3 Arguments for Shifting Your Marketing Budget to Customer Referrals

It was recently reported in Fortune that 60% of CEOs believe a recession is inevitable. So chances are, as a marketing leader, you’re probably already feeling the pressure of budget reviews, shifting forecasts, and increased anxiety. Every dollar your department spends is under heavy scrutiny: Are you maximizing your ROI? Could your acquisition costs be lower? Where is the fat to cut?

Truth is, the time has never been better to shift your budget toward customer referral programs. Notorious for its high returns and low program cost, referral marketing (also known as word-of-mouth or WOM marketing) is a sure bet for success - especially in times of economic uncertainty.

Not convinced? You’re not alone. Before COVID upended literally everything in our lives, only 3% of marketing leaders thought customer referrals could be the channel with the highest ROI in their marketing mix. Since the pandemic, that number has shifted dramatically to an incredible 49%. More and more sophisticated marketers are automating and scaling their word-of-mouth marketing programs because of their proven, reliable success in yielding fantastic returns. 

When your numbers look good, you look good. And right now, that is worth its weight in gold. With that in mind, I present my simple three-point argument for why you should be investing in referral marketing programs right now:

1) Referral programs shift your spending from pre- to post-acquisition.

The usual customer acquisition model for digital marketing has your spend front-loaded: you pay for your ads, then you hope to recoup those costs when you eventually earn a new customer (to which there is no guarantee). Referral marketing moves the expense from pre-acquisition to after your new customer has made their first purchase. Every dollar spent in referral marketing can be easily and clearly attributed to revenue - no waste, no worries. It’s like investing in bonds - generating predictable returns with extremely low risk.

2) Referral programs consistently out-earn other marketing channels.

According to a study by Wharton, a referred client has a 16% higher CLTV than customers acquired from non-referral methods. That means that even if your referral program has the exact acquisition costs of other marketing channels, your return on investment is higher. And, unlike other channels, referral programs are designed for self-sustaining growth. For every one happy customer you have, you can count on 2-3 referrals. And those referred customers are 4x more likely to recommend your product! Referral programs are a renewable source for customer acquisition.

3) With referrals, everyone is a winner.  

Inflation is forcing consumers to stretch every dollar like never before. 1 in 4 Americans earn money from digital platforms, and 16% of those are doing so because of financial strain - a number that is undoubtedly growing. More than ever, consumers are looking for ways to earn more to make up for the gap between their earned income and spending.

Enter referral marketing - where nano- and micro-influencers can earn cash and credit for recommending their favorite brands and products. Compared to delivering takeout or driving a stranger to the airport in your car, leveraging their trusted relationships is a far more compelling way to make some extra money (especially with the rising cost of gas). Just like everywhere else, when it comes to referrals, cash is king. 

To recap: referral marketing is a sure bet that costs less, earns more, and generates more loyal customers who are also more likely to recommend your product. The numbers say it all!

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