Do's and Don’ts of Referral Marketing

Having a referral program as part of a customer acquisition strategy is continuing to gain traction amongst marketers with large revenue goals. And it's no surprise. In fact, 82% of people seek recommendations from friends and family when considering a purchase. So what are the do's and don'ts of referral marketing that successful campaign managers follow in order to bring in more new business? 

Before we dive in, let's take a look at why more marketers are leaning on referral marketing to drive growth. 

The basic premise of referral marketing is quite simple: we trust our networks to recommend the best products and services.

In fact, according to Convince & Convert, "83% of Americans say that a word of mouth recommendation from a friend or family member makes them more likely to purchase that product or service."

So as marketers, our challenge becomes how do we best leverage the power of referral marketing? How do we learn what works and what doesn’t, so we don’t waste our precious time (or budget!). 

Why Referral Marketing Works: Debunking 7 Common Myths

As with any high growth strategy, there are many hesitations from marketers on getting started or truly scaling. Today, let's debunk the 7 most common referral marketing myths - they may be holding you back from achieving success!

Myth #1 - A referral program is the same thing as an affiliate program.

This is the most common misconception we hear during initial consultations. It's true that referral programs and affiliate programs are remarkably similar, and you can build an affiliate program using referral software. However, there are a few key distinctions between the two.

In a referral program, your brand ambassadors are typically your customers. They are already fans of your product, they are educated about the features, happy with the support, and they have first-hand experience with your brand. In fact, Airbnb was able to increase user signups and bookings by over 300% per day with a referral program.

Affiliates on the other hand tend to be financially motivated, and lack that first-hand brand experience. Which is why building a relationship is a must. When executed correctly, affiliate marketing can make significant waves. For example, this startup went from $2 million to $14 million in just 2 years of leveraging affiliate marketing.

Neither strategy is better than the other, it just depends on your audience and goals. The best idea is to leverage both types of programs! 

Myth #2 – Referral programs are just as effective as other types of marketing.

Word-of-mouth marketing is king when it comes to consumer trust. And recommendations given online are no different. In fact, 67% of consumers say they’re more likely to make a purchase when a friend or family member shares it online.

This statistic, combined with the fact that 96% of consumers don't trust advertising, makes the case for referral marketing even stronger. Referral marketing programs are powered by trust, which provides a much greater ROI than other channels - and converts higher quality customers.

Myth #3 – Exceptional service is all it takes to get customers to refer business.

Unfortunately, it’s not always this simple. Yes – customer service is a critical part of recruiting passionate brand ambassadors, but it’s not the be all and end all. Not by a long shot. To build a solid referral program, you must deliver products or services that meet or exceed customer expectations, and then provide extraordinary service. 

For your referral program to take root and be exponentially scalable and successful, offering people something of value in return for their referrals – and that something doesn’t necessarily have to be money - is proven to drive more of them. While cash is typically the most coveted reward, the key to the right incentive is providing a reward that your loyal followers value. It's important to test various offers to determine which drive the most high-quality, converting referrals for your business. 

Myth #4 – Customers that are pleased with your product or service will automatically give a referral.

If this were true, there wouldn’t be any need for formal referral programs, now would there? To the contrary, a marketing study conducted by Texas Tech indicated that 83% of respondents would be willing to refer new business to a brand they love, but only 29% of them actually do.

The fact is in order to obtain a steady stream of quality referrals, you have to ask your advocates for referrals, and then make it easy for them to do so.

Myth #5 – Referral programs should focus only on those consumers who are most influential.

Sure, having powerful brand ambassadors is going to help you to achieve great results, but that doesn’t mean you should exclude less influential advocates. In many cases, it’s not how many connections your ambassadors have, but the quality of those connections. All it takes is one referral to someone that happens to have a need, budget, and trusts the recommendation of the referring friend to help take your sales to the next level.

Myth #6 – Once referral programs are in place, they can basically run themselves.

The most important component of quality, successful referral programs is the relationship between the ambassador and the brand. Without this, the program will fall short. Relationships with your brand ambassadors must be nurtured over time. Leveraging referral software will allow you to focus on this important human factor of your referral program, while the nitty gritty details are managed within the platform. 

Myth #7 - If my company has a dev team, we should just build our own solution.

The truth is, if you are in the software business, you probably could create your own referral program. You could also probably create your own CMS for your blog, ad server for your ads, or CRM for your sales data. You could easily do all your own hosting, too.

So why shouldn't you? Simple; opportunity cost. More so, what happens when the referral program matures beyond entry-level functionality? If the in-house program wasn’t designed around flexibility and extensibility, it can create very large barriers to scale. Don't waste time and resources building marketing software; partner with a technology vendor who can provide expertise, coaching, and a platform for success.

Having a better understanding of these common misconceptions can prepare you to take your referral marketing program to the next level. Now that you're equipped to run a successful referral program, let's dive into a few best practices.

The Do's and Don'ts of Referral Marketing

That said, referral marketing isn't something to treat lackadaisically. In order to build a program that your customers, fans, and followers want to participate in, there are some key best practices you'll want to keep in mind :

DON'T make customers do all the work

For referral marketing to be effective, you can't expect existing customers to do all of the legwork for you. While the vast majority of happy customers say they're willing to provide referrals, the truth is they'll only follow through if the referral process is extremely simple.

DO consider how (and when) you ask

The best referral programs operate with a deep understanding of who they're targeting, where those people are active, and which referral program incentives will drive actions. Studying your referral candidates' motivations and preferences before you reach out is critical to success. If you offer the wrong incentive to the wrong customer in the wrong environment, your customer referral program will fail.

DON'T “set it and forget it”

Like mentioned above, all strategic marketing initiatives, referral programs thrive in an environment of perpetual optimization. This is where referral marketing software becomes enormously valuable. With the right technology, you can create (and automate) much-needed process around monitoring, tracking, and incentivizing referrals. Over time, that will generate insight to help optimize results.

DO make referrals part of your broader strategy

The highest performing B2B and eCommerce referral programs share a common thread: referrals are fully baked into every customer's sales, marketing, and support experience. For example, referral CTAs are included throughout the company's website, employee email signatures feature referral messaging, and the client referral program is fully integrated with other critical systems (CRM, marketing automation, eCommerce technology, point-of-sale systems, optimization tools, etc.).

One Key Takeaway
At its core, referral marketing isn't overly complex. In fact, getting started is as simple as putting yourself in your customer's shoes. Objectively, would you recommend your company's products to others? Where and how would you do it? What incentives would motivate you to increase your referral activity? What barriers would keep you from doing it? Answer those questions and you'll be well on your way to building an effective referral marketing strategy.

To learn more techniques on how to create and scale a referral program, check out The Definitive Guide to Referral Marketing.