Business referrals: Why every business should have a referral program

Word-of-mouth recommendations have always been an effective marketing tool, and in today’s digital age where trust has been eroded, they are more critical than ever. Referral programs are a smart way to encourage people to promote your business, and they can be incredibly cost-effective too. When clients or customers recommend your business to their friends or family, it not only boosts your revenue, but it also enhances your reputation. A referral program is a structured approach to generating and tracking referrals, and it can be tailored to suit your business brand requirements and needs.

One of the biggest advantages of a referral program is that it allows you to leverage your existing customer base. Happy customers are more likely to recommend your business to others, and this kind of word-of-mouth advertising is a powerful tool for any business. Referral programs reward customers for their efforts, which can translate into even more referrals and long-term customer loyalty. By incentivizing referrals, you are creating a mutually beneficial relationship with your customers, and this can help to build a strong sense of trust and rapport between you and your clients.

But referrals don’t just appear out of thin air. Like gold, you have to do a little digging to hit pay-dirt.

That’s where business referral programs come in.

We’ve seen the biggest tech companies of our decade use referral programs to grow – Dropbox, PayPal, Uber, and more. Now we’re seeing referral programs explode into all industry verticals…

Here’s something crazy: one “in-person impression” (meaning a friend talking up your product to another friend) is 4x more impactful than an online, paid impression. 

This means that when my mom tells me about this amazing new product she found, I’m 4x more responsive to her than if I am to the ads i saw online searching for the same product. The problem is: referrals don’t fall into your lap from the sky. You have to take the steps to build a referral program, and then encourage your customers to refer new business to you. 

How do i build a referral program?

Building a referral program requires careful planning and execution. You can use a referral program template to get up and running quicker, but you’ll still have to adapt it to suit your business brand and needs.

Here are some steps to help you get started:

1. Define your goals: Before you build a referral program, you need to know what you want to achieve. Are you looking to get more demos booked? More incoming leads? Or maybe more attendees to attend your networking evert? Once you have a clear idea of your goals, you can design a program that aligns with them.

2. Choose the right reward your referral program: Rewards are a key component of any referral program. It’s your way to thank your customers for referring new business your way. They can be in the form of discounts, vouchers, freebies, or exclusive access to events, products or services. Make sure your incentives are appealing enough to motivate your customers to refer their friends and networks.

3. Choose a killer offer for your referral program: The incentive for the invitee (person invited) is something that can make or break your campaign. If there is a great incentive the person referring will actually be more motivated to refer friends – this is because they feel more like they are giving their friends something, rather than selling your business products or services. “Get a free bottle of wine if you book through my link” – you see how that makes the person referring look like a hero? The incentive is also a great motivation to push the person invited to actually take action, based on their friend’s recommendation.

4. Develop a referral process: Make it easy for your customers to refer their friends and family by creating a simple and user-friendly process. Use plug and play referral software to execute this if you don’t have access to a permanent development team.

5. Promote your program: Once you have a referral program in place, you need to promote it to your customers. Use email marketing, website widgets, social promotions, and other marketing channels to spread the word about your referral program.

By following these steps, you’ll be able to create a referral program that your customers love – it will also align with your business goals and help you achieve greater success in the long run.

You can also use this new AI powered tool kick start the process…

Auto-generate a referral program
for your business using AI

Famous examples of referral programs

The poster-child for referral marketing is Dropbox. 

Dropbox is an online document storage platform. Their product is storage space. The more space you need, the more you’ll need to pay. Unless, of course, you refer your friend. Dropbox had a simple referral marketing program: refer a friend and you get 500 MB of storage free per friend! Plus, your friend also gets 500 MB free. This is a 2-side referral program (which is more expensive, but ultimately better for your customer base). Using this method, Dropbox grew its customer base 3900% in 15 months. That’s unheard of! 

How about Paypal? 

Paypal is another solid example of real-world referral marketing. When Paypal got started, they simply gave people cash for opening an account. And when the new customer referred a friend, they got more cash. How much cash? Originally it was $20 per friend. Obviously, this got pretty expensive, so Paypal phased it down to $5 per referral and ultimately spent $70 million on this program. That’s not chump change!  But, Paypal saw 10% growth per day during the heyday of this program, growing from 1 million to 5 million customers in a matter of months. 

Uber also drove customer growth through referrals: Free rides for two

Uber’s referral program is simple, yet effective. Each existing user gets a referral code. They can give that code away to anyone. When someone creates a new account and uses their friend’s code, both users get their next ride free. This is another very effective 2-side referral (see a pattern?) that has helped Uber really corner the ride share market.

Real world examples of referral programs

Great news. Referral marketing is great for every business, not just tech unicorns 🦄

Bombas, the hip sock company (full disclosure, I love my Bombas socks) has a slick referral program where an existing customer shares Bombas on social media. When their friend clicks the link, the friend gets 25% off their Bombas order. Then, the original customer gets $20 to spend on new socks! 

Meal Kit businesses like HelloFresh and Blueapron have also used this 2-side referral strategy, offering discounts on new customer purchases and rewarding their existing customer base for successful referrals. 

Wine Butler is a wine farm and distribution company based out of Australia. They asked their loyal customers to share their wine recommendations with friends and managed to grow their community of wine connoisseur, and customers.

How can I measure the impact of a referral program on my business?

Referral programs can be a powerful way to grow your business while keeping your marketing costs low. However, measuring the impact of a referral program can be challenging, but not impossible. If you use plug and play referral software (we’ll post a comparison table below of the top softwares to choose from), you should be able to get referral tracking like this out of the box 👇

Here are some of the key metrics that can help you measure the impact of your referral program on your business. This is what you should be looking for in your referral softwares analytics section.

1. Conversion rate of your referrals: The referral conversion rate is the percentage of referrals that turn into paying customers. This metric can help you determine the effectiveness of your referral program in attracting new high quality leads, the more leads that are referred to you that convert, the higher your conversion rate will be. To calculate this, divide the number of referred customers who made a purchase by the total number of referrals generated. This conversion rate should be around 2x the conversion rate of the leads you acquire through other online marketing channels.

2. Customer acquisition cost: In most cases, your overall acquisition should drop over time as your referral program grows. This is because your referral program generates buzz and awareness about your brand in the network of your customer and prospects. This means you’ll get more free organic leads, and your CPA should go down over time.

3. Customer lifetime value (CLV): CLV is a metric that measures the total revenue a customer generates for your business over time. A strong referral program can increase customer retention rates and bring you customers that spend more, leading to higher CLV. To calculate CLV, multiply the average purchase value by the average purchase frequency and multiply that by the average customer lifespan.

3. Customer feedback and reviews: ask your customers to review your referral offering and give you feedback on how you can improve. The more you align your program with your customer values (and your own), the more likely you are to attract the right kind of buyers to your business.

By measuring the impact of your referral program using metrics such as referral conversion rate or customer lifetime value, you’ll have all the data you need to optimize your campaign over time. You’ll want to keep the referrals flowing into your sale pipeline, so keep a close eye on your referral analytics and make sure you adapt the strategy monthly based on feedback and data.

How can I increase referrals from existing customers?

Referral marketing has been one of the most effective marketing strategies for businesses of all sizes. Customer referrals are considered to be one of the most trusted forms of advertising as it comes from people who have already experienced your products or services and are satisfied enough to refer them to others. Here are some ways to increase referrals from existing customers:

1. Provide exceptional customer service: Customers tend to refer businesses that provide them with exceptional service. Ensuring that your customers are satisfied with your products and services will help to increase the chances of them referring your business to others.

2. Make the referral process easy: Make it easy for your customers to refer your business to others. Set up a referral program that provides incentives for both the customer and the referred person. Offer discounts, free services, or other rewards for successful referrals.

3. Ask for referrals: Don’t be afraid to ask your customers for referrals. They may not think of referring your business unless you ask them to. You can ask for referrals through email, social media, or even in person.

4. Stay in touch with customers: Keep your existing customers engaged by staying in touch with them through regular newsletters, updates, or special offers. By maintaining regular communication, you can keep your business top of mind and increase the chances of referrals.

5. Monitor and measure your referrals: Keep track of your referrals and measure the success of your referral program. This will help you identify areas where you can improve and make necessary changes to increase the number of referrals you receive. By monitoring your referrals, you can also identify your top referrers and reward them for their efforts.

Implementing a referral program can be a game-changer for your business. By encouraging your customers to refer new business to you, you can increase your customer base and sales while also building loyalty and trust with your existing customers. By providing exceptional customer service, making the referral process easy, asking for referrals, staying in touch with customers, and monitoring your referrals, you can create a successful referral program that benefits both your business and your customers.

How can you get started? 

It’s a lot easier than you think to get started with referral marketing. You don’t need a developer or a growth-hacker, you just need an existing customer base that uses and loves your brand.

If you have that, you can get referral programs for businesses off the ground in just a few minutes using plug and play referral software. Below we’ve included a breakdown of the top referral software on the market right now, ranked by their rating and online reviews across trusted sites like Capterra and G2. This shows what tools that are currently trending with real business just like you.

Referral Factory ranks top with an averaged rating of 4.87 across the board, this average from more than 300 customer reviews across various independent review sites. These are the features you’ll get on the entry level Referral Factory plan:

  • Simple referral program software that you can use to build and track a fully customized referral program, without writing a line of code.
  • Access to 100+ referral program templates, designed by marketing experts. We have templates for most industries and they are free to use on all plans.
  • Access to 200+ referral rewards and incentives like vouchers and digital cash cards. The ability to issue your own rewards manually, through webhooks, or through Zapier. Our referral software helps you automat the issuing of rewards
  • Easy to install referral widgets, pop-ups, embeds, and pages to promote your referral program and actually get referrals.
  • You can use our referral software to sync your CRM contacts to automate asking your HubSpot, Pipedrive, Intercom, Zoho or Salesforce contacts to refer friends. Or connect any CRM through Zapier.
  • Advanced referral analytics to track everything from your top referrers, to the channels your users are sharing their referral links on.
  • Free onboarding and a great support team that are experts on both referral marketing and influencer marketing.

Why do some businesses still overlook the importance of referral programs?

Perhaps it’s because they believe that word-of-mouth marketing is not a controllable or measurable marketing strategy. However, this couldn’t be further from the truth. In fact, referral programs are one of the most effective and low-cost ways to generate new business. Not only do referrals have a higher conversion rate, but they also result in higher retention rates. According to a study by Wharton School of Business, the lifetime customer value of a referred customer is 25% higher than that of a non-referred customer. You can find more referral marketing statistics here.

Furthermore, referral programs are a great way for your business to build brand credibility and trust. When a friend or family member recommends your business to their network, it’s perceived as a personal endorsement. This endorsement can go a long way in convincing potential customers to choose your business over your competitors. Additionally, and often an overlooked benefit of launching a referral program, is the fact that doing so can help your business identify your most loyal customers. These customers can then be rewarded for their loyalty, which can further enhance their loyalty and increase the likelihood of them referring more friends and family to your business.

We truly believe that the businesses overlooking this powerful marketing channel are doing so because they don’t understand how valuable it can be, and also they don’t know there are plug and play tools to help them bring a referral program to life without having to hire any developers.

Auto-generate a referral program
for your business using AI
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