Referral Marketing: The Ultimate Guide to Referral Programs

Word of mouth marketing is incredibly useful in generating buzz around your brand, and you can take it up a notch by implementing referral marketing.

Referral marketing is a marketing scheme that is easy to execute, and it can also increase your sales, customer base, and brand awareness.

It relies on one key factor for success – referrals from your happy customers. To pull it off, you will need a clever plan that benefits you, your buyers, and your prospects.

If you’re interested in creating your own referral marketing strategy, keep reading this article. We’ll elaborate on what it is, its benefits, and how to start your own referral program.

What is referral marketing, and how does it work?

Referral marketing is a strategy used to drive your existing customers to promote your business to their peers. The most common strategy is to ask a customer to refer a friend or friends to your business in what are called referral programs.

Understanding a referral definition comes from the principles of word-of-mouth marketing, where people share their opinions about a product and make referrals to their friends and family.

The difference between word of mouth and referral marketing is that referral marketing is planned. Businesses intentionally craft referrals schemes to encourage friend referrals by giving out rewards to their customers and the people they’ve invited.

One of the best referral programs are Airbnb Coupon Codes, which you can get after the friends you invited completes a booking. In return, the referrals will also get credits for their first trip.

If done right, referral marketing can generate higher conversion rates, resulting in more loyal customers.

The fact is, people don’t believe in brands as much as they trust their fellow consumers.

User-based content, like social media posts and comments, appears more authentic, inspiring more confidence in others to make a purchase.

67% of people are more interested in buying goods recommended by friends and family.

When they become new customers, they are also more likely to stay with you long-term.

With that, referral marketing can benefit various companies. However, it works best for online businesses, as most referral programs rely on sharing content through online channels.

What’s the difference between referral marketing and affiliate marketing?

In practice, both strategies use an incentive to motivate third parties to promote your brand. However, there are some key differences between the two.

In practice, affiliate marketing employs a brand ambassador to spread the word about your products and services. This person is usually an influencer looking to do business with the company.

In exchange, they’ll get a commission every time someone purchases through the link you provided.

Brands that hire affiliates have a specific target market they’d like to focus on. Thus, they accept influencers who have a strong online presence among that crowd.

Meanwhile, businesses that use referral marketing rely on their existing customers for promotions.

Instead of being paid to do so, these people will be given a reward when someone presses their link and become new customers. In this case, the incentive could be cash, coupons, or freebies.

Since not all these customers are influencers, they will probably target people close to them to get those rewards. As such, the market reach is usually smaller yet more targeted and focused.

4 great examples of referral marketing systems that work

Here are some of the best referral program examples to get inspired by:

1. Dropbox

Dropbox’s referral program has been used as a case study for years, and with good reason.

The referral marketing system rewards both the customer and the referral with an additional 500 MB in cloud storage.

As a result, the file-sharing company significantly expanded its user base just through referrals.

To refer a friend, users can click one of the share buttons or sync their Google Mail account to send invites in bulk. This feature enables them to contact more people simultaneously.

2. G Suite

The G Suite referral program offers cash to users and is an irresistible method of referral marketing.

This collection of Google products allows users to buy multiple licenses at once. Hence, how much customers get depends on what subscription the referral chooses and the number of licenses purchased.

For example, you will get $30 for every user license in the Business plan.

So, if your friend chooses the Business plan for 20 users, you can get $600 in total. In return, they will get a 20% discount on their G Suite subscription when you spread the word to friends.

3. Girlfriend Collective

For most women, a $100 pair of leggings might seem too much of an expensive investment.

This is why Girlfriend Collective offers a referral program that gives away the product for free.

All you have to do is submit your email address and share a promotional link on Facebook. You can check the status of your referrals on the website.

The marketing program got so big that it picked up media attention. Therefore, the company was able to reach a wider audience, resulting in more sales and social media followers.

4. Harry’s

Another way to create a referral program is by designing a tier reward system that provides multiple incentives. It can get people more excited about promoting your business.

Harry’s referral program contains several levels, where you’ll get better rewards as you keep inviting more people.

For instance, referring five people will get you a bottle of Harry’s shaving cream. If an additional 20 referrals decide to join, you will receive a full shaving kit.

From this marketing strategy, Harry’s acquired over 100,000 email addresses before the business was officially launched.

Benefits of implementing a successful referral program

If you’re unsure whether a referral program can benefit your business, here are some other advantages to consider:

Cost-effectiveness. Most of your costs will go towards maintaining the marketing program and incentive, which can be adjusted to suit your budget.
Brand awareness. Even if a user does not convert, your business will still get more recognition no matter the outcome.
Stronger credibility. As your brand name gets more widespread, people are more likely to perceive your company as reputable and trustworthy.
Highly-targeted strategy. The referrals will probably have similar qualities to your existing customers, making it easier to reach out to your market.
Opportunity to expand. If your business gets recommended to different social circles, your brand can potentially widen its target market.
Competitive edge. Being the most referred company in your niche can distinguish you from the crowd, especially if your industry is highly saturated.

How to create a referral marketing program?

If you want to set up your own referral program, refer to these steps:

1. Evaluate your products or services

First, assess your business offer. What makes a successful referral marketing strategy isn’t just the program itself, but also the product itself.

Since referral marketing depends on encouraging word-of-mouth behavior, your product or service needs to be shareable. It should have:

Usefulness. It can be the first of its kind to solve the issue or provide an innovative marketing solution to a common problem.
Emotional value. Customers are invested in the offer because they support or can relate themselves to the story behind it.
Reputability. People are more likely to talk about the experiences that made them thrilled the most.

If your offer has checked more than one of the criteria above, you’re on the right track. Otherwise, figure out how your offer can stand out, particularly if the marketplace is quite competitive.

To begin with, try researching your current customers. For example, ask yourself these questions:

What drives your clients to purchase in the first place?
What makes customers come back?
What specific detail or feature are your customers looking for that you haven’t yet provided?

Take some notes of your answers here. Use them to think of ways to improve your offer.

2. Design your referral program

With your notes on hand, start creating the blueprint for your referral marketing program.

Begin by stating your primary objective as this will guide you during the marketing strategy development process.

It can be anything from increasing conversion rates for specific products to something simple, as getting customers to make more purchases.

Once completed, it’s time to plan your program. Use referral marketing software, such as Ambassador or Viral Loops, to make the job easier. It will help automate the process and keep track of all your contacts.

When planning your strategy, ensure to take the following aspects into account:

Incentives

When choosing what kind of rewards to choose, remember that they have to resonate with your customer, be relevant to your business, and suit your costs.

Consider Dropbox as an example. Its incentive works because it’s what they can offer and what their customers want, which is more cloud storage.

Think of your business and the primary objective of the program. To illustrate, here’s a list of rewards commonly used in referral marketing:

Money. It’s a highly appealing incentive because it can be used anywhere and by anyone.
Coupon codes. They work better if you aim to encourage repeat purchases since these can only be used in your store.
Collecting points. They can be exchanged to buy your products or services for free.
Freebie. For example, subscription-based businesses give out 30 days of services for every referral that signs up.
Custom incentive. This could be anything from providing a special experience, such as an online concert ticket, to a one-of-a-kind physical gift.

Other than that, determine if you should give the same incentive to both the customer and the referral.

Typically, the existing customer would get a bigger reward as they’re the ones who do most of the work.

Reward system

Most businesses would stick with a simple reward system with one incentive. Here, the customer will receive the same reward amount after every referral.

In this case, decide on the maximum amount of bonus each person can get. It can prevent the exploitation of the referral program.

For example, when using G Suite, every subscriber that joins its referral program can only get up to $3000 in total. Thus, everyone has more or less the same number of chances to get the reward.

Alternatively, some businesses opt for a tiered reward system, just like the aforementioned Harry’s.

Design a program consisting of several steps, and if possible, more than one type of incentive.

One benefit of this system is that you can influence how much effort your customers exert to promote your business.

Plus, you can control the size of the incentive each shopper would get, saving you more costs in the long run.

On the flip side, your program will sound more elaborate and challenging to understand. Thus, if you go with a tiered reward system, make sure the procedure is simple.

Referral page

On your website, the referral page is where you persuade the customer to join the program.

It should provide all the essential information, including the instructions for joining as well as the terms and conditions page.

When creating your referral page, focus on the following elements:

Headlines and subheadlines. Not only should they be attention-grabbing, but they should also describe what benefits the visitor will get.
Copy. It has to be clear, straightforward and inviting. Make it easy for customers to understand the instructions and what they will receive in return.
Form. Include the most relevant fields only. Most of the time, you will only need the customer’s name and email address to send the referral link.
Call-to-action button. Make sure that the color and shape are unique and stand out from the rest of the page or message. Pay attention to the text as well. It should encourage visitors to click, yet avoid any clutter.

3. Promote your referral program through multiple channels

After your referral page goes live, let people know about the program. Use the following examples when promoting it:

Website. Include the link to the program on your homepage, blog, and navigation menu. Alternatively, create a pop-up ad to notify visitors more effectively.
Email marketing campaign. If you have a newsletter, you can mention the program there. Or, send an email about the program to your contact list separately.
Social media. Place the link in your posts or profile to get more exposure.
Customer service. If appropriate, briefly talk about the program every time you finish helping a customer.

4. Keep track of your program’s performance

Once your program is up and running, check on its performance regularly. Monitoring it can help you determine what’s working and what isn’t.

Most referring marketing software provides an analytics feature, which can provide insights on your referral and sales growth.

You can also use Google Analytics for this. Once you’re there, from your dashboard, go to Acquisition > All Traffic > Channels to view your traffic sources.

Then filter which ones come from your referral links.

When analyzing your referral program, make sure to pay attention to:

A number of participating customers. This data can tell you how many people are willing to join and whether the strategy is successful in engaging people to take part.
Referred conversion rates. In other words, how many referrals end up signing up and perform a transaction.
Channels used to share your links. You can determine which mediums are more effective in getting highly-converting referrals.

Use these insights to improve your referral program from time-to-time. As you gain more data, you can craft a marketing strategy that works best for your business.