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.
You know how powerful a referral is. According to Annex Cloud, referrals generate 3-5x higher conversion rates than any other type of marketing. These customers are also 4x more likely to refer other customers your way. And they’re likely to spend 200% more than a customer acquired through paid advertising.
So why don’t more businesses ask customers for referrals? Simply, you think that asking for a referral makes you look weak and needy. This couldn't be further from the truth.
Here’s why referral marketing is a win-win strategy.
You get free marketing for your business.
The customer referring you gets social validation (or a reward) for recommending your product or service.
Their friend gets a recommendation from a trustworthy source and guaranteed satisfaction.
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 marketing strategy. I'm going to show you how to do just that.
%2520(28).png)
Referral marketing is the act of asking your customers to recommend your products or services to their friends and families.
Unlike traditional marketing, referral programs focus on using your existing customer base to generate new leads at a fraction of the cost. Not only does it have a 30% higher conversion rate than any other strategy. Referral marketing software now allows you to completely automate the process, making it a must-have for your business.
Remember, if you do good work or offer quality products, your customers will want to give you a referral. They don’t need to be coerced or incentivized. They give you a referral because it makes them feel good, and because the recommendation is coming from a trusted source, you're more likely to win their business.
If you want to make referrals part of doing business with you, you need to create a system. You need a referral marketing program that consistently generates new business as a result of word-of-mouth referrals.
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. For example, a dentist might incentivize their patients by offering $25 off their next appointment for every new patient they refer. They might notify their patients about their referral marketing program through email, SMS, or in-house brochures.
The point is that these programs are an ongoing and active strategy.
To understand why referral marketing programs are effective, you need to explore the psychology behind a referral.
Referral marketing is one of the most effective growth strategies because it taps into something incredibly powerful: trust. People are way more likely to believe a recommendation from a friend than any slick marketing campaign you put out there. Why? Because friends don’t have a marketing agenda—they just share what works.
A properly structured referral program rewards your best customers for spreading the word, turning them into an unpaid (or minimally paid) sales force.
If you want to create a winning referral marketing strategy, you need to make it easy for your customers to refer you.
Some companies give vouchers or coupons to their customers to hand out. The problem with this referral strategy is that it requires your customers to see their friends, and you can’t guarantee that when they do, they’ll remember they have a referral coupon to give.
Other companies prefer to send an email or SMS, which their customers can pass on to their friends. This is instantaneous making it easy to pass on and get a result quicker.
You can also create a personalized landing page that explains why their friend chose to refer you. They can book directly through the page, allowing you to track where the referral came from. This makes it easier to reward an existing customer.
Remember, successful referral marketing isn’t just “tell your friends.” It’s structured. It has a compelling offer and it has an easy way to track and reward referrals. Get it right, and you’ll have a steady flow of high-value customers coming through your door—without blowing your budget on ads.
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. People 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.
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, referral marketing strategies are one of the most effective ways to generate leads. It's your call on how to nurture them until they become your 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 start incentivizing your customers, 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).
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.
Traditional marketing is expensive, time-consuming, and slow to yield great results. Just think about how long the sales cycle can take.
For example, a trading platform might offer a free two-week trial of their software, hoping users convert. Whereas, a referral can lead to an immediate sale—no waiting or chasing. That’s cash in your pocket today, not in two weeks.
Implementing referral marketing campaigns two to three times a year is a budget-friendly way to market your brand and get the word out about your business. You’ll attract higher-quality leads and acquire new customers without the heavy price tag of traditional marketing.
While word-of-mouth marketing is free, it's not guaranteed. Setting up a referral program requires a small budget, but nowhere near the cost of ads or big marketing campaigns.
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 for 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 your referral program. The bottom line is that you have to think of possible rewards and incentives that you can offer in return for getting referrals.
We've sent books, AirPods, a hamper of goodies. It doesn't have to cost you a lot. However, personalizing this experience can go a long way to ensuring loyalty.
Map out your referral marketing plan. Now that you know your offer, how will you make people aware of it? How many referrals can you realistically achieve in a month? What content will you use to drive traffic to your site? How will you share your program with customers? And is there a particular channel you want to use to reach prospects, for example, email, social media, direct mail, or SMS?
Building a plan ensures you have a road map for success. Without it, you're just throwing spaghetti at a wall hoping something will stick.
Like I said, you can't simply sit and wait until someone recommends your product to other people. To make referral marketing an active part of your strategy, you need to create a systemized approach to getting referrals.
Here are a few important systems 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
Now that your system is up and running, and you have your promotional materials ready to go, 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.
For example, say you run a plumbing business. Your team has just completed a $5000 job at a customer's house. They've spent hours identifying the problem, quoting, assisting with arranging financing options, doing the work, and cleaning up. Before leaving for the day, they mention the referral program, but chances are that client isn't in the right frame of mind to refer then and there.
So you send a follow-up email, a few days later to check in with the client. This should hopefully rate a positive response. This is the right time to request a referral. By the making the effort to connect with your client, they feel like their business matters. And because the client is happy, they're more likely to give you a referral.
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.
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.
%2520(29).png)
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.
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.
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.
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.
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.
When it comes to referral marketing, you need a system that’s simple, scalable, and automated. The best software for your business isn't necessarily the most expensive or most popular. More often than not, the best referral marketing software is the one you'll use.
So, when it comes to deciding which referral marketing software to invest in, consider this:
What do you want that piece of software to do?
Is it developed specifically for your industry?
Can you implement it yourself or do you need expert help you get it set up?
Does it fit into your marketing budget?
Now that we have that out of the way, let's take a look at my top picks:
If you run an e-commerce or direct-to-consumer business, ReferralCandy is a no-brainer. It plugs straight into Shopify, BigCommerce, and WooCommerce, making it ridiculously easy to set up. Plus, it automates reward payouts so you can focus on sales, not admin work.
For SaaS and B2B businesses, PartnerStack is king. It’s built specifically for partner programs, meaning you can onboard affiliates, resellers, and referral partners with ease. It also integrates seamlessly with CRMs, so your sales team gets a steady stream of warm leads.
If you’re a startup, tech company, or service-based business, GrowSurf is a solid choice. It’s API-driven, which means you can bake referrals right into your existing workflows. Plus, it’s affordable and has a simple setup, so you’re not spending months getting up and running.
Managing affiliates and influencers? Post Affiliate Pro is built for that. It gives you advanced tracking and multi-tier commissions, so you can reward referrals at different levels. If you’re serious about growing through affiliate marketing, this is a must-have.
For subscription-based businesses, Referral Rock is the way to go. It’s built to automate referrals and customize rewards, which is exactly what you need to keep subscribers coming back. If you run a membership, SaaS, or any recurring revenue model, this is your best bet.
Pick the one that fits your business, set it up once, and let it do the heavy lifting.
You’ll never experience consistent growth in your company if you rely on passive, word-of-mouth referrals. You need to be active.
Add a referral request to your newsletter. Use social media marketing to ask customers to give you a referral. Make it part of your direct marketing campaign.
While not everyone will refer you, a referral program will keep a steady stream of high-value customers coming to your business without having to spend very much on acquiring them.
Now, the big question: Are you ready to scale your business through referral marketing?
I've written another blog post that shares more ways how to ask for a referral. Check it out here.
You'll get new articles delivered straight to your inbox, plus special subscriber-only content such as podcasts, videos and live training events.
Get free weekly emails that make you smarter at marketing and help you grow your business