We all know referral marketing works.
- 83% of consumers trust referrals from people they know – Nielsen
- Word-of-mouth is directly responsible for 20-50% of purchase decisions – McKinsey
- 82% of Americans seek recommendations when planning a purchase – Ambassador
- Referred leads have a 16% higher lifetime value, convert 30% better, and have a 37% higher retention rate than other leads – Invesp
- Two-thirds of Americans are at least a little more likely to buy a product after receiving a link to it via email or social from friends or family – Ambassador
- 70% of sales leaders say referrals close faster than other leads – Influitive
So with these great benefits and more, why isn’t your business using it (or, at least, using it to its full advantage)? 83% of happy, satisfied customers are willing to refer their friends and family (but only 29% actually do because the rest are never asked or given the opportunity). That’s crazy.
If you aren’t where you should be with referral marketing, don’t worry. I’ve broken the process down below by industry so that you can get your first campaign up and running as quickly as possible.
Why? Because as ecommerce giant Shopify says:
“Word of mouth is our best form of advertising.”
Before Referral Marketing
Before we get into the referral marketing templates below, there are a few things you need to have in place.
A Validated Product or Service
Referral marketing works by letting you tap into the goodwill you’ve built among your customer base to drive new sales.
The key there is that you have to have that goodwill in the first place.
If you don’t have a product or service you know your customers love, focus on that before turning your attention to referral marketing. If you’re pushing a referral scheme that benefits you – rather than the new customers that’ll be introduced to your offering – it won’t get you very far.
A few signs that indicate you’ve achieved validation include:
- Positive reviews online
- Existing customers buying additional products or services from you
- Social media and email messages sent to you from happy customers
- Referrals that are happening organically, without any effort on your part
If your product is worth referring to others, you should be going after those referrals.
A+ Customer Support
While you’re nailing down your product or service offering, make sure your customer service is top-notch as well.
The goal of referral marketing is to start funneling new customers into your business. Can your systems handle that influx? Has your customer support been stress-tested sufficiently to ensure these new customers have the same positive experience as your original clients? Can you handle the increased volume and demand smoothly?
Make sure you’re ready to care for your incoming referrals before you even think about expanding this way. If your systems and workflows aren’t ready and the incoming leads have a bad experience, that will most definitely have a negative impact on your reputation and referral program. And consumer expectations are high, with one poll revealing that people expect an average website uptime of 99.952% – equivalent to less than five minutes of downtime per week. Consider:
What’s the point of this story? Triple-check that your customer service is ready to handle the bump that referral marketing can and typically does deliver. Then check a fourth time.
A Defined “Aha” Moment
One of the biggest mistakes I see businesses making is introducing the idea of referrals at the wrong point in the sales cycle.
If you’ve ever signed up for a new product or service – only to be immediately bombarded with invitations to become an affiliate or brand advocate – you know what I’m talking about here.
Consumers don’t like feeling as if their only value to you is monetary. That’s why I recommend asking for referrals only after new customers have hit the “aha” moment (aka, the point where they first start to understand the full value of your product or service).
As an example, take my cold email tool, Mailshake.
One of our key differentiators is that we’re significantly easier to use than other cold emailing tools on the market. When we bring new customers on, the “aha” moment for them is when they realize how easy our tool is to use. That’s why we’ve invested a lot into onboarding to get them to that point as quickly as possible.
Now, imagine that we started asking for referrals before new customers had experienced that differentiating feature for themselves. We don’t actually have a referral system set up at all right now, but if we added one immediately after sign-up, we’d risk bugging people before they understood what makes us different.
By waiting until they crossed that threshold, our referral program would be much more likely to succeed.
Of course, if you want to time your referral program to your “aha” moment, you have to know what that is for your company and when it occurs. That’s a whole separate analysis, and it’s one you should undertake for plenty of other reasons besides its impact on referral marketing.
If you want a quick and dirty way to initially identify yours, ask yourself: what separates your customers from users who didn’t convert? Do they tend to interact with a specific feature, browse your FAQs for a certain amount of time, or watch your explainer videos in a certain order? That’s most likely your aha moment (but not necessarily the only one), and a prime candidate for the right time to ask for a referral.
An Understanding of What Will Incentivize Referrals
The last thing you need is an understanding of what’s going to get your existing customers to refer new ones to you.
I’ll cover this in greater depth in the individual funnel templates below, as specific motivating factors vary by industry and business type. For now, know that just because a referral scheme works for Uber or Airbnb, that doesn’t mean it’ll work for you.
Different types of referral incentives include:
- Cash back or a discount on a future purchase
- Credits for future purchases
- Upgraded or free shipping on a physical product
- Priority service
- A personal thank you
- Points that can be redeemed for discounts, upgrades, or prizes
Some customers don’t actually need incentives to refer others. They’re just happy to be able to share a product they love with someone else who might benefit from it.
Others might be offended if they believe you’re attempting to capitalize on your relationship with them through a formal referral system. Take the example of Worldwide101 founder Sandra Lewis, who attempted to turn customers into brand advocates with personalized invitations to a new referral program.
“To my surprise, none of our clients accepted the invitation. In fact, one long-term customer emailed to say it had offended him: ‘Absolutely not. I am not interested in referring clients for a reward. I am happy with your service, and if ever I have friends who can benefit from it, I will let them know because I like to help my friends.’”
I can’t tell you what’s going to work for your audience, although there are some general industry-specific guidelines that may be helpful in discovering your ideal incentive. Think about your customer base and how they’ve engaged with you in the past before committing to any specific referral framework.
That said, one seriously underrated technique is simply asking. If you have satisfied customers, just ask them what it’d take to get them to refer your product to others. You may find that they’re happy to do it with no incentive. If not, you’ll get concrete insight into what it’ll take to make your program work.
When in doubt, ask, and ye shall receive.
A Mechanism for Confirming Referrals Have Occurred
At my agency, a lot of referrals just spontaneously happen. People like the service we provide, they tell their friends, and then their friends reach out to us directly. It’s a great feeling to hear from those who have been referred to us, and we always go out of our way to thank those who made the connection.
In other cases, however, referrals are structured a bit more formally. Take Uber’s current rider referral program.
In this case, Uber is offering a set monetary reward for every rider or driver referred, as well as the opportunity to earn awards for referring more people. Uber can’t get away with simply thanking its participants. It needs a structured program for tracking when referrals occur, whether or not they’re successful (according to the program’s terms and conditions), and issuing the promised rewards.
Share your promo code or invite link, and when your referees meet the criteria, Uber will automatically deposit the credit to your account.
Most companies that need to manage referrals at this level use paid software like Post Affiliate Pro, Buyapowa, ReferralSaaSquatch, or ReferralCandy. Others find that participating in an affiliate network is the easiest way to manage per-transaction referral bonuses. If your program isn’t quite as complex, you may be able to manage it on your own with a spreadsheet.
As a note, referral marketing and affiliate marketing are similar in execution, but slightly different in concept:
- In the case of referral marketing, you’re asking existing customers to reach out to their established networks with network marketing.
- Affiliates, on the other hand, operate solely for the financial benefit of sending you sales. One or both may be appropriate for your company.
“90% of our growth is from word of mouth.” ~Matthew Stinchcomb, Etsy
Regardless of the mechanism you use, you have to have a system in place. Active referrers won’t participate for very long if they don’t receive the bonuses they’ve earned in a reasonable amount of time.
Set Standards for Active Referral Program Participants
If you won’t be using a formal referral marketing program, go ahead and skip this step.
If you are, keep in mind that – as a part of offering a referral scheme – you need to make clear your expectations and standards for those who participate in the program.
Uber’s promotion covers key terms upfront. You’ll want to do the same, but you may want to go even a step further, depending on your referral marketing program.
For example, a good set of referral marketing standards will answer all of the following questions:
- Who is eligible to earn referral bonuses?
- Is there a limit on the number of bonuses that can be earned?
- How should referrers represent your brand (or their relationship to it) when sharing your company with others?
- At what point do referrers earn their bonus? Does the person they referred need to purchase a certain quantity of products, or be a subscriber for a certain amount of time?
- Are there any places where referral promotions shouldn’t be used? You may, for instance, want to disallow participants from placing their unique referrer codes on coupon clipping or web deals sites.
- Are there any sponsored content guidelines members need to be aware of?
Place this information on your website, or drip it out via an email sequence after new referrers sign up. If necessary, have a lawyer draw up a terms and conditions contract that new participants must electronically sign in order to protect your company from legal risks.
Do that before you launch a referral program, and your bases are covered for any eventuality.
Referral Marketing Funnel Templates
Once you’ve fulfilled the requirements above, you’re ready to build your own referral marketing program. That said, how you do so may look very different, depending on whether you’re a small ecommerce retailer, a major B2B enterprise software provider, or anything in between.
Let’s look at a few common examples.
B2C Ecommerce Seller
Ecommerce shops lend themselves particularly well to referral marketing programs built on financial incentives. Here, Amerisleep offers a $75 reward for referring a friend (though many ecommerce sellers also see success with discount codes, free shipping offers, or credit towards future purchases).
The program generated a click-through rate of 150% for the campaign.
An offer like this could be displayed to customers via:
- A dedicated website page
- A website pop-up
- A chatbot
The ad above offers a frictionless way to sign up – even including a pre-written message – and makes sure the referral is convenient and recorded properly. Customers can share via email, Facebook, and Twitter with one click.
If you’re planning to implement something like this on your own site, you’ll want to set a trigger for when the referral program invitation is issued. Since you don’t want to ask those who aren’t sold on your brand yet (remember what I said earlier about timing your ask), you might choose to send it:
- After a customer’s first sale
- After a certain threshold is met in terms of dollars of merchandise purchased or number of individual purchases
- After a customer responds positively to an NPS survey email
- After a customer leaves a positive review on one of your product pages
Most companies are measuring NPS, often in real-time, and the program is often a completely untapped source of referrals. The perfect time to ask a customer for a referral is right when they’ve scored you a “10.” Automating that process gives you a passive way of activating your brand advocates, says Lisa Abbott, VP Marketing & Business Development at Wootric.
Another powerful option is to use referrals during your pre-launch or crowdfunding phase. It might seem counterintuitive – your product isn’t ready to ship, so what exactly are people recommending? – but remember that your main goal at this stage is to generate awareness and collect contact details.
Popular crowdfunding platforms like Kickstarter allow for referral programs while in the early stages. Referrers can earn cash (back), points, discounts, gifts, upgrades, or whatever else you deem appropriate for your product and audience.
Third-party services like Kickbooster (works with Kickstarter, Shopify, and Indiegogo) and Kickrock.it make including a robust referral program in your crowdfunding campaign a snap. They can get more eyes on your product or service, which results in hitting your campaign goals faster, and bringing your idea to fruition ahead of schedule.
Premium underwear startup Just Wears, for example, used a basic referral program to gather as many email addresses as possible. That list delivered over $100,000 in contributions to their Kickstarter campaign. Their original goal? $15,000, and they crossed that threshold within 30 hours of the campaign going live.
So, how’d they do it?
Just Wears launched a milestone referral program, which allowed people to collect various points or prizes as they referred more friends and hit certain milestones. This approach encourages everyone to refer more than once, and makes the entire process as easy as clicking a single button.
After signing up for updates, the above page would load and offer three effortless ways to refer friends:
- Social media
- A unique link
- Inputting email addresses
Just Wears also displayed the various prize tiers and how many referrals it would to take to hit each one. Everything was right there on a single page and above the fold. Over $100,000 in pre-sales and contributions built on the strength of a kickass referral program … although it probably didn’t hurt that they had a memorable motto like “No more sweaty balls.”
Not to be outdone, glitter-cosmetics company Unicorn Snot (you read that right) used milestone referrals for their pre-launch waitlist to tremendous success:
- Nearly 50% of signups shared their referral link
- 70% of overall signups came via referral
- 3 people joined the waitlist for every 2 social shares
The trick is to make the tiers at the beginning easily attainable, while the high-end items must be worth the time and effort. Choose carefully.
The milestone referral system was inspired by razor blade subscription company Harry’s, which used it to compile over 100,000 email addresses in just one week.
The degree to which you’re able to customize this invitation will depend on the features available in your referral marketing program. If you’re a very small shop (and anticipate staying that way), you might be able to get away with managing your referrals via spreadsheet.
If you’re a company like Hotels.com, however, a dedicated system that can automate the process of referral marketing quickly becomes necessary.
Referral programs – and especially those based on milestones and tiers – lend themselves easily and readily to the B2C ecommerce industry.
B2C Mobile App Owner
In many ways, mobile app referral marketing programs operate similarly to ecommerce schemes. You’ll need:
- A compelling offer
- A way to introduce referral opportunities at the right time (for instance, by number of downloads or sessions)
- A mechanism for tracking referrals and managing the distribution of bonuses
You can see all of these elements at play in this Dropbox cloud storage offer:
Mobile app owners have a few additional considerations as well:
- Push notifications, in-app messages, and mobile ads can all be leveraged in deploying referral marketing program information.
- Tying a positive wallet balance to a referral scheme can decrease post-referral uninstall rates by as much as 60%, according to data shared by AppVirality.
- In-app messaging and notifications whenever referred friends take incentivized actions can meet a need for instant gratification and regular positive reinforcement that leads to greater app satisfaction.
However, mobile app owners will also need to be wary of referral fraud. If all it takes to earn a referral bonus is for a friend to create a new account, expect that you’ll receive plenty of fake referrals intended to take advantage of your system.
To avoid that, you need to make your terms and conditions as iron-clad and concrete as possible, like this one here.
TaskRabbit connects you with Taskers to help with odd jobs around your home. Their referral program gives you a $20 credit for every referee that signs up and completes a task (with a $20 discount to boot). Win-win.
B2C Peer-to-Peer Service Provider
Earlier in this article, I referenced Uber as an example of a company using referral marketing effectively. In fact, the company is just one of a whole class of peer-to-peer service providers that grew to unicorn status by leveraging personalized referrals on a massive scale.
These companies are leveraging what’s known as a “viral loop,” which Justin Scott of the Growth Devil blog describes as follows:
“A viral loop is designed to go from zero to thousands or millions of viewers in a very short time. It spreads exponentially, as each new customer or user shares the content with any number of friends.”
Imagine that every customer of yours invited 1.1 new users, on average. You’d never have to do any marketing again – your company would grow on autopilot, until you’d enrolled your entire audience of possible users.
While pure viral loops like that are pretty impossible – all companies have their limitations – take a look at how Airbnb used referral bonuses to incentivize its hosts to refer new ones:
Thanks to promotions like these, the company’s growth doubled every year from 2012 to 2015 (and continued to grow beyond that as well).
Or Rover, a company that sells pet sitting and dog walking services in cities across North America. They understood very early that their customers would require a high level of trust before agreeing to leave their precious fur-babies with complete strangers.
Enter their referral program for both customers and sitters.
Users can share a $20 credit with their pet owner friends, and when those individuals sign up and use the service for the first time, the referer also receives a $20 credit for their next walk or stay. Give $20, get $20.
You can also refer sitters, and if they pass the strict requirements to join the Rover team, you receive a $50 Amazon gift card after they book their first gig.
The key to creating similar results in your peer-to-peer service program is the two-way referral, which benefits both the referrers and those they refer to you. A couple of notes on building your scheme:
- Make sure the incentives you promise don’t cut too deeply into your profit margins.
- One way to control the financial impact of offering incentives on both sides of the equation is to tie them to the completion of a revenue-generating activity (as Airbnb and Rover did by paying out credits after trips were booked, rooms were rented out, or new users bought a service).
- The more you can personalize your offer, the better. Research by Extole found that “adding a picture of the advocate’s face to a referral increases the rate of conversion by more than 3%“. Here’s how Airbnb did it in another one of their referral marketing promotions:
B2B SaaS Provider
Imagine a new Airbnb customer booking a $200 rental. In that case, a $25 credit seems appealing – it’s effectively a discount of more than 10% off.
Now imagine that you offered the same $25 discount to a SaaS subscriber who’s paying $200 per month. It’s easy to see how the same incentive – which was so appealing in the Airbnb example – seems like a drop in the bucket compared to the ongoing costs associated with a SaaS product.
That isn’t to say that cash discounts aren’t an effective strategy for SaaS companies. They can be, but these businesses have a number of other tools at their disposal for building their referral marketing funnels.
This is where things like upgrades – support, tier, and otherwise – come into play.
Upgrades to different pricing tiers or packages can be effective as well, as Evernote’s point system demonstrates. Ten points – one referral – gets you a free month of their Premium service, while 120 gets you an entire year.
Physical product rewards can also provide a nice opportunity to create a concrete connection to your online experience, provided the swag has some useful or cool factor attached to it, as Sellsy does with its soccer balls:
As much as we love soccer balls, business management software provider Booker takes a more premium approach to physical rewards, offering a free iPad Mini for a user’s first referral (plus $200 for each additional referral).
No matter what incentive you offer, you’ll need a way to track referrals and issue rewards when they’re due.
But that said, you don’t necessarily need an incentive – or a defined referral program – for your SaaS company. If your product is good enough, referrals will happen naturally, simply because people will be excited to share what you’ve built.
Consider the example of PayPal. Back in the day, they ran a merchant referral program. When someone referred a merchant to sign up for a Business or Premier PayPal account, they’d be eligible for a cut of the funds received by their referral. But today, with more than 300 million users, there’s simply no reason for PayPal to offer such an incentive. The fact that everyone else already uses it acts as an incentive in its own right – so it’s hardly surprising that the referral scheme was discontinued back in 2012.
One word of caution, though: make sure people can actually find your software by listing it in a directory such as WooFresh.
B2B Service Provider
If you’re a B2B service provider – like my agency, Web Profits – personalization has to be the name of the game when it comes to referral marketing.
If you’re too aggressive about pushing referrals, your existing customers may view you as trying to cash in on the goodwill of your relationship (as Sandra Lewis of Worldwide101 discovered). But if you skip referral marketing entirely over fears of coming across too pushy, you miss out on the benefits this growth strategy has to offer.
As a service provider, you have three general options:
You can allow referrals to happen naturally
In this case, you don’t implement any formal referral marketing program. Instead, you focus on improving your services to the point that your customers want to refer you to others.
Then, when those referrals occur, warmly thank those that did the referring – either with a phone or email message, or by sending an appropriate gift.
You can suggest referrals in one-on-one conversations
In service organizations, the “aha” moment is often the completion of the first project (where, ideally, you’ve impressed the client to such a degree that they’re excited to continue working with you).
If the client tells you how impressed they are with your service, it’s natural to segue into something like the following:
“I’m so glad you enjoyed the work we did for you. If you know anybody else looking for this kind of service, would you please share our information with them?”
Adjust the script to suit your needs and communication style. Make it clear that you’ll provide the same level of service to new customers that are referred to you, building the trust required for these referrals to happen in the first place.
This is another situation where you don’t need to offer an incentive structure. People want to help others. In this case, suggesting a referral to a company they already love gives them an opportunity to help both you and the people they refer to you.
You can offer a formal referral program without pushing it
Check out the referral structure offered by DSquared Media. The terms are laid out clearly for anyone who’s interested, but there are no intrusive pop-ups or chat windows prompting enrollment in the program.
Telecommunications provider Koodo has a referral program that allows you to earn up to $300 in bill credit every year. It’s not pushy or in-your-face. It just exists with a link on the self-serve portal.
Both are basically a “take it or leave it” approach that makes the benefits of referrals clear without burning client goodwill by being too pushy.
99Designs offers a similar referral program.
You might also harness the power of Other People’s Networks, or OPN. It’s one of the many tactics taught by Growth Tribe, Europe’s first growth hacking academy with students from over 415 companies across the continent. Practicing what they preach, they used OPN for their International Growth Marketing Summit, an entirely online 8-hour conference with 15 renowned guest speakers from the industry.
Those experts shared details and a sign-up link for the conference with their individual audiences (hence, OPN), delivering roughly half of the 15,000 participants that registered for the event.
OPN may not be a traditional referral tactic, but it most definitely delivers results. What existing networks – either yours or someone else’s in partnership – could you leverage for your service today?
Growth Tribe didn’t stop with “just” OPN, though. They also added a milestone referral program for those who had already signed up.
As we’ve seen with the other examples, they offered five reward tiers, started with easy-to-achieve levels, and finished with attractive and relevant “grand prizes.”
This tactic delivered another 5000 registrants. All told, referrals accounted for about 12,500 (7500 from OPN and 5000 from the milestone program) of the 15,000 total attendees.
Refer, refer, refer.
B2B Enterprise Software Provider
Do you think IBM offers $25 off for every new customer that signs up? Or that the enterprise giant encourages its customers to simply mention its name to those who are shopping for software?
IBM’s size, as well as its number of product lines and verticals, means the company employs a much more complex system of referrals, including:
And those are just a few of the schemes that have been published. I’d wager that, behind the scenes, the account reps of the company’s largest clients are encouraged to “take care of” their best-promoting customers in a number of different ways.
Likewise, ERP and CRM provider Workwise has a robust customer referral program that allows existing customers to accumulate credits that can be used to purchase upgrades and various other value-added services.
The bottom line is that, the larger the company, the greater the number of different opportunities that exist to incentivize referrals. Take advantage of as many of them as possible to encourage long-term growth.
Taking Referral Marketing Further
Follow the templates above, and you should be able to set up the appropriate referral program for your company quickly and easily.
Once you select the right referral software and your scheme is in place, however, there are several steps you may want to take to improve your results (depending on the type of program you’ve implemented). For instance, you could:
- Set and track key performance indicators. A few specific metrics you may want to monitor include:
- The number of customers who become referrers
- Your overall participation rate (as in, the number of enrolled participants in a formal referral marketing program who actually share their invites)
- Your overall response rate (the percentage of these invites that are acted upon in any way)
- Your overall conversion rate (the percentage of invited referees who become customers)
- The proportion of referred customers who go on to refer other customers
- Split-test your program design to see if your audience prefers one type of incentive over another.
- Invest in ongoing training for your top referrers, or present them with resources (such as graphics or copy swipe files) to improve their effectiveness.
- Set variable reward schemes that incentivize high-performers.
Again, consider the appropriateness of each of these suggestions, based on your program design. If you run a popular ecommerce brand with an engaged base of referrers, or if you’re a company like IBM with a formal partners program, investing in your program’s participants makes sense. If you don’t have a formal referral marketing program, or if you handle referral requests on a personalized basis, it doesn’t.
Ultimately, keep the happiness of your customers top-of-mind. Keep your insight into their behaviors and preferences front-and-center as you plan the referral marketing program that’s most likely to drive results.
And don’t forget to ask nicely. And say thanks. It goes a long way.
Are you using referral marketing? If so, share whether or not your scheme differs from the templates described above using the comment section below: