Referral Marketing: Tips for a Successful Referral Program

A referral marketing strategy allows you to leverage the power of word of mouth. Learn how to encourage customers to recommend your product to their friends.

Imagine that you need an attorney to assist in a real estate transaction. What would help you choose a law firm: a billboard ad, a firm’s website, or a referral from a good friend?

For most people, the answer is a referral. Referrals and personal recommendations are among consumers’ most trusted sources for information. According to Nielsen’s Trust in Advertising Study, 88% of consumers place more faith in recommendations from people they know than any other source. 

This creates a challenge for marketers—after all, businesses can’t create or control personal recommendations. They can, however, encourage them through strategies like referral marketing. Here’s how to implement a referral marketing program for your business. 

What is referral marketing?

Referral marketing is a strategy for motivating customers to recommend your business and its products or services to other consumers. 

Referral marketing strategies replicate the results of organic customer-to-customer promotion. If you’re impressed by your new espresso machine and recommend it to a friend, you’ve made an organic referral. Referrals can also come from social media platforms, blogs, articles, or customer testimonials or reviews. Referral marketing programs use incentives, such as discounts or rewards, to encourage this behavior. Under a referral marketing program, for example, you may receive $20 in store credit for any referral resulting in a purchase. 

Benefits of referral marketing 

• Control customer acquisition costs
• Attract high-intent, high-value customers
• Build trust between business and customer

A referral marketing program can help you control customer acquisition costs, boost sales, and build trust in your brand. Here’s an overview of the benefits. 

Control customer acquisition costs 

Customer acquisition cost (CAC) is how much it costs a business to attract new customers. A successful referral program can help lower these costs. Instead of competing with other retailers in an increasingly competitive digital ad market, you can use a referral program to harness the power of your existing customer base. 

Running a referral program also gives you more control over the terms of your customer acquisition strategy, allowing you to design your program around your available budget. For example, a business with little cash on hand might design a program that rewards new customers and referring parties with a discount applied to their next purchase. Although this strategy will reduce your profit margins on sales resulting from referrals, it also allows you to reach new customers and boost sales with minimal upfront investment. 

Attract high-intent, high-value customers 

Your customers have a nuanced personal understanding of those in their social and professional circles. Existing customers can recommend products and services they know someone is looking for and likely to appreciate, thus bringing in high-intent customers who are much more likely to make a purchase. It’s hard for brands to match this level of personalization through targeted advertisements, so it’s no wonder that customers referred by a friend are more likely to convert. Referral marketing works, in part, because the customers it targets already have a need or desire for your product.

Build trust between business and customer

Think of a product you’d recommend to a friend. Odds are that you genuinely believe in it—and if you didn’t, it would probably take more than a discount code for you to recommend it. After all, when you recommend something, you’re putting your own credibility on the line.

It’s no wonder, then, that consumers tend to trust recommendations from individuals they know over information put out by companies. In fact, research by Fortune shows that 92% of consumers trust personal recommendations from friends more than ads. While paid ads, blog posts, and direct-mail campaigns do little to move the needle on consumer trust, a referral marketing program can help you start off your relationship with new customers at a higher level of trust.

Tips for successful referral marketing

• Ask at the right time
• Use referral links
• Reward everybody
• Build a loyalty program
• Say thanks

There are many referral marketing models—and you can design yours around your unique business goals. Here are a few popular strategies to consider as you build a referral marketing program. 

Ask at the right time

The cornerstone of any referral program is asking for referrals. To increase your odds of winning a recommendation, time your ask strategically. Common points include after a customer makes a purchase, after a customer leaves a positive review, or after a customer mentions your brand on social media. 

Use referral links

A referral link is a unique, trackable link that makes it easy for your customers to participate in your referral program—all they have to do is embed the link in an email, direct message, or text. 

Some companies use referral forms to simplify this process even further on their websites. A referring party can then enter the email address of a friend they’d like to refer, and the company will automatically generate an invitation email that includes the link. If a new customer makes a purchase after clicking on a referral link, you’ll be able to associate the sale with the referring customer. This can be particularly valuable if you plan to reward existing customers based on their purchases. 

Reward everybody

Referral programs typically use discounts, store credit, or other incentives to reward customers who refer new customers to your business. Some programs also empower the referring party to pass an incentive along to the new customer—for example, by giving newly referred customers 20% off on their first purchase. Rewarding both parties can increase the likelihood that a current customer will make a referral and that the referred customer will make a purchase. 

Build a loyalty program

Starting a loyalty program can help you connect with your most enthusiastic and engaged customers—in other words, the individuals most likely to become ambassadors for your brand. You can reward referring customers with loyalty points or other status-based incentives, such free upgrades for frequent buyers. As with discount programs, businesses have the flexibility to customize terms. For example, you might base point allocations on purchase value or incentivize other activities, such as signing up for marketing emails or leaving product reviews. 

Say thanks

The incentives a business attaches to a referral program can provide the extra nudge needed to encourage a referral, but they’re unlikely to work unless a customer truly believes in your product or service. In other words, there’s a good chance that customers who participate in your referral program truly believe in your company. Going the extra mile to thank them—with a personalized email, a surprise gift, or even a phone call—can make them even more loyal to your brand and increase the odds that they will make more referrals. 

Referral marketing examples

Referral marketing is a common strategy. Here are three successful ecommerce examples.

Bombas

Apparel company Bombas creates and donates one item of clothing for every item purchased, and the brand’s referral program, “Best Buds Give Bombas,” highlights this commitment. Bombas provides a referral link that grants new customers 25% off and gives referring customers $20 in store credit. The final step in the brand’s four-point referral program points out that purchases made by both new and referring customers help Bombas donate clothing to people in need.

Brooklinen

Bedding company Brooklinen has built up its customer base in part through its referral program. For every referral, Brooklinen awards the existing customer 1,000 points, which can be redeemed for store credit or a variety of products. The new customer gets $25 off their first order of $100 or more.

Saie

Beauty brand Saie’s “Give $10, Get $10” referral program allows existing customers to give new customers $10 off of their first order—and when a referred customer makes a purchase, the referring customer also receives $10 in store credit. 

The Saie referral program page instructs users to enter their email address before automatically generating a referral link. Users can then copy the link, share it to social channels, or input a potential customer’s email address into the form to send a referral link using the Saie system.

Referral marketing FAQ

What is a referral in digital marketing?

In digital marketing, a referral is when somebody recommends a company to an individual. Referrals can be informal (i.e., word of mouth) or part of an organized referral marketing program. Digital referral marketing programs typically use referral links to track conversions and attribute sales to referrals.

What are the benefits of referral marketing?

Referral marketing can lower a business’s acquisition costs, get products in front of people more likely to make a purchase, increase trust between a brand and a new customer, and increase lifetime loyalty.

What are the 4 types of referrals?

There are several types of places where referred customers might come from. They include: 

• Friends and family
• News publications or blog posts 
• Customer reviews and testimonials
• Social media and influencers