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A comprehensive referral marketing strategy can make all the difference in the world when it comes to running any type of word-of-mouth marketing initiative. Most businesses — no matter what industry they operate in — understand that the best way to get in front of new high propensity customers is for existing satisfied customers to directly recommend the business to their friends, family, and colleagues.
In fact, research conducted by Nielsen indicates that 92% of consumers worldwide say they trust recommendations from friends and family more than all other types of advertising.
But few marketing professionals feel as though they have a great handle on how to operationalize this valuable marketing channel.
Research released by the Word of Mouth Marketing Association (WOMMA) and the American Marketing Association (AMA) shows that — although 64% of marketing executives think word-of-mouth marketing is the most effective type of advertising — just 6% felt they’d mastered it at their company.
The Benefits of a Comprehensive Referral Marketing Strategy
When a well-planned referral marketing strategy is implemented, a referral program often becomes a company’s most valuable acquisition channel.
Typically speaking, companies that effectively harness their happy customers to spread the word about their business will find that 5-15% of all new customers acquired come through this channel. Other referral program benefits include:
- Lower Cost per Acquisition (CPA) — Depending on the industry, the average cost of acquiring a new customer through a refer-a-friend program is $1-10. This is usually far below the cost of all other marketing activities.
- Higher Customer Lifetime Value (CLV) — The customers that a business captures via a referral program are usually a company’s best customers and will have a 3-4x higher CLV than all others. These are two main reasons for this:
- Brand advocates pushing a referral program know who in their circles are the best fit for a product or service. This ensures a strong business-customer relationship right from the jump and makes it very likely the new customer will engage with the business frequently over time.
- Customers converted through a referral program will often become brand advocates themselves and help further expand the reach of your word-of-mouth marketing efforts.
- Better Return on Investment (ROI) — For the amount spent on a referral marketing program, brands can expect around a 25x ROI.
- Stronger Customer Retention — Customers who become brand advocates typically are much more loyal to a brand than to its competitors because they are continuously being rewarded by the company for their engagement through the referral program. This strengthens customer retention over the long term.
10 Referral Marketing Strategies Proven To Drive Revenue
Referral marketing ROI is always highest when programs are fully customized to address the needs and desires of a brand’s audience. However, there are some tried-and-true strategies that resonate with consumers across almost all industry verticals.
1. Use Referral Program Software
The first strategic decision that needs to be made when implementing a referral program is to determine how exactly it will be operationalized. There are essentially, two options:
- Build your own technology solutions to run a referral program at scale
- Work with dedicated referral program software built for that purpose
Most brands, even large enterprise companies with plenty of resources, usually choose option two, as it is usually much more cost-effective in the long term. Referral programs typically require many technical features to run efficiently and handle issues such as unique referral code creation, fraud prevention, and reward distribution. These types of technical solutions are rarely within a standard marketing department’s wheelhouse to create and manage, and doing so only distracts from other — more important — tasks.
2. Engage a Team of Experts
As stated above, referral marketing programs include many moving parts. Even teams that have a member dedicated to managing word-of-mouth marketing often find that, to get the most out of a program, a lot of promotional placements, email/SMS copy, and designs will need to be A/B tested and optimized.
Engaging a team of experienced referral program experts early can provide marketers with an impressive head start and ongoing advice as the program continues to grow.
3. Create a Referral Contest
A referral contest is a great way to encourage customers to refer their friends. Advocates earn rewards for each referral and compete to win prizes. The more referrals they make, the better their chances of winning. Prizes could include gift cards or shopping sprees. Referral contests attract new leads and reward existing customers, benefiting everyone involved.
By turning a referral program into a type of contest (also known as gamifying a referral program), you add an element of entertainment to your customer advocacy marketing efforts and this can be a powerful driver that keeps people engaged.
4. Build a Tiered Rewards Program
A tiered rewards program enables customer advocates and brand ambassadors to receive increasingly valuable rewards based on the number of new customers they bring in, or the total amount that those new customers spend.
The big benefit to this referral marketing strategy is it adds a guaranteed extra incentive every time an advocate refers the business to a friend. This creates an almost irresistible rewards structure that turns mere customer advocates into full-on brand champions.
5. Offer a Discount on Your Products
Customer rewards can take many forms, but certainly one of the most common is a discount coupon for a brand’s products or services. This can take the form of a percentage off (i.e., “Get 20% Off”) or a dedicated dollar amount (i.e., “Get $20 Off”). Depending on how regularly customers are in need of a repeat purchase, this can be a highly effective way of driving referral program engagement from customer advocates.
6. Offer Cash or Gift Cards
For brands that have customer audiences with lower purchase frequencies, but higher average order values, it’s often a good idea to offer cash or gift card rewards of some kind (Amazon, Starbucks, etc.). Businesses that typically benefit from issuing these types of rewards include software as a service (SaaS) platforms, health services, insurance companies, telecoms, banks/credit unions and more.
This is due to the fact that cash and gift cards provide more immediately redeemable value than a discount on a brand’s products and/or services.
7. Use Rewards To Upsell New Products & Services
One of the best ways to kick off a successful referral marketing program is to tie it to the launch of a new product or service. This allows a brand to harness the excitement over its ‘next big thing’ and focus customers on the benefits of sharing the news with their friends, family and networks.
8. Offer Stackable Credit
Referral programs that offer stackable credit to customer advocates are similar to tiered referral programs — with one key difference. Generally, tiered programs automatically trigger rewards based on certain criteria (e.g., number of friends referred who make a purchase), which are then distributed to advocates.
What makes a stackable credit strategy different is it provides customer advocates with the option to save up credits until they hit a high value reward, or cash out early.
9. Combine Your Referral Program With a Loyalty Program
Entirely on their own, loyalty programs are a highly effective way to improve CLV and encourage repeat purchases. And incorporating one into your referral marketing efforts can supercharge both initiatives.
In fact, many companies that offer both types of programs to their customers will include referring friends to sign up for the loyalty program as one of the actions that can trigger a reward.
10. Leverage Referrals To Grow Email & SMS Subscriber Lists
Consumers are always more inclined to subscribe to a company’s email and SMS lists when they feel the brand has something valuable to offer. And since the entire point of a referral program is to reward existing customers for sharing special promotions and add an extra incentive for their friends to purchase, word-of-mouth marketing is a natural channel through which to grow your subscriber base.
Protip: If you’ve chosen to work with dedicated referral program software like Friendbuy, you can leverage robust and simple integrations with solutions like Attentive and Klayivo to streamline the process of building your subscriber list.
Starting Your Referral Marketing Program
Once you've decided on a referral marketing strategy (or strategies), it’s time to put it into practice, and Friendbuy’s team of expert referral marketing professionals is ready and waiting to help. Friendbuy works with the world’s top brands across nearly every industry to create world-class referral programs, including Casper, Spanx, Walmart, Intuit, Axios and more.
To learn more about how a comprehensive referral marketing strategy can help boost your brand and drive revenue, contact Friendbuy today or check out our customer success stories.
