Referral marketing is a beneficial channel that generates new customers by asking your current community to share referral incentives with their friends. In this blog, we’ll also cover the difference between word-of-mouth marketing and referral marketing, the benefits of refer-a-friend programs, impressive referral marketing statistics, and how referral marketing can generate revenue.
Find Out What Is Referral Marketing
Referral Marketing is the method of promoting products or services to new customers, primarily through word-of-mouth.
Referral marketing is ultimately one of the ways businesses can gain new customers and continue to grow. This is one of the many reasons why more companies should create referral marketing campaigns.
Learn The Definition Of Word-Of-Mouth Marketing
Referral marketing and word-of-mouth marketing are very similar; however, there are some key differentiators between the two. First, let’s go over the definition of word-of-mouth marketing.
Word-of-mouth marketing is defined by Entrepreneur as, "an unpaid form of promotion in which satisfied customers tell other people how much they like a business, product, or service."
Comparing Word-of-Mouth Marketing With Referral Marketing
Both referral marketing and word-of-mouth marketing use existing customers as advocates to help promote their business. However, the big difference between the two is that word-of-mouth marketing is organic; whereas, referral marketing introduces an incentive to make the outcome more repeatable.
For example, if you heard about the product from a friend and didn’t receive an incentive, chances are you just experienced word-of-mouth marketing. However, if a friend sent you a Facebook message or email with a referral code or a discounted offer to you, this would be an example of referral marketing. A typical example of using referral marketing is sending your close contacts your personalized referral code for Lyft.
Here’s a quick exercise that can help you determine the difference between word-of-mouth marketing and referral marketing. To start, think of the last item you purchased online (aside from your groceries on Amazon) and answer the following questions:
- How did you hear about it?
- What factors influenced you to make the purchase?
- How did you feel after you made your purchase?
Ultimately, word-of-mouth marketing relies on their customers sharing and talking about their brand on their own accord. Whereas, referral marketing encourages customers to share their product by introducing a reward for sharing their product or service with their friends.
Here Are The Benefits Of Using Referral Marketing
Referral marketing is a high-performing channel that can help your business grow by attracting new customers, getting consumers that have a higher average order value (AOV), and help generate more revenue for your company. To learn more benefits of referral marketing read our blog, 7 Reasons Why Referral Marketing Works.
Use The Best Channels Like Referral Marketing
When you’re creating a marketing plan, marketers consider the channels they should advertise to reach their target audience.
Nowadays, people are commonly picking digital channels like paid search and social. Rather than spend all of your money on traditional marketing channels, consider using your budget to give back to your existing customers.
Referral marketing is an excellent channel to consider for your audience because it is one of the most trusted channels. In fact, Nielson found that 84% of people trust product and brand recommendations from people they know.
Plus, in comparison to other marketing channels referral marketing has the highest margin and the best conversion rate from prospect to purchase. With referral marketing, you’re generating new customers and revenue at the same time. The new customer base that you’re building also has a 16% higher lifetime value and have better retention.
Lastly, a survey of 600 B2C companies reported that 62% of businesses said referral marketing was their most effective marketing strategy in comparison to their other marketing channels.
Grow By Gaining Higher Quality New Customers
Whether you work in the B2C or B2B industry, all businesses have something in common: the need for growth. So, how are businesses solving their common problem? Recently, growth marketing and lead generation have become preferred tactics to attract new leads. Rather than starting a whole new marketing program, try utilizing referral marketing. Referral marketing helps generate new leads and build up your new customer base.
One of the many reasons why referral marketing gets your business more qualified new customers is because they are a superior match. For more reasons why referral marketing is effective read our blog, "7 Reasons Why Referral Marketing Works."
Your friends and family know you better than companies who are trying to acquire your business. Someone who you know well is likely to provide an accurate product or service suggestion. This is why when people take part in refer-a-friend programs, they result in exceptional matches for your company. It’s no surprise that human relationships are better than targeting and big data.
Get A Lifetime of Value From Your Customers
When your business gets better-fit customers, there are financial benefits too. Acquiring a new customer versus gaining a long-term consumer has a 16% to 25% difference. Having recurring customers means their lifetime value will result in more transactions and sales for your business.
Ultimately, referral marketing programs help businesses generate new customers which leads to creating more sales. With higher quality lifetime customers, businesses using referral marketing can continue to see benefits after their referral campaigns have ended.
Why Referrals Help No Matter What
Although you want your refer-a-friend campaigns to be a success, if things go south this doesn’t mean all of your hard work was for nothing. A referral can act as the introduction to your brand, which results in brand awareness. Although brand awareness wasn’t the conversion you may have been looking for, it’s the beginning of a potential customer relationship.
How You Can Make More Money With Referral Marketing
Throughout this post, you’ve been reading about how referral marketing ultimately impacts your company’s revenue. If you’re still skeptical about referral marketing, here are some mind-blowing stats:
- 75% of companies using referral programs say referrals are their lowest-cost method of acquiring new customers
- Only 30% of companies surveyed had a formal referral program
- Companies with referral programs saw 86% more revenue growth over two years
If your business is interested in discovering new avenues that will generate new customers and more revenue, referral marketing is the channel to try.
Keep learning about referral marketing, read our blog 7 Reasons Why Referral Marketing Works.