Built to Fail: 4 Referral Marketing Mistakes to Avoid

Over the last year, I’ve had conversations with numerous sales and marketing executives about one of the world’s oldest — and most effective — customer acquisition channels: Referrals. Most of those executives have gone on to help their organization implement successful referral marketing programs, but some have flat-out failed to generate the results they expected.

In most cases, those failures were easily preventable.

While we routinely share referral marketing best practices with our clients, not every prospect chooses to follow that guidance. Instead, they opt to carve their own path — often building referral programs in-house that ignore the techniques that brands like Ria Money Transfer, Volusion, and SAP have used to generate thousands of new customers from referrals.

This leads to a couple of key referral marketing mistakes that almost always lead to poor results:

Mistake #1: Right for you, wrong for your customer

If your customers transact with you on a weekly or monthly basis, then it makes sense to incentivize referrals with account credits or discounts off future purchases. If, however, your customers purchase from you less than a few times per year, that reward won’t carry the same weight. In fact, it might send signals that you don’t really understand your customers.

So, what’s the right approach? If your customers transact only a few times during their lifecycle, you need to reward them with something of immediate value. Providing access to yet-to-be-released products can work, but cash and gift cards are virtually foolproof. In fact, a 2016 Nielsen Harris Poll conducted on behalf of Ambassador found that 77% of Americans prefer to be rewarded for referrals with money.

Ultimately, for referral marketing to work, brands must be selfless. Focus on what’s right for your customers and give them a relevant reason to send you referrals today. If your referral incentives fail to provide immediate, tangible value, your program will fail, too.

Helpful tip: Dual incentives, where the customer and friend both receive a reward for a referral, are a proven way to accelerate sharing and drive purchasing behaviors.

Mistake #2: A referral program that’s too complicated or hard to find

Here’s an existential question to answer: If you have a referral marketing program in place and no one knows about it, does it really exist?

If your referral program isn’t public facing or it’s difficult to use and share with the click of a button, then you’ll severely limit your ability to drive word-of-mouth and referrals. Also, if you’re requiring customers to manually input a potential referral’s information, good luck. For customers, this annoyance creates a barrier that significantly hinders referral activity.

How can you avoid that? Start by answering these questions:

- Where and when is it most likely that customers will want to share your brand/products?
- Are you requiring those customers to do the heavy lifting to find friends who might be interested in your company?
- Are you limiting your referral program to only current customers?

Here’s the bottom line: Your goal must be to make it simple for anyone (customers, fans, admirers, influencers advocates, etc.) to share your brand with everyone who might be interested in it.

Helpful tip: Ask for referrals at the point of purchase and after the first user experience. At this point, customer excitement (and the likelihood of referrals) is at its highest.

Mistake #3: Starting small with a half-hearted pilot

Over the last year, I’ve seen massive companies with millions of customers attempt to launch a referral program by testing it with just a few dozen or few thousand targeted customers. That “pilot” approach has failed. Every single time.

Here’s why: Just like converting web traffic into actual customers (and converting those customers into repeat buyers), referral marketing is a numbers game. It requires a funnel and, if you don’t put enough names into the top of that funnel, nothing will come out the bottom.

Another problem with this approach is that you can’t really know who your biggest fans and ambassadors are until you execute a referral marketing program at scale. Trust me. I’ve consistently seen clients assume they know who their “best” customers are, only to see disappointing referral results from that base of contacts. When they open up the program to everyone, however, amazing things happen. In some circumstances, people you wouldn’t expect to generate referrals end up being your best ambassadors.

For example, I’ve never been a customer of GetOutfitted, but I’ve shared the company with my friends and several have converted into regular customers. I love the idea. I love the company. And, until the time comes for me to be a customer, I’ll gladly sing their praises.

Helpful tip: While it might seem to make sense to test first and scale later, that approach typically results in “test and fail.” A better strategy is to keep it simple by starting with two programs — one that’s public facing and incentivizes new shoppers to make their first purchase, and a second one that’s tailored specifically to existing customers.

Mistake #4: Assuming no customers means no need for referral marketing

Referral marketing isn’t a magic wand. You can’t wave it and suddenly make up for poor web traffic, a weak email list, or a lack of new customers. That said, you don’t have to wait to hit a critical mass of customers to invest in referral marketing. In fact, the easiest and cheapest way to acquire new customers is through referrals.

Yes, you still need a healthy list of contacts in your funnel and you need a working website, but there’s an argument to be made for understanding the value of investing in a program before you’ve acquired hundreds or thousands of happy customers. Doing this gives you time to get it up-and-running while you scale top-of-funnel activities (SEO, shopping cart technology, inventory management, inbound marketing, paid ads, etc.). When all of that’s ready to go, your referral program will be, too.

Lull Mattress is a great example of this. The company implemented its referral program early in the process of scaling its brand, and referrals are now a critical driver of web traffic and new customer acquisition.

Helpful tip: It’s never too early to put a referral marketing strategy in place. Success is dictated less by the stage of your company and more by how well you weave every aspect of it into your overall marketing plan.

A roadmap to a more effective referral marketing program

As customer sophistication grows, the use of ad-blockers rises, and marketers are pushed to show ROI on their investments, referrals will become more and more important.

So, if you’re cognizant of the fact that referrals work and you’re prepared to invest in the benefits of referral marketing, my advice is to do it right the first time or don’t do it at all. Truth is, approaching referrals the wrong way won’t just fail to deliver value — it could do irreparable harm to your brand, as well.