Referral programs are a powerful marketing tool for driving sales.

Did you know that a consumer is up to 50x more likely to buy a product if it’s recommended by family or friends?  That’s exactly why you should count on loyal customers to act as brand advocates.  

People are more likely to trust their network so referrals are an effective means of getting new customers. Opinions of customers obviously have more weight than a sponsored ad.

Now, how can you use a referral program to boost sales? In this guide, you’ll learn the basics of referral marketing and tips for running your own referral program. 

Why run a referral program?

Referral programs incentivize your brand advocates to promote your brand. 

Brand advocates get a referral code to share with their network. If a friend uses the code to make their first purchase,  this counts as a successful referral. Following that, the referrer is rewarded. This can be in the form of a discount, freebie, or monetary compensation. 

Of course, referrals can also happen organically without the need for any referral program. However, rather than waiting for that to happen, a referral program will create a real motivation to tell others about you.

Ultimately, this leads to more referrals, more new customers, and more rewards for brand advocates. It’s a win-win-win situation! 

For example, WoolOver’s referral program gives brand advocates 20% off when their friends make their first order. The referred friend also gets a 20% off discount to motivate them to make their first purchase.

Example of a referral program CTA

Why is word of mouth so effective?

Referral marketing relies heavily on word of mouth and it’s one of the most powerful marketing tactics to scale a business organically

Imagine the last time that you chose an eCommerce store, restaurant, or hotel. Prior to entering a restaurant, we bet that the most effective restaurant marketing tactic was a referral. You may have seen a social media post from your peers or learned about it from a conversation with your loved ones. 

Sharing branded experiences has been ingrained in our everyday lives. Naturally, we share good consumer experiences through in-person conversations or online social media posts. If we’re experts about a topic or service, we freely share our knowledge to guide the people around us. 

Alternatively, we ask for referrals when diving into unknown territory. Information may be available online, yet we seek validation from peers to make decisions. 

The prominence of word-of-mouth in everyday life will easily make you realize that it’s an impactful sales strategy.  In a nutshell, referrals are more relevant and trustworthy than sponsored ads and other marketing channels. 

If you need an example, look no further than those who create online courses. While they can do their best to create funnels, traffic sources, and a highly regarded reputation the easiest way to sell these courses is to create a community of engaged students that builds upon itself.

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How does referral marketing affect your branding efforts?

Referral marketing has a lot of benefits not just in terms of profit but also in branding. Here are some of the main ones: 

Access to brand ambassadors 

Marketers emphasize the importance of quality content such as blog posts, social media updates, ebooks, and other marketing materials to boost brand awareness. But having a group of brand ambassadors willing to vouch for your business is equally important. 

A referral program enables businesses to have brand advocates that are willing to introduce their company and promote their latest products to customers. Instead of sponsored influencers, these brand ambassadors have established a loyal relationship with your business. They’re more than willing to simultaneously buy your products and promote your brand because they love what you do. 

Improve overall reputation 

Referral marketing programs provide you with a genuine method of sharing your brand story and improving your overall reputation. In fact, 92% of consumers trust recommendations from friends and only 33% trust online ads. 

Customers that act as brand ambassadors are more trustworthy and authentic sources for your businesses’ information. While brand advocates only get a small token for their efforts, they will only take the time to promote a brand that they genuinely love. That’s because they want their friends and family to have positive consumer experiences.

Gain loyal customers 

Getting a new customer along the sales funnel costs considerable time, money, and effort—but a referral program makes it easier. Brand advocates can easily convince their friends and family to try the products that they love. 

For example, Sellfy invites its loyal customers to use referral links when spreading the word about the company. This allows new customers to get $15 off their first subscription payment and existing ones earn a $15 credit toward their next subscription payment.

Provides a credit to the user that shares the incentive

Not only does it help satisfied customers get bonuses, but it also makes referred consumers to be more loyal. It’s proven that referred customers spend 13.2% more on average than regular customers. This proves that customers may establish a strong relationship with your brands when their friends get them onboard. 

How to run a referral program effectively

1. Focus on your product and services

How do you get started? The first step is to have a great product that people will want to talk about and share. This is the ticket to a great customer experience, repeat purchases, and referrals. 

2. Choose an enticing incentive

The next step is to choose an incentive. Will you reward customers with cash, freebies, discounts, or exclusive products? Pick cost-effective prizes that can be distributed en masse to customers, without losing profits. 

For example, Greats’ “Give $30, Get $30” referral program lets referred friends get $30 off their first order, while brand advocates get the same reward on their next purchase.

give one get one referral example

3. Promote your program

Afterward, promote your referral program. Spread the word to your current customers through your website, emails, and social media posts. 

If you want to make things interactive and fun for your (potential) participants consider using chatbots to inform your site visitors about your program. You can set them up in a way that automates the whole sign-up flow and makes it seamless for both — you and your participants to move things forward.

4. Track your progress

Finally, monitor and track your progress through analytical tools. The main perk of a referral program is it gives you the ability to determine whether customers were referred by their friends or brought by your own marketing efforts. It also allows you to keep track of brand advocates and create campaigns that will boost customer engagement and retention. 

Ready to launch your referral program?

Launching a referral program can have a big impact on your sales. 

Many consumers rely on the referrals of their friends and family. That’s precisely why launching a referral program can help you grow your customer base and reward your brand advocates. 

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AvatarRaul Galera

Raul Galera is the Partner Manager at ReferralCandy and Candybar, two tools helping small and medium businesses run customer referral and loyalty programs. He has been working in the tech sector for the past seven years and regularly writes about marketing, eCommerce, and tech.