Would you be more likely to spend your money with a business that you’ve never heard of before or choose a company that was recommended to you by someone you know? The answer is probably the latter. Studies show that 92% of people trust the recommendations made by people they know, and 82% actually seek recommendations. 

To be frank, we all want to feel confident about where we choose to spend our money. Therefore, taking a referral is the easier and less risky decision when deciding where to spend your money. Now the next question becomes; how to make sure your small business is the one that gets referred? 

Keep reading this article for a full breakdown of referral marketing and how it could help you. 

What is Referral Marketing?

A referral (also known as word of mouth marketing) is when your existing customers recommend your business to their network. This means a customer can refer their friends, family members, acquaintances, or even social media followers. Referral marketing takes the organic human nature of referrals and gives brands the tools to incentivize and manage them.

 If you want good referrals, it’s your job as a small business to make it as easy as possible for your customers to make them. Applications like Referralcandy remind and encourage customers to make referrals through cash rewards, store discounts, and customized gifts. Implementing programs like this will incentivize your customers to refer your business as well as help you keep track of industry insights, like top referrers, analytics, and more.

Small businesses can incorporate various promotional strategies for their referral programs to strengthen the overall approach. Referrals can be put in emails, promoted on websites, or social media to grab the customers’ attention. 

Referral marketing vs affiliate marketing

Referral marketing is sometimes confused with affiliate marketing. Both strategies rely on incentives to drive revenue, but the underlying strategy and techniques vary significantly.  

A referral marketing program motivates customers to share your small business with their network in a straightforward, natural fashion. Encouraging happy customers to become active brand ambassadors sets your company up to be the centre of conversions while rewarding users for their participation. 

Affiliate marketing, on the other hand, works by paying third-party advocates to promote your product or service to your target audience. Customers won’t know the advocate personally and this is the main difference between the two marketing strategies. 

How Does Referral Marketing Work?

The best way to show how referral programs work is through an example. Critical Pass sells a variety of flashcards for law school students to help them study. Unfortunately for them, the exam prep industry is large, and they needed to find a way to stand out. 

As we all probably know, the bar exam is extremely stressful for students because their entire career relies on it. So a common trend is to search online (social media, forums, etc) for tips on how to study and on how to pass. This common goal created an online community of people who were already trying to help each other. 

Critical Pass saw this as an opportunity. Since graduates and senior students were already happy to guide their peers with tools that worked for them, a referral program to reward those who shared their experiences could prove successful. This program would incentivize and encourage the sharing process. 

Using a personalized code , customers receive $10 for every referral that ends up purchasing a flashcard set and new customers get a 10% discount. Due to the stressful nature of law school, students need to survive on part-jobs or loans, so these monetary incentives were extremely helpful. 

There is an online community for almost every industry, so take the time and look up how to use these networks to your advantage. If they feel truly heard, they will naturally want to refer your small business to others. 

Why Use a Referral Marketing Plan?

Any marketing plan could benefit from the use of referrals. Referral marketing turns your customers into brand advocates, and this creates so much potential for your small business.

1. Increase marketing reach

If you think about it, when you use other advertising methods, you’re only accounting for one person seeing your ad at a time. With referral marketing, you can increase the number of people viewing that same message by however many times one person decides to refer you. 

Referrals increase your marketing reach by using your customers as your company advocates. While there are venues and occasions that are simply off-limits to traditional advertisements, there are virtually no limits to your customer telling a friend or coworker about a good product or company.

2. Collect essential data

You can see which type of referrals are working best by the number of referrals you make on your marketing campaign and to whom it is referred. By tracking the information surrounding your referral program, you can give customers a personalized experience to better meet their needs. 

3. Increased engagement

If people are referring your small business to their network, this means you’re becoming a conversation topic. Therefore, more people are engaging with you as customers spread the word about your small business. Increasing engagement strengthens your online presence and increases the chances of potential revenue. 

A customer who refers a friend is likely to visit your website more frequently to either claim rewards or even just discuss a product with others. At the same time, you can traffic from the referred customers, doubling the activity on your site. The more often a customer returns to your site, the more items they tend to purchase.

4. Cost-effectiveness

Compared to other forms of marketing and loyalty retention, referral marketing is a cost-effective way to gain new and loyal customers. It costs more money to attain a new customer rather than get an existing one to share their opinion. You’re essentially getting your existing customers to do the advertising for you! 

Overall, the return on investment is high because you can potentially get double the revenue off of one successful referral and customer acquisition. 

Referral Program Ideas

Now that you have an understanding of what a referral is, examples of how it works and ways it could benefit your business, we can take a look at a few strategies. 

Add a referral submission offer on your website

The great thing about referral marketing is that your target audience is easy to find, they are already on your website! Offering them an incentive as they are browsing through your page, will not only give them an incentive to make a referral but also tempts them to make purchases themselves. 

Use referral apps

If your business has a mobile app, incorporating a rewards program into the interface is a good move. Did you know that 70% of internet traffic comes from mobile phones? Plus, consumers have access to their social media feeds and contacts in just a few taps. Some referral program apps for small businesses include InviteBox and PayKickstart.

Build relationships with other businesses

Making relationships with businesses with the same target market as you can create a steady stream of new referrals. Although, you want to keep in mind the company you partner with is not a competitor. 

For example, a gym and a healthy juice bar will have the same target audience, and they are not in direct competition. To ensure you are getting the most out of your partnerships, check out Partner Stack – the partner management platform designed to accelerate recurring revenue for both companies.

Run a contest

These are great to run on social media, promote on your site or incorporate in your email marketing strategy. Contests are a fun way to encourage your existing customer base to engage with your small business and invite their friends to join in! There are many ways you can do this. The most straightforward method is to say, “refer three friends for the chance to win X.” 

You can also come up with more creative solutions. For example, if you sell makeup – you can ask your engaged audience to do a makeover challenge on their friends and family, and the winning makeover gets five free items of their choosing.

Offer seasonal or event referral programs

A great way to get people excited for your referral marketing programs is to offer a seasonal or event-related contest or campaign. Of course, people are usually already excited about holidays and events, so centring your referral around that will only add to the existing hype. 

Papa John’s, for example, is famous for offering discounts on its pizzas on game days. Occasionally, they’ll offer special bonuses if you refer a friend who buys a pizza in football season.

Once your referral marketing strategy is set up, your business will need a way to track revenue, manage inventory, and receive payments. Accounting software like QuickBooks Online can help keep track of your business finances when you need it most. Try it free today.