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Referral Marketing: Ultimate Guide to Drive Sales and Traffic

8 minutes read
referral marketing ultimate guide

Do you know who can make your business a total success? Customers. And we don’t mean because of the fact that they’ll buy from you, and bring in revenue. We mean because satisfied customers can spread the word about your company, with one client bringing in at least 2-3 leads.

Customers tend to trust a recommended brand. All you have to do besides working on customer experience and offering high-quality products and services is encourage every buyer to recommend you to their friends, family, and colleagues.

You may have the best product in your niche, but if nobody spreads the word, what’s the point? How do you encourage people to recommend you? A referral marketing strategy will help you to raise awareness about your brand and attract website traffic. In this article, we’ll tell you everything we know about how this strategy works, the reasons behind its success, and give tips on how to make it work best for your business.

What Is Referral Marketing?

Referral marketing is when a person refers your products or services to their friends, family, audience (in the case of influencer marketing), or contacts. The referee should buy the said item or service for the process to end successfully. This works because consumers tend to trust businesses more after getting a recommendation from another person, especially if it’s someone close to them.

Referral strategies are the most effective in terms of ROI. This model requires minimal investment but brings results in the form of warm leads that are easier to convert. Most B2B marketers consider a referral marketing strategy one of the best ways to get warm leads and increase referral traffic on their website. Besides, marketers say this method has a smaller cost per lead, which supports the point about the ROI scale.

Moreover, people are likely to buy if they are referred by a friend. In fact, 83% of Americans are more likely to purchase after consulting with family and friends members.

screenshot of the purelei refer a friend landing pageRefer-a-friend is an example of a referral program that works well based on user behavior - Purele

What Businesses Should Use Referral Marketing?

If we’re talking about niches, absolutely any business can set up a referral program. However, there are a few requirements that make your company qualified for a program:

  • The product. You need to provide value with your product and organize the full cycle of customer service. Consider setting up your business fully and start making money only after you make sure your offers are meeting customer needs. No matter how amazing your incentive is, it will only work temporarily, until people realize you don’t meet their requirements and don’t understand their pain points. That will result in a loss of traffic and sales eventually.
  • Social proof. Referral marketing has the keyword “refer.” Unless there is something to refer to, no campaign will work. So, you need to garner some social proof and establish a brand to some degree before offering something to your customers in return for their recommendation.
  • Loyal buyers. Another important aspect of this model is the people who recommend you. Referral marketing is impossible without loyal buyers trusting your company so much they are ready to refer people they know to you. It’s a kind of responsibility because if the referees have a bad experience, it will be on the referrers, to some extent. So, focus on customer retention long before you plan a program.

Switch on your critical thinking when reviewing your business to see whether it fits the aforementioned requirements. Each aspect can be improved, influencing the results of your marketing campaign in the future.

Why Referral Marketing Is a Perfect Strategy for Businesses

Referral programs are considered perfect for businesses offering products and services because they make existing customers feel special, come to the site more often, and encourage them to share the business with people who are close to them.

A referral marketing strategy helps to keep the customer buying your products and make them loyal. Why is this important? Acquiring a new customer can be 5x more expensive than keeping a current one. A case study by Wharton found that referred customers also have an 18% lower churn rate in the banking sphere. This statistic reassures that referred customers are more loyal.

two people chatting

Instead of giving all resources to find new customers focus on keeping a current one

Here are the main benefits of referral marketing:

  • Brand awareness improvement. As it’s called word-of-mouth marketing, it’s not difficult to realize that people are going to improve brand awareness by talking about your company to others. Even the percentage that won’t convert will still know about your business, continuing the chain of conversation.
  • Increased media presence. Media presence has become a vital advertising tool in finding new consumers. To stay on the radar constantly, partner with niche media networks to spread the word about your brand. Use a backlink counter to find relevant platforms that bring more outcomes and check where your competitors get mentions. Besides, setting up a referral program will allow customers to refer friends via their favorite social media site, and your brand will get an additional boost in mentions.
  • Better conversion rates. Referred leads convert 30% better because they trust your brand more after people close to them vouch for your product. Conversions indicate increased referral traffic and high sales rates.
  • Customer retention improvement. If your products and incentives are great, then existing customers won’t want to leave you for a competitor. Plus, as we mentioned a bit earlier, referred customers are less likely to stop engaging with your business after a short time (lowering your churn rate).
  • Customer lifetime value increases. Referral marketing rewards customers for every successful conversion on their behalf. The more they do, the more they get, and the more they’ll buy from you in the long run, thus improving LTV.
  • Customer acquisition cost (CAC) reduction. Referral customers are usually cheaper for the business than completely new ones. The costs include the rewards to the existing customers, the number of employees working on the program, and customer referral technology. So, the better the campaign works, the lower your CAC.
  • Average order value (AOV) and repeat sale increase. Example: someone earns points for every new customer they bring along. At some point, they realize they’re a bit short in points to qualify for a major discount or other bonus. They may buy from you to earn those points. In the long run, this will increase your AOV and repeat sales.

How to Set Up a Successful Referral Program

The best secret to a successful referral program is a good incentive. It should motivate your loyal clients to share their experiences with your brand and bring new people along. The incentive also has to fit your target audience.

Here are some tips for setting up a referral program:

1. Make your brand worthy of referrals

First of all, is your brand ready for a referral program? Make sure you create high-quality products, promote them, and collect a base of loyal customers, and you’re ready to increase referral traffic and sales (in terms of website, logistics, packaging, products, and employees).

two people chatting

Reviews are the best indicator to evaluate customers’ attitudes toward the brand

2. Build relationships with customers

Asking for a referral is a delicate action for your customers. You’ll need to get at least a few interactions with customers after they’ve had a chance to learn about the brand and the products you offer. Develop a relationship first. Offer a great customer experience, care about them and their impressions, have an effective support team, engage with them on social media, care enough to learn their name, and refer to them by it if you can.

3. Make a list of buyers to make an offer

Analyze your most loyal and active customers and list people who can represent your company in their families, at parties, or on social media. Thankfully, most information is easy to collect nowadays (email lists, data people leave when purchasing, etc.)

4. Guide the referred leads to sales

Remember that referring is your customers’ choice, but making a sale is mostly the responsibility of your sales team. Ensure you have strong sales managers that will increase referral traffic to the website from other channels and guide users smoothly to make a purchase. Remember that the website must be attractive to the customer, load fast, and contain detailed product pages with all the information about the product you are selling.

Build high-converting product pages with GemPages
Maximize referral campaign result by compelling, product pages to wow visitors and convert them into buyers.

5. Come up with a reward structure

  • 2-sided reward: If you’re not tight on budget, consider rewarding both the referrer and the referee.
  • Milestones: Consider creating a system of rewards where a customer can get something better for every referred customer.
  • Leaderboard: Create a competition among selected customers. This will heat up motivation since everyone likes to be the best. Create a leaderboard and come up with a special gift for the first, say, three places or the ultimate leader of the week/month.

    6. Make sure your program is easy to share

    Ensure you have a presence on social media and an easy-to-use website that loads quickly and offers a great user experience. Also, explain the program properly, in easy-to-understand language.

    screenshot of the easy to share referral link by aklamio

    Minimize steps for getting a referral deal to avoid churns.

    7. Reward customers after successful referrals

    After a successful referral, don’t forget to say ‘Thank You’. You can do it with many things that won’t hurt your business:
    • Gift cards
    • Brand vouchers
    • Free subscriptions
    • Cashback
    • Store credit
    • Discount
    • Donation
    • Upgrade

      The choice of the trendiest rewards will drive many more referrals to your program since people will only put in the effort if they know what they’re getting for it.

      8. Make yourself seen

      How will your customers find the referral program? Make it easy and convenient for them by being noticeable from first sight. Usually, brands place their referral programs in the navigation menu, footer, pop-ups, or sidebars, to increase referral traffic.

      9. Be social media active

      Where are people now? On social media, of course! This makes it easier to find and interact with you. Plus, you can share content, reach more people, talk to them, and build trust. Use Facebook. Instagram, and Twitter. You can also leverage the benefit of third-party Instagram tools available in the market to automate your efforts.

        screenshot of the rent the runway instagram profile

        Reminding your subscribers about your referral program can boost sales


        As you can see, referral marketing opens many opportunities for any business with a valuable product and loyal customer base. Improved LTV, lower CAC and churn rate, higher conversion, and AOV, just to name a few.

        We’ve uncovered easy steps to set up a referral program! So, what are you waiting for? Thousands of businesses are offering incentives to their customers and building long-lasting relationships. Your business should be next.

        authorDiana Ford is a digital marketing expert with 10+ years of experience in the niche. She loves blogging and shares her expertise regarding digital trends, customer retention, search optimization, and lead generation. Diana now provides SEO consulting and helps her clients scale up their businesses online.

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