How Does Referral Marketing Work?

July 08, 2021

Did you know that 69% of customers who had a positive experience with a business would recommend their product/service to other people? This is one of the foundations of referral marketing. 

What is referral marketing?

Referral marketing is a method of product/service promotion that utilises customer-to-customer referrals.

It is a form of marketing that will organically occur with or without your involvement but can be influenced by using appropriate strategies.  

Referral marketing is your new-age word-of-mouth. In this digital age, the majority of customers will seek online customer reviews before purchasing a product or service. A mistake that many people make is not checking these reviews and subsequently suffer because of it. 

Referral marketing is powerful

Did you know  that the lifetime value (customer’s value to a company over a period of time) of a new referral customer is 16% higher than a non-referral client?  

Infact92% of respondents trust recommendations from people they know. 

Referral marketing should be utilised effectively as it is very cost-effective and often the fastest way to spread the word of your business or product. 

Why do I need referral marketing? 

At its most basic, referral marketing attracts new leads to your business. A good referral program should encourage people to refer their friends and family to your business.  

Hearing about your business/product from a source that they feel is trustworthy, will build your company reputation and encourage a positive experience. 

Trust builds sales! 

Trust is key to make sales, if your customers trust your business and have high-quality experiences with you, then they are likely to recommend you to other people who may be interested. 

If you are not receiving referrals, the main issue may be is that you are not asking for them!  

One study found that 83% of satisfied customers say that they’d be happy to refer a company to friends, colleagues, and industry peers. 

Make sure that any leads you have are followed up and that other customers are encouraged to tell people about your business. 

Most customers will not be aware of the opportunity they have to refer people to you, or how important it can be to a business. It is likely that if a customer has a good experience, they are likely to return, informing customers how important referrals are to the integral running of your business will make them want to help so that they can keep returning to you. 

Referral marketing methods 

Referral marketing methods do not need to be complicated. Often the simplest methods can be the most successful, using a number of methods may be necessary to ensure that everyone wants to make a referral. 

When developing your referral system, you should imagine yourself as the customer, how would you respond to this? Does the customer have an incentive to act a certain way? Is there anything you can do to ensure that their actions will be to make a referral? 

7 methods of referral marketing 

  • Contact your best customers/clients and ask them to make a recommendation to their friends. 
  • Form relationships with businesses that have a strong relationship with customers and have them introduce your business. 
  • Use incentives such as discounts for people who refer more customers to you. 
  • Ask business owners or professionals to recommend you. 
  • Go to people you have not previously tried to work with before and make them an offer that they can’t turn down.
  • Offer monetary deals with businesses when they send you referral business. 
  • Use changing seasons and holidays such as Christmas to allow for better incentives.  

Now you know what referral marketing is, why it is important and how it should be implemented. Find out how to start the process in our next blog. 

If you are interested in referral marketing for your business, book a discovery call with CREATIVE in TiME to get the process started. 

By Fred Warner

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