Referral Marketing Best Practices: All You Need to Know

To make the best use of any product or service, it’s best to follow a number of best practices. Referral marketing is no exception. By following and applying some referral marketing best practices, you’ll definitely see better results compared to not following any practices.

Over the past few years, referral marketing has evolved from the vague word-of-mouth concept to a measurable tactic. It has proven to be a great way for businesses to grow their customer base and gain a loyal following.

Approximately 77% of consumers said they were more likely to buy a new product after getting a recommendation or referral from friends or family. (Nielsen)

And if you’re wondering how the global referral marketing software market is faring, here’s some insight:

The referral software market is expected to exceed $713 million by 2027, up from roughly $227 million in 2019. This marks an annual compound growth rate (CAGR) of 15.5% from 2019 to 2027.

(Fortune Business Insights)

Want to know what the top referral marketing best practices are and how you can apply them to your e-commerce business? Then keep reading!

Referrals vs affiliates: What's the difference?

Before we delve into best practices, we first need to differentiate between referral marketing and affiliate marketing. While there are many similarities, there are important differences to note too.

The main differences between the two fairly-related types of marketing are in how people refer others, the commissions involved with affiliate marketing, and the method of tracking.

With referral marketing, the referrer (the person who has referred another) usually gets a kind of reward for getting someone to create an account on your online store.

On the other hand, with affiliate marketing, the process is usually in the form of a sale and the person who referred you gets a percentage or fixed fee for each sale they make.

There are also some differences in the way referrals are tracked in each marketing type, the rewarding process, and the level of trustworthiness.

How do referral programs work?

Referral marketing is a marketing tactic that’s used to increase customer acquisition.

And while customer acquisition efforts tend to be costly, acquisition through referrals is a low-cost method with the opportunity for high-quality leads.

For most companies, the best way to get referrals is to use a referral marketing program.

Why? Because it’s measurable and easy to see who your top referring customers are.

Businesses with referral programs ask their current customers to refer them to others. In doing so, the referred customers come to explore the store or website based on a recommendation of someone they know.

And this is what makes referral marketing so powerful. Data via Chua and Finances Online confirms this. In their survey, nearly 92% of customers said they trusted referrals or recommendations from people they knew personally.

And because these referrals come from trusted sources, your new customers’ lifetime value (CLV) and retention rate tend to be higher than leads from other sources.

CLV of referral leads is 16% higher, while you can expect an increase in retention rate by 37% from referrals, according to Ross.

Referral programs also entice current customers to make those referrals by offering them special points, rewards, or discounts.

But that’s not the only way to make your referral program enticing to your current customers. One of our referral marketing best practices below shows you how to make even more from your program to grow your customers.

Why referral marketing matters

In today’s energetic and highly competitive market, where everything is available online and customers can easily compare products and services, referrals offer a way out.

For many businesses, referral marketing is a sales-driving tactic. It not only helps drive brand awareness and sales, but could also boost brand loyalty.

According to the Boston Consulting Group (BCG), consumers trust word-of-mouth more than paid advertising. In fact, they find referral marketing to be “2-to-10 times more reliable.”

For businesses that offer referral marketing programs and run referral campaigns, leads from referrals had a 30% higher conversion rate than those generated from other channels such as paid ads.

Moreover, data compiled by Oberlo has found that every happy customer you have may refer you to as many as 9 people.

So why should you follow referral marketing best practices?

Here are a few reasons:

1. Excited and interested customers: Referral marketing relies on people, who trust each other, sharing experiences with others. This means that your new customers already got good recommendations from people they know so they’re excited to explore your brand and buy from you.
2. Engagement opportunities: With referral software, you can have the opportunity to engage your customers.
3. Low-cost acquisitions: One of the top benefits of referral programs is that they help you acquire new customers for a fraction of the cost. This way, you can easily reduce your customer acquisition cost (CAC) and generate more revenues.
4. Better customer experiences: Following referral marketing best practices means you can stand out from the crowd and offer customers the chance to make the most of their experiences with you. What if your competitors are following those same referral marketing best practices? Then your customers will be able to see the high value each of you offers. At the same time, you’ll ensure that your brand messaging is consistent. You can drive further engagement with limited time and creative referral campaigns.
5. Higher CLV: If you use your referral marketing program correctly, you have a better chance of not only acquiring new customers but also increasing their customer lifetime value (CLV).
   Data by Neil Patel shows that brands with successful referral programs see a 59% increase in CLV and 71% higher referral program conversion rates.
   
6. More sales: Referred customers are already aware that their friends or family members use your products and are happy with you. This gives them a boost of confidence to buy – and buy more – from you. Their first purchase isn’t a single item till they decide if you’re worth buy from or not. They’re already past that.

Referral marketing best practices

Now that we’ve covered the basics of referral marketing software, let’s explore the referral marketing best practices that can take your referral program from average to stellar!

1. Explain how it works

Whether it’s a referral program, a loyalty and rewards program, an-anything program, if it involves customers taking action, then you need to tell them how it works.

This may sound simple, but you’d be surprised by how many referral programs out there don’t work because customers don’t know how to use them.

2. Use a referral app or program

Referral marketing best practices show that the best way to keep tabs on referrers (those making the referrals) and referrals (your new customers) is to use a referral marketing program or app.

You don’t have to invent the wheel. Gameball offers an easy-and-fun-to-use referral program. All you need to add is add some code to your website. If you’re on shopify, add Gameball as a referral app to your online store.

Using a referral marketing app also allows you to create unique campaigns, offer regular and limited-time rewards, and more.

A referral app is your ticket to experimenting with creative referral ideas and campaigns.

3. Use referral codes for tracking

The best way to track your top referring customers is to use referral codes. That way, each customer has a unique referral code and you can use it to see who your top referrers are.

With this information, you can segment those customers and offer them special rewards or promotions as a thank you.

4. Make it a win-win

One of the top referral marketing best practices that can take your program a long way is not only offering a reward to the referrer, but also to the referred.

For example, if your current customer Andrew refers 5 of his friends, who all join your referral marketing program, then you should reward Andrew and his 5 friends.

Bonus tip: Your rewards should always be within limit so you don’t break the bank.

Coffee shops and restaurants use this strategy often. The referrer (Andrew) gets points for each successful referral, while the referred (his friends) get a free coffee cup, a one-time discount, or credits to use on their first purchase.

According to Software Advice, over 50% of customers are more likely to refer a brand if it offers them direct benefits or incentives such as gifts, gift cards, free swag, or discounts.

You should also notify newly referred customers of:

• What they get when they sign up or complete their first purchase
• Your referral program and what’s in it for them when they refer you to others

This ensures that your referral program doesn’t stop with Andrew’s friends but continues to their friends and so on.

5. Be clear on when you reward customers

One of the most important referral marketing best practices you should follow as a business owner or marketing manager is knowing when to reward customers.

Your customer Andrew may have referred you to 5 of his friends, but how many of those friends actually created an account? And how many made their first purchase?

Your referral program should act as your secret customer magnet. However, having customers who don’t complete even their purchase puts a hole in your program and your pocket.

The best way to go about your referral program is to reward your referrer (Andrew) when his friends make the first purchase. This ensures that you’re not giving rewards unnecessarily, which can hurt your business, without clearly getting anything in return.

At the same time, getting Andrew’s referred friends to complete a purchase breaks that barrier between them and you.

6. Make it feel like a win

A great way to get customers active is to use language that speaks to them and excites them. Giving them a sense of exclusivity can play a big role in getting them to refer you more.

Speak plainly but give customers the sense that they’re winning.

7. Combine your referral and loyalty efforts

A great way to get the most out of your marketing efforts is to combine your referral program with your loyalty and rewards program.

This way, you can offer customers a variety of rewards, both standard and personalized, and build better brand loyalty.

Loyalty marketing is a great way to keep customers engaged and active, while keeping your brand top-of-mind.

And like your referral program, loyalty – via a successful customer rewards program – is measurable and effective. It’s also one of the top ways to build retention with your newly-acquired and referred customers.

8. Consider the rewards you're offering to new customers

We’ve mentioned that referrers should get a reward. After all, they’re helping you grow your customer base for free (in a way).

But to break the ice between you and those newly-referred customers, we recommend you entice them with a first-time purchase deal.

Here are several ways you can do that without breaking the bank:

• Offer them initial points when they sign up that they can use toward a first-time discount.
• Offer new members credit on your app or referral program they can use in their first purchase.
• Offer them a small freebie. This usually happens with coffeeshops, bakeries, eateries, and restaurants. A free first-time cookie or donut or cup of coffee gets your new customer in the door. Your product should do the rest and keep them coming back.

And in case you’re not sure about rewards and if you should really include them, here’s some data from Annex Cloud to consider:

Nearly 64% of customers said that “rewards impact how much they spend,” while 69% said “they’re more likely to try a brand if it gives rewards.”

How to get referrals

Now that you know what the top referral marketing best practices are, let’s see how you can get those customer referrals:

• Create unique customer experiences. This can be an online, offline, or omnichannel customer experience.
• Offer great customer service.
• Ask for referrals after positive customer experiences
• Run referral campaigns
• Build a loyal following and get customers to be your brand ambassadors.
• Use positive customer reviews.
• Don’t fall back on your promises

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Frequently Asked Questions (FAQ) about Referral Marketing Practices

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1. What is referral marketing, and why is it important?

Answer: Referral marketing is a low-cost tactic used to increase customer acquisition by encouraging existing customers to refer new customers. It is important as it drives brand awareness, boosts sales, and can enhance brand loyalty.

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2. How effective is referral marketing in influencing customer behavior?

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Answer: Approximately 77% of consumers are more likely to buy a new product after receiving a recommendation or referral from friends or family (Nielsen). Referral marketing is a measurable tactic that has contributed to the growth of the global referral software market.

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3. How does referral marketing differ from affiliate marketing?

Answer: Referral marketing involves rewarding individuals for getting others to create accounts, while affiliate marketing usually rewards individuals for each sale made. The main differences lie in how people refer to others, the commissions involved, and the method of tracking.

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4. How do referral programs work, and why are they powerful?

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Answer:  Referral programs encourage current customers to refer others, leading to new customers exploring a store or website based on a trusted recommendation. Referrals from trusted sources result in higher customer lifetime value (CLV) and retention rates compared to leads from other sources.

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5. Why does referral marketing matter in today's competitive market?

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Answer: In today's competitive market, where online comparisons are easy, referrals offer a trustworthy way for customers to explore products and services. Referral marketing is considered 2-to-10 times more reliable than paid advertising, contributing to higher conversion rates and brand loyalty.

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6. What are the benefits of following referral marketing best practices?

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Answer: Following referral marketing best practices leads to excited and interested customers, engagement opportunities, low-cost acquisitions, better customer experiences, higher CLV, and more sales. Successful referral programs can result in a 59% increase in CLV and 71% higher referral program conversion rates.

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7. What are some referral marketing best practices to enhance program effectiveness?

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Answer: 

• Explain how it works: Clearly communicate the mechanics of the referral program to customers.
• Use a Referral App or Tool:  Employ a referral marketing app for easy tracking and creative campaign experimentation.
• Use referral codes for tracking: Assign unique referral codes to track top referrers and offer targeted rewards.
• Make it a win-win: Offer rewards not only to referrers but also to the referred for mutual benefit.
• Be clear on when you reward customers: Reward referrers when the referred customers make their first purchase to ensure rewards are earned.
• Make it feel like a win: Use language that excites customers and provides a sense of exclusivity.
• Combine Referral and Loyalty Effort: integrate referral programs with loyalty programs for comprehensive customer engagement.
• Consider the rewards offered to new customers: Provide enticing rewards for newly-referred customers to foster a positive first-time experience.

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8. How can businesses encourage referrals from customers?

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Answer:

      - Create unique customer experiences.

      - Offer great customer service.

      - Ask for referrals after positive customer experiences.

      - Run referral campaigns.

      - Build a loyal following and encourage customers to become brand ambassadors.

      - Use positive customer reviews.

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Final words

Many customers today use referral programs to get more out of a brand. And that’s ok. The secret is to create a balance about what you need customers to do, how you get them to do it, and how you reward them for it.

To make your referral program stand out, tell them what’s in it for them. Do they get something free? Do they get a discount? Do they get specialty treatment?

After all, today’s market is very competitive. You and a bazillion other brands are vying for the customer’s attention. And customers today are well aware of this.

Therefore, highlighting the benefits of joining your referral and rewards program by using a referral program explanatory page or frequently asked question (FAQ) page will go a long way.

You’ll also be making it easier for them to understand how it works and why they should refer you.

If you’d like to see a referral program in action, then sign up to Gameball and get customers to start referring your store.