The referrer gets credit sent to their account that can be used towards future trips. As drivers are required to keep Uber running, the company also rewards people who apply to drive Uber cars. 

Referral vs affiliate programs - what’s the difference?

What is an affiliate program?

An affiliate program is similar to a referral program in that it recognises people for bringing in new business—except in this case, the recognition comes in the form of a % commission on the sale. This type of program is often run via social media platforms, where people with large audiences promote your product or service with a specialised link that offers new customers a discount. 

Affiliate programs focus more on quick, short-term sales rather than long-term customer loyalty. This method can reach a larger audience of potential customers, but cannot always form emotional loyalty. New customers may see affiliate programs as insincere and affiliates are not necessarily loyal customers. 
 

However, affiliate programs are great for companies who don't have enough customers yet to justify creating a full-blown referral program but still want to boost sales…
 

How to create a referral program

Check out the steps below to get started with creating a referral program. 

Why you should have referrals embedded into your loyalty program

We've found that referrals work best when they are part of an existing loyalty program. 

If you're looking for a way to enhance your loyalty program, we have a module that will make it easy for you to add in a layer of referrals. We can help you make the most of your existing loyalty program by adding the ability for customers to refer their friends and family, which will then allow them to earn rewards. 

You have complete control and flexibility over what you reward your customers with, whether it’s a bespoke reward or simply a discount on their next purchase. 

💡Top tip: if you have existing gamification or a campaign, make sure to include referrals as another way to help them in their scoreboard. For example, if you have a gamified experience with a leadership board, offer a considerable amount of extra points for referrals. If you are running an “enter to win” campaign, offer extra free entries for each referral. 

How to promote a referral program

• Make sure your customers know about it! You’d be surprised how many companies have a referral program but forget to talk about it enough. 
   
• Use email campaigns with clear instructions and links on how to refer - give clear, specific instructions.
   
• Promote and build excitement around incentives - let your customers know what kind of rewards they can get for referring, and make the rewards for new customers as exciting as possible.
   
• Create a sense of urgency with time limits or exclusive and limited rewards. 
   
• Make the referral program easily sharable on social media

When to ask customers for referrals

When it comes to asking your loyal customers for referrals, it's important to get the timing right. We suggest you ask for referrals at the following points in a customer's journey:

1. Post-purchase - immediately after a customer has made a transaction with you.
    
2. After a positive review or rating - catch your customer at the perfect time
    
3. After a membership or subscription renewal - when a customer has renewed their membership, ask them to think about why they continue doing business with you and if they are willing to share this with others

How to make your referral program stand out - our top tips

• Gamify your referrals
  - You can make your referral program more exciting by creating a time-bound offer to earn rewards
  
  - Build in a tiered structure - offer more valuable rewards for customers that make the most successful referrals.
  
  Marketing Brew is a great example of a tiered referral program - users can clearly see the different rewards on offer and the amount of points required to earn each reward. More referrals = more valuable offers!
   
• Consider who are the best customers to invite
  - You might want to allow any of your customers to share with product or service with their contacts but you also could decide to limit this privilege to a specified group of people. For example, you could leave referrals exclusively to your best customers based on their NPS responses, your email subscribers or those that have joined your fb group etc.
   
• Engage your referred customers fast 
  - Set up automations with incentives and offers shortly after they join to keep them engaged. Our clients' results show that referred customers have up to 3x higher lifetime value, so they are worth investing in to keep them around.
   
• Ask customers for referral at their happiest 
  After they submit a good NPS score, after they've just bought something off your ecommerce site and left a positive review.