Referral Marketing: How to Make it Work For You

Are you able to build a solid client base or network of business contacts? Referral marketing can help you grow your business exponentially by turning these relationships into new clients. Let me take a minute to explain the basics of successful referral programs so that you can create one that suits your industry and audience.

What is Referral Marketing?

According to Deloitte research, the average consumer mentions 56 brands each week. Although it may seem like a lot, you need to understand the context. These are just a few examples. These are just a few examples of people talking about their shirts, lunch places, social media networks they use, and so on. These conversations are valuable, but they don't have the same value as someone recommending brands.

Referral marketing, also known as earned advertising or word-of-mouth marketing, is a strategy that helps make these conversations more focused and increases the frequency at which your brand is mentioned.

Referral Marketing Comes in Many Forms

Brands can work with lots of different groups when creating a referral marketing strategy. For example, let’s say you’re an attorney who specializes in business law. You may know attorneys in other fields or perhaps have good relationships with accountants and insurance brokers. You can build a referral marketing campaign to cater to them.

However, referral marketing is usually described as "experiential" in the majority of cases. This means that the person who refers someone to your business has had personal experience with your products and services. They are either a client or a former client. According to McKinsey, up to 80 percent of referrals fall into this category.

Sometimes people refer because they've seen your business in action or have been exposed to your marketing messages.

What Makes Referral Marketing Worthwhile?

Referral marketing can be a powerful tool to help your business grow exponentially.

• Trust: Building trust is key to closing sales and building client relationships. In all, 84 percent of respondents believe that recommendations from family and friends are the best source of information per Nielson.
• Influence: Word-of-mouth can drive up to 50 percent of all purchases, per McKinsey. According to Deloitte, roughly one-third of people who visit a brand are referred.
• Conversion: Referred people are more likely to buy from a business that has positive information. Nielson research shows that they are four times more likely than others to purchase.
• Retention: Referred by loyal clients, people have a 37 percent higher retention rate than their counterparts. This keeps churn rates low, per Deloitte.
• Lifetime Value: According to research published in The Journal of Marketing, clients who refer others to your company have twice the lifetime value as those who are brought in by traditional marketing. This same study also shows that referral clients are twice as likely to bring in new clients.

How to Make Referral Marketing Work For You

Let's now get a better understanding of what referral marketing is, and why it's so powerful. Now let's dive into the details behind successful programs.

Take Care of Your Customers

Prior to launching any referral marketing campaigns, ensure that your existing clients are satisfied. According to Harvard Business Review, it can cost anywhere from 5 to 25x more to acquire a client than to retain one. Your business will suffer if you keep trying to attract new customers while your existing clients are leaving. Happy customers will refer. Referral marketing programs should always start with customer service and product problems being addressed.

A Strong Brand is essential

A good brand is crucial for all of your marketing efforts. While many people think of branding in terms of color schemes and logos, it is more about your company's essence. It is your voice and what your company stands for. If this foundation isn't established before you start a referral marketing campaign, the people promoting your business won't be able to know what message you want. It's important to be clear about what you stand for, so that your promoters can easily relay your mantras like it's second nature.

Treat it Like a Sales Funnel

A traditional customer-focused sales funnel looks similar to this:

1. Awareness
2. Interest & Evaluation
3. Desire
4. Action

This concept is used all the time in marketing. The idea is to introduce prospects to your brand, get their attention, then show them why they should take action. You must tailor the messages you send to prospects to suit their needs and position in the funnel.

This is also true for your referral program. To help your promoters understand the program and why they should join, you'll need to establish touch points at each stage.

Set a Goal and Track Your Progress

It doesn't matter what kind of digital marketing activity you are engaging in, it is important to be able to tie it back into the larger picture and ensure that it is delivering ROI. Prioritize your goals. You might set a monthly target for total referral clients or a goal related to total participants in the referral program.

It is also important to determine the best way to track results. Website analytics, tracking form submissions, and a field within your CRM are all ways to do this. However, your tracking must be scaleable. You don't want your program to have to manually add up the results every month once it is established.

A/B Test

Your referral campaigns should be A/B tested, just like any other part of your digital marketing. To ensure the best results, you should test everything from subject lines to images and rewards against other variants.

Expand Beyond Clients

Although your current clients will be your best referral source, don't limit yourselves to them. Consider who has the same customer base or is in a position of sending people your way. Then, create campaigns that meet the needs of each individual.

Find Your "Influentials"

It's easy to reach many people when you market at scale by leveraging automation. While this is a good practice, it's important that you recognize that not all promoters are equally as effective.

McKinsey estimates that 8-10 percent of the population are "influential" and have a four-fold greater impact on purchasing decisions. They also generate three-fold more word-of-mouth messages than their counterparts.

If you are doing an excellent job tracking, it should be obvious who your influentials are based on the numbers. These promoters may be worth your attention, or you might even create a program specifically for them.

Consider Rewards

Referrals can be boosted by rewards, which will increase the positive perception of your program. Referral programs that offer double-sided rewards for SaaSquatch research are 9 out of 10. This means that both the promoter as well as the client receive something in the referral relationship. These are the top-rated rewards according to surveys:

For Promoters

• Dollar Credit (50%)
• Gift card (17.6%)
• Percent Discount (9.8%)

For Referred Clients

• Dollar Credit (53.8%)
• Percent Discount (23.7%)
• Gift card (6.4%)

Other common leveraged rewards include cash, points, and cash back, as well as free subscriptions.

To ensure that your rewards are worth the cost, make sure you do a cost analysis. You may want to verify your local laws if you work in sensitive industries like healthcare.

Make the Ask!

Contests are a popular way to promote businesses. It's common for retailers to offer a raffle entry for every referral. However, if you are a B2B business, it is more likely that you will find success by building relationships and asking for referrals.

• Pay attention to the language you use. You may be able to get better results if you ask for an introduction instead of a referral.
• Ask for help. Tell your potential promoter that you appreciate their help. Also, tell them that your company depends on their referrals.
• It is important to be clear about whom you are helping. People will not always know whom to send or what you will do for them. To give people more confidence in referring, fill in the blanks.
• Reach out to people in many ways. To get things moving, you can use a combination of phone calls and emails. Your strategy should be adapted based on what is most effective and your interest.

Arm Them

People will refer more if it is easy for you to do so. These are some ideas that might work:

• Links or special codes. Referral marketing software can be a great investment if you are building a large program. It automatically generates special codes and links that each promoter can share.
• Automated imports? These are a great way to save time for your promoters and let them choose from their contacts directly.
• Promotion kits. Your promoters will appreciate a package that contains everything they need to spread the word. You might give them email templates that they can send to their contacts or landing page content.

Thank Them

An automated thank-you note might suffice, depending on the industry. In most professions, it is best to call and thank people for referring you. It's a personal touch that is rare, and it will make a huge impact on your promoter. Encourage them to keep sending people your way.

Strengthen Your Digital Marketing

Referral marketing is one of the strategies I regularly leverage as a digital marketing consultant. I’ve personally seen it help businesses rapidly scale time and time again. However, it’s important to have the right things, such as branding, automation, and service, in place before you start. If you’d like to strengthen your digital marketing, contact me for a complimentary consultation.

You can also read this article on my website, Referral Marketing: The Hidden Asset & How to Make it Work for You.

For a regular dose of exclusive content and the latest marketing insights, sign up for my bi-weekly newsletter – it's completely free!