How to Craft a Winning Referral Marketing Strategy

Referral marketing is a touchy subject for many entrepreneurs running small-to-medium-sized companies. Most business owners prefer to focus on delivering excellent service or high-quality products with the hopes it will lead to a word-of-mouth referral and an influx of customers.

But let's be honest. I know why you probably don't have the courage to ask your customers for referrals. You think asking for a referral makes you look weak and needy. And at the very least, it can affect the reputation of your business. I mean, if you're asking for referrals then you must be desperate. But this couldn't be further from the truth.

Referral marketing is a win-win strategy. You get free marketing for your business, a customer gets social validation (or a reward) for recommending your product or service, and their friend gets a recommendation from a trustworthy source.

It's time to break the misconceptions about referral marketing. You don't have to sit and wait until someone spreads the good word about your business. In fact, you can make it an active part of your 2024 marketing strategy. So in this blog, I'm going to show you how to do that.

What is a referral marketing strategy + how to implement it
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What is referral marketing?

Simply put, referral marketing is when you get your customers to recommend your products and services to their friends and families.

Compared to other forms of traditional marketing that are meant for the general public, referral marketing requires you to focus on your customer base in order to generate leads, and eventually, convert them into customers.

If you offer quality products and services, you likely have satisfied customers who would be happy to refer your business to other people. This is the core concept of word-of-mouth marketing.

Now, why not maximize the word-of-mouth and incentivize customers to get more referrals from other people? This is basically what a referral marketing program is all about.

Is referral marketing the same as word-of-mouth marketing?

Most resources will tell you that referral marketing is also known as word-of-mouth marketing, but each has distinct differences.

Word-of-mouth marketing is simple. It happens when a customer shares their experience with others and recommends your products or services. Businesses that are focusing on word-of-mouth are typically active on multiple media channels, finding ways to get people talking.

Word-of-mouth marketing works, but it's passive. A customer might be happy about your product or service, but there's no guarantee that they'll spread the word about it. It's not the most effective strategy out there, but it has its place in many businesses.

Meanwhile, referral marketing produces the same effect, but it's initiated and strategized by a business. It requires a program where customers can receive incentives and rewards once they refer the business to other people. Simply put, referral marketing is an ongoing and active strategy.

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Why is referral marketing effective?

Before I tell you more about creating a winning referral marketing strategy, I'd like to share why it’s effective.

Let's talk about the psychology behind a referral.

For a moment, put yourself in the shoes of a customer. Let’s say you can't decide between buying the iPhone 15 Pro or the iPhone 15 Pro Max. The salesperson comes forward to assist you, answers all of your questions, and explains the pros and cons of each model. Not only have they helped you make the best decision, but they’ve also given you a discount.

Now, you're amazed by their service, and you suddenly remember a friend who's about to upgrade their phone so you leave them a message, sharing your experience.

But let's be clear here. You're recommending the store, not because you want to do the company a favor, but because you want the best for your friend.

In the end, your friend thanks you and you both feel good as you share similar experiences with the same purchase. And the store got another customer without shelling out money for promotions or ads. This is what makes referral marketing effective, and why it stands out from other marketing strategies.

What are the benefits of referral marketing?

1: It grows your audience.

There are a lot of ways to grow your audience, but most of them cost a lot or take a ton of time to implement. Referral marketing won’t cost you either of these. Your current customers share your business with their friends and family. And since they’ve heard about your business from a trusted source, they'll likely buy from you. With referral marketing, it takes less effort and time to appeal to more potential customers.

2: It expands your business reach.

Word spreads fast; and you can take advantage of it.

Referral marketing undoubtedly extends your reach, whether under a program or based on word-of-mouth. If you’ve asked for referrals from five of your satisfied customers or enrolled them in your referral program, you’ll likely see an influx of prospects who want to know more about what you sell.

In short, it's one of the most effective ways to generate leads. It's your call on how to nurture them until they become your customers.

3: It creates more loyal customers.

Your new customers can end up being the most loyal ones. Why? First, it's because you were referred by a trusted source, which puts you in a great position. And second, if you'll start incentivizing your customers as well, they'll likely stick with you. It's a win-win for both parties.

In fact, referred customers are 18% more likely to become loyal to your business, possibly increasing overall customer lifetime value (CLV).

4: It boosts engagement with your target market.

This is where you can make use of the psychology behind a referral. Remember, your existing customers are not merely giving referrals for your business's sake, but to get that social validation from recommending a reputable brand.

Use it to your advantage. This should give you more reason to engage with your customers. You can invite your customers to join your referral program, and give them shoutouts and some sort of public praises through social media, emails, and different platforms.

5: It creates a cost-effective marketing strategy.

As I said earlier, traditional marketing can become expensive and time-consuming. It's part of the strategy, but you may wish to find other ways to get more leads and acquire new customers.

Referral marketing is one of those ways. Plus, it's a budget-friendly way to market your brand and get the word out quickly. Word-of-mouth marketing is always free, while setting up a referral program might require you to allocate a budget (but it's not as expensive as running ads or launching a major campaign).

How to implement a referral marketing program?

Step 1: Do your research.

First things first, you need to do your research. The main goal is to discover how you can implement a referral program into your strategy. Would incentives and rewards entice your customers? If yes, what can you offer to make them participate in your referral program?

You can do your research in several ways, but basically, you’ll get the most bang out of your buck by hiring a marketing researcher who studies the buying habits of your customer base.

And if you're not keen on delegating this task to someone else, you can simply conduct customer surveys, asking your customers what would make them join in the referral program. Bottom line, you have to think of possible rewards and incentives that you can offer in return for getting referrals.

Step 2: Create a system for your referral marketing program.

Like I said, you can't simply sit and wait until someone recommends your product to other people. You can make referral marketing an active part of your strategy. So in this case, you need to create a systemized approach for getting referrals.

Here are a few important things you need to set up:

  • Procedures for crediting referrals
  • The number of referrals necessary to get an incentive or reward
  • Tools and software that track referrals and continuously run the campaign
  • Launch date (and end date if you're planning to run the referral marketing program in a limited period)
  • Promotional materials

Step 3: Promote the referral marketing program to the public.

And speaking of promotional materials, the last step is to create awareness and encourage existing customers to join the program.

If you have a physical store, you can place signs, banners, and posters on different corners and cash registers to invite customers to join the referral program. You can also hand out brochures that contain everything they need to know about it.

This is the traditional way of advertising. So aside from this, you should prioritize promoting your program in the digital landscape. This can be done through social media, email marketing, opt-in/landing pages, and more.

What are the best ways to ask for referrals?

Requesting referrals before doing business

Let's start with an example for a customer during the onboarding stage. You can send a leave-behind note that goes like:

Mr./Mrs. Customer,

I’m going to do a fantastic job for you, but I do need your help. Much of our new business comes from customers who refer us. This means that we don’t need to pay for expensive advertising and can, as a result, keep our service costs down. Typically, we get about three referrals from new customers.

When we complete the job, and you’re 100% satisfied with the work we’ve done, I’d really appreciate it if you could keep in mind three or more other people who we could also help.

Now what makes this effective?

  • You're straightforward in letting them know you can deliver great results and offer excellent customer satisfaction.
  • You're showing them how they benefit from referring your business.
  • You are creating an expectation of the number of referrals you'd like to get without being pushy. This allows them to think of who could be a great fit for your products or services.
  • More importantly, you're giving them the power. You let the customer know that the referral is subject to your business doing an awesome job for them.

Requesting referrals after the service is done or a product is bought

It's similar to the onboarding referral request, except that you have to send this after the transaction is done.

Mr. /Mrs. Customer,

It’s been an absolute pleasure assisting you. If you know of anyone who is in a similar situation to yourself, we’d love you to give them the enclosed gift card which entitles them to $100 off any of our services. One of the reasons we’re able to keep the cost of our service down is because we get a lot of our business through referrals from people like you.

Now why should you try this technique?

  • Your thank-you note recognizes and appeals to their ego.
  • You're not directly asking for a favor, but offering something of value as a discount voucher. And vouchers are nice, small incentives to your customers.
  • Lastly, you're giving them a reason to refer your business.

How can you make your referral program successful?

1: Incentivize the referral program.

A great way to get more referrals is to incentivize your customers. And I'm not just talking about treats or goodies that you can easily hand out to anyone.

Think about this:

What could you give your tribe of raving fans or your clients that they can pass on to someone else?

It needs to be something of value that's going to make them look good. For me, as an example in my business, it's my book—The 1-Page Marketing Plan. I give that book away like I'm handing out candy.

I know if somebody reads my book, they're going to be better educated. They're going to get a ton of value. And there'll be a much better prospect because we're going to be able to talk at a much higher level. We're not going to have to talk about fundamentals because they've already been through the book. They know the fundamentals; they know what I'm about.

Here are some examples of when I've given my book away:

  • Attending events - I gave away about 200 copies in exchange for  at an event attended by business owners who are in my target demographic free publicity at an event attended by business owners who are in my target demographic.
  • Dealing with clients or potential prospects - I'll often give copies to my clients or potential prospects. So often when I'm talking to someone, whether it's on the phone, on Zoom, at a conference, or whatever, if they look like a prospect, I'll send them a package with two copies of my book, a business card, and a handwritten note. And if you're wondering why I always give two copies of the book away, one book is for the person I've been in a conversation with and the other is for them to pass on to a friend, colleague, or relative. Again, I'm making them look good because they're able to pass on something of value, which is my book.
  • Working with someone who has my ideal audience - For example, if I'm working with an accountant, lawyer, or whatever, and they've got small business owners in their audience, I might give away books to their client base.

There are two main reasons for doing this:

1. Providing your prospect with something of value that they can pass on, makes them look really good. They're giving something of value to their audience, and it's something that can help grow their existing customer base—which is really good for them.

2. It's also good for me because I get access to a brand new audience that I otherwise wouldn't have. It's a really good strategy. And it's a win-win for both of us.

But here's the thing, it doesn't have to be a book. It just needs to be something of value. It could be something like a free report, a gift voucher, a how-to guide, a software trial, or a free sample.

It just needs to be something that people will think twice about throwing away and something that will help educate your ideal target market about you and the product and services that you provide. If there's a monetary value to what you're sending in, all the better, because people really don't like to feel like they're throwing money away.

2: Promote it strategically.

Without strategic promotion, nobody will know about your referral marketing program. You have to make sure that it's visible to your existing customers, so they can join.

Think of different ways to promote your referral marketing program, and list them. Now when I say to promote the program strategically, it's best that you make use of different online marketing channels and platforms.

Use social media. Revamp a part of your website and create a landing page that features your referral program. You can also build an opt-in page that encourages a prospect to sign up. You can also send emails to your existing customer base and invite them to join.

3: Make the experience shareable.

How can you create a shareable buying experience for your customers?

When thinking about how to create a beloved customer experience, think about what will surprise and delight them.

If you're putting yourself in the shoes of your customer, pretend you got what you ordered...but with an extra cherry on top.

Think about what will surprise and delight your customers. Perhaps a freebie included in the package? A product sample? A gift voucher? The decision is up to you.

The bottom line is: You need to do something to make the experience unforgettable and unique for them. This drives your customers to recommend your business to their friends and family.

Need ideas on how to deliver an unforgettable experience? Check out this blog on using direct mail to win new customers.

4: Never compromise customer service.

Happy customers share more. Now, how do you get happy customers?

Simple. It's all about excellent customer service.

Think about aspects of your customer support process you can improve. Sometimes, a fun banter or sense of humor makes the experience better.

5: Collaborate with influencers.

Aside from relying on your customers to spread the word about your business, you can also work with influencers. Influencers have a large audience, and as the name suggests, they have influence over their followers who aim to think, act, talk, and live like them.

They also have a say on which products should trend, go viral, and sell out.

This can become a great opportunity for you to promote your products and services to their massive following.

But of course, unlike some of your loyal customers, influencers don't refer businesses for free. So you have to be ready to offer rewards and incentives to them.

Here's the thing: It doesn't have to be a large-scale, expensive referral marketing campaign. You can start working with micro influencers who have 2, 000 to 50, 000 followers that focus on a specific niche.

Learn more about niche marketing and finding your niche audience here.

Start Your Referral Marketing Campaign.

Here's my main takeaway: You can't rely on passive, word-of-mouth referrals. You need to be active.

Let's debunk the misconception about asking for referrals, or putting systems in place that generates referrals. While not everyone will refer you, a referral program will be enough to keep you and your business busy and steadily growing.

Now the big question: Are you ready to scale your business through referral marketing?

I've written another blog post that shares more ways on how to ask for a referral. Check it out here.

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