Referral marketing is one of the best ways to grow your business. It will get more people talking about your brand. Referring to a great program can help build brand awareness. It is also the most trusted way to market your business to people who share similar interests and have common goals. Referral marketing increases word-of mouth referrals by allowing customers to tell friends about brands they like and getting rewarded.

Referral marketing is a powerful way to reach your most important source of media, customers. Effective referral marketing programs report a 71% higher conversion ratio, customers with a nearly 60% higher lifetime value, and a 70% faster rate of referred leads becoming happy customers. Referring to friends and family about products and services that they love and use is a great way to help generate qualified leads.

Referral Marketing: What does it mean?

Referral marketing can be a great way to encourage customers to recommend you. Referral programs encourage word-of-mouth marketing by rewarding customers who spread the word about your products or business. It is a great way to increase your leads and expand your business by asking existing customers to refer your business to friends. It takes very little marketing effort.

How to run a referral program

Referring new customers to brands or products they use is easy with a referral program. Businesses can automate word-of-mouth marketing by creating a customer referral program. This allows them to reward and incentivize customers who recommend their brand to their friends.

It is easy to run a referral program. All you need is a plan and some outcomes. Your referral program should have a clear goal. You will be able to determine what type of referral program you need to reach your goals.

You can choose between a single-sided and double-sided referral system. This outline will explain how the program will work, what incentive or reward you will give and how rewards will be given once referrals begin coming in.

How to run a successful referral program

• Style your referral program to match your brand’s tone and identity.

• Referral programs should support your customers’ goals. Encourage them to share your offer with friends.

• Existing customers should be able to sign up for their account and refer friends via their preferred social media channels.

• Communicate clearly with customers what they are expected to do, and what their friends must do in order to get their referral reward.

• Integrate your referral program with your CRM to make it easy to manage.

• Promote your referral program on as many marketing channels and platforms as possible to encourage more people to sign up and refer their friends.

• Encourage users to refer friends to you with regular reminders and a scoreboard of friends they have referred.

• Notify your users when a referral is made and thank them.

• You can keep track of who has referred you and who should be rewarded. This will ensure that users get their rewards on time and as promised.

• You can learn from the success stories of past brands, whether they are yours or those of other brands who have run referral programs. They have published case studies and best practice examples on what works and what doesn’t.

• Try again if you fail the first time. You can only learn the best things for your customer and for your business by keeping trying. Referral is all about practice.

What is the difference between affiliate marketing and referral marketing?

Now that we have a better understanding of what referral marketing is, and what it takes for a program to succeed, let’s learn more about affiliate marketing.

Referral marketing and affiliate marketing both use an incentive and reward strategy in order to grow customer leads and increase revenue. The key difference is that affiliate marketing uses third-party advocates to generate new customer leads. Referral marketing rewards customers who refer friends to brands or products they already use.

• Referral marketing is based on the relationship between a company and its customers. It uses that relationship to encourage customers to recommend the brand to their friends. Referral marketing success is largely determined by how many customers sign up and refer friends to the brand based on the value of the incentive, reward and loyalty.

• Affiliate marketing puts in place a paid-for agreement between a brand and an affiliate and what has been arranged as part of a paid-for-performance-based contract. The reach and influence of affiliates on their followers will determine the success of affiliate marketing.

Although affiliate marketing and referral marketing have some commonalities, there are key differences. The source of the referral is what determines which one is better. It really comes down to your goals for new customers and how you choose to use affiliate marketing or referral marketing to grow your company.

Referral marketing is managed internally by sales and marketing teams who are familiar with the brand’s tone and identity and have established relationships with customers. Affiliate marketing, on the other hand, involves third-party promotion of a brand. This puts the advocate in control of the message, tone and sales pitch.

Referral marketing is based on the customer’s influence over friends and family and the value of the incentive or reward offered to both (or both) of them. Referral marketing works best when a brand has a loyal customer base.

Affiliate marketing can be either a contractual or paid for agreement between a brand, and an advocate. Affiliate marketing can be a great way for brands to grow their customer base, or establish new ones.

What is it Take to Create a Great Referral Program.   

All the evidence points to the many reasons every business should use referral marketing to grow. How can you ensure your referral program is the best for your business? What makes a brand’s referral program different from its competitors? What are the key factors that set a referral program apart? And what can you do to accelerate your success in referral marketing?

It’s simple: learn from the best. We all know about the referral marketing unicorns Tesla, Paypal, and Dropbox. Let’s now take a look at how to learn from these programs and why they were so successful.

Top Referral Marketing Examples From Popular Brands

Tesla

Tesla used a similar referral model to achieve the same success as PayPal. It literally gave money away to make money. Tesla offered $1000 for each successful referral and access to exclusive events as well as a Model X “founder series”.

Here are the reasons why the Tesla referral program worked.

• Tesla offered $1000 to Tesla owners who referred a friend to buy a Model S.

• They would also be able to offer $1000 to their friends when they make their purchase.

Tesla also incentivized referrals by increasing the stakes.

• Five successful referrals from fans and friends would be eligible for an invitation to the Gigafactory grand-opening party.

• Refer 10 friends and get the chance to buy a “Founder Series” Model X

PayPal

PayPal launched a referral program when they first launched. It was so successful that they had to reevaluate the reward twice to keep up with growth. PayPal’s original referral program was a two-sided system. Users were rewarded $20 for signing up and $20 for referring new users. Referral program that could help 100 million PayPal users. They had to lower the initial referral reward to $10, and then to $5 rewards. PayPal reported an increase rate of 7% to 10% for the referral program.

DropBox

DropBox learned from the success of PayPal’s referrals and launched a double-sided referral system that rewarded both the user as well as their friends who referred them when they signed up for their cloud storage.

Here’s how the referral system worked:

• DropBox allows new users to sign up and invite their friends to DropBox to get more data storage.

• Refer a friend to get 500MB more cloud storage

• Refer a friend and get 500MB free cloud storage.

Users could refer as many friends they wanted until their cloud storage reached 16GB per user.

This cloud storage company was able to achieve success thanks to the DropBox referral program.

• From 100k users in Sept 2008 to four million users by December 2009, growth

• Growth of 3900% in 15 Months

• For 15 months, double their user base each 3 months

Closing

It is safe to say that many of the most successful brands are using referral marketing to increase their customer base and increase their revenue. Referral marketing can be cost-effective and easy to use with the wide range of software tools available. It will allow you to lower the cost of customer acquisition, increase lifetime value of existing customers, and build trust with new leads.

You should now be asking yourself why you haven’t started your own referral program. You can get your referral program started in minutes with simple software like Referral Factory.