When starting a brand or business, one of the most important factors to consider is how you will muster interest among potential customers and gain a loyal audience. Word of mouth is one of the most effective marketing strategies, simply because the customers who arrive through word of mouth have been referred to your brand by someone they actually know and trust.

But your customers won’t always feel motivated to send new customers your way—in fact, even though 83% of customers are willing to refer others to products and services they’re happy with, only 29% actually do, a marketing survey by Texas Tech found.

A referral marketing program, as a marketing idea and approach, aims to buck this trend by rewarding customers for promoting your brand. In the following guide, we’ll look at what referral marketing is, how it works and different strategies that your business can use to increase sales and drive traffic when you create a website.

What is referral marketing?

Referral marketing is a type of marketing in which companies turn their existing customer base into brand advocates. This can be done through a variety of tactics, though the goal is always the same: to incentivize customers to tell other people about you.

Referral marketing can refer to when individuals organically refer your brand to others using word of mouth, but creating a deliberate referral marketing program enables this outreach marketing tactic to be strategic and systemized for your brand.

How do referral programs work?

The basic formula for a referral program is as follows:

Make a referral —> Get something for free!

Customers should be able to join your program for free. Once joining, they should receive a unique code or custom URL. Then, if a purchase is made through that link or code, your customer should receive the promised reward.

Why referral marketing works

Aside from being relatively simple and cheap to set up, a referral marketing program can offer three long-term benefits.

01. Referrals build trust

Referral marketing is often effective because of who is actually handling the advertising. With customers serving as the advocates, recommendations appear more genuine and trustworthy.

MarketingCharts.com published the following findings from Kantar Media on the correlation between referral source and trust. It’s clear that consumers follow the recommendations of friends and family more than any other source: 78% of consumers say they trust the information provided to them by people they know, versus only 54% trust the information that a brand provides on their own website.

So, your satisfied customers really can be a great advocate for getting over that trust hurdle.

02. Trust builds loyalty

As you’ll see, there are significant differences in how consumers engage with brands when there’s a long-standing trust. As evidenced by Edelman’s 2019 Trust Barometer Special Report, not only do customers buy more from these brands, but they also:

• Buy local (here is where local marketing comes in very handy)

• Advocate on their behalf

• Defend them

If you can plant the seeds of trust with a referral marketing program, you could exponentially increase your brand’s sales, customer loyalty and advocacy.

03. Loyalty improves your CLV

Most businesses offer products or services that can be sold over and over again—or, at the very least, ones that can be upsold or cross-sold. The goal is to become the go-to provider for your customers and to capture as much of that revenue over their lifetime as possible.

In order to increase the customer lifetime value (CLV) of your brand, trust and loyalty have to be earned as early as possible. One of the best ways to do that is when they grow to know and trust your brand—based on others who know and trust it—is the best way to do that.

Imagine what happens when all the customers you earn through referrals decide that they want to ‘pay it forward’ and start referring their own friends, family and colleagues. This is exactly how you go about lifting your customer lifetime value.

Referral program examples by industry

There are a variety of referral marketing strategies you can use. How you decide to structure your own depends on the type of business you run, the KPIs that you wish to implement and the types of incentives that get your customers excited.

To help you choose the right strategy, here are some referral marketing ideas that have worked for companies in various industries.

Financial services: free money for every referral

DiversyFund is a financial services company that enables consumers to invest in real estate. Customers can find information on the company’s referral program directly from their DiversyFund dashboard.

The user only has to click the “Copy” button in order to get their personalized referral code to share with others. If any of the referrals end up signing up and investing $500, both the user and referred user get a $100 Amazon gift card.

For a company that deals in investing and growing one’s net worth, a free cash payout is a smart incentive strategy.

Retail: a coupon for future purchases

Retailers and eCommerce companies of all sizes can incentivize registered shoppers just as Stitch Frame does here. You can display a referral offer on the homepage, in a pop-up or using the chat widget as Stitch Frame has done. You can also include a reminder about the coupon code offer from your customers’ dashboard once they’re registered.

Health and wellness: free perks for both parties

It’s always easier to work out or to book a luxurious spa day when you have someone to enjoy it with. That’s why this unique referral offer from Planet Fitness is such a good idea.

What better way to motivate customers to hit the gym than by giving them a way to entice workout buddies to join them? In this case, friends get to skip the upfront fee when they sign up through a referral link.

Professional services: extra cash to spend on your business

Professional service providers are no strangers to clients asking for discounts. But rather than devalue your services, you can offer clients a referral bonus the way First Page Media has.

The client gets $50 to spend on their business for every referral that signs up. The referral program is able to find a trusted professional services provider without having to do the research themselves. At the same time, the provider gets to work with more clients like the one that referred the business to them.

Personal services: free service

Personal services providers need to have a steady stream of business coming in if they’re going to make a decent profit. It’s just the nature of the industry.

A doggy daycare service provider like Camp Bow Wow offers a tempting reward to motivate its customers to make more referrals: a free day of camp. Printable or digital coupons are a great option for this type of business as you can hand out shareable coupons or you customers can discover the offer themselves on the website when they go to make a reservation.

Residential services: cash to put towards rent

Residential services are a lot like SaaS subscriptions. You want your customers to be so pleased with their new homes that they never leave (or at least not for the next couple of years).

When you have renters that are happy, you can encourage them to help their friends or family move into the same property. Wheelhouse Apartments has a refer-a-friend program set up for this purpose. In return, renters get a $200 credit for every referral that moves in.

Hospitality services: bonus points

From hotels to restaurants and everything in between, a loyalty and rewards program is a great tool for building long-term and mutually beneficial relationships with customers.

In addition to offering rewards for visits and purchases, you can also reward your customers for referrals as Marriott does.

Tips for running a successful referral marketing program

01. Create a website with an attractive offering

Consumers aren’t going to put their reputation on the line by referring someone to a company or solution they don’t know or trust. So, in order for referral marketing to work, you need to have a rock-solid business idea, offering and customer service strategy. As a first step, consider the four Ps of marketing to fine tune your digital marketing and small business marketing efforts from the get-go.

Once you’ve defined how your business can best reach customers, you’ll start to build an online presence by marketing yourself. One of the best ways to establish this is to build a small business website that’s easy to use, clear about your offerings and represents your brand. Next, work on your growth plans and consider how to boost your brand’s visibility.

02. Encourage people to leave reviews or testimonials

While referral marketing is a way to get social proof, it’s helpful to showcase existing customer reviews on your site. Not only does this help to inspire more reviews, but it also helps to convince newly-referred visitors to give your brand a shot.

In Wix, you can add a testimonial strip to your webpage to highlight existing reviews. Alternatively, use a review app from the Wix App Market to dynamically collect, showcase and/or embed testimonials from third-party sites onto your webpage.

03. Make your ask clear, easy and worthwhile

When asking customers for referrals, think about how you’ll communicate this to customers. Why should they tell friends to use your services? What sort of incentives will your clients expect in return? Consider a pitch that is:

• Clear: “Refer X number of friends and get X% off.”

• Easy: “Click to copy your referral link.”

• Worthwhile: “New customers get $X off their first month.”

04. Spread the word about your referral program

Drive attention to your referral program using various internet marketing strategies.

At minimum, ask for referrals on your website. You can publish details of your referral program on your homepage, in a pop-up or on a dedicated program page.

Another great place to promote referrals is through your social media marketing channels. You can use your social media pages and newsletter to encourage referrals to your business and invite customers to join your program.

05. Automate tasks using marketing software

It may be easy to manage a referral program by hand when you’re just asking a small group of clients or customers for referrals. But the more participants and referrals you get, the less manageable it becomes.

The best way to effectively manage and scale your referral marketing promotions and payouts is to automate it with referral business software. Referral marketing software will enable you to create basic offers for your site and email marketing efforts. Data analysis is an important part of any marketing strategy, so keeping track of your referrals is important. Otherwise, it’s all just a guess as to how effective your campaign really is.

In order to properly track referrals, you’ll need software that’ll help you create unique referral codes and links. This will allow you to gauge which of your promotional methods are the most effective, what segment of your audience is the most engaged with the referral program, which benefits are the best at incentivizing referrals and more.