Think of the last time you purchased something online. Did you buy without any third-party background information on the brand, or did you hear about them through recommendation?
If you opted for the latter, you’re not alone.
As many as 84% of B2B decision makers will start the buying process with a referral, and word of mouth is the primary factor behind 20-50% of all purchasing decisions.
This behavior can be exploited by brands – including eCommerce, SaaS, services or local businesses – by creating an effective referral marketing strategy.
Referral marketing happens when previous customers recommend your brand, product or services, in return for some type of reward. It’s a program suitable for any marketing goals you may have – especially sales.
In this guide, we’ll be sharing everything you need to know about referral marketing, so your business can build a program set for success.
Why should my business use referral marketing?
Before we dive into the how-to’s of building a referral marketing strategy for your business, let’s take a second to understand how important these marketing campaigns are… And the results they can drive for brands.
Firstly, referrals have been proven to be the most-trusted form of advertising, followed only by branded websites. They beat traditional TV advertisements – and even Facebook ads – for winning-over new customers, making them a valuable asset for many businesses.
Secondly, referral programs have proven results. Back in 2015, Tesla had a grand old marketing budget of $0. Any guesses as to what they did next? You got it: they built a referral scheme that gave customers bonuses for referring their friends.
The result: a 42x return on investment (ROI) for their referral program, which accounted for 25% of their Q4 sales in 2015.
…Still not convinced?
Let’s take a look at Harry’s referral program. Pre-launch of their 2-page website, the male grooming brand build a referral marketing program. It managed to collect 100,00 emails within a single week, giving them a solid foundation for their launch.
How to create a winning referral marketing strategy
You see, referral marketing campaigns work for all types of business; not just those with large customer list, or those who’ve been around since the dawn of time.
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Here’s how your small business can plan your campaign and build a strategy that works:
1. Define the basics of your campaign
Any successful marketing campaign takes time to plan. A referral program is no different.
Start the process of building your referral marketing strategy by thinking of what you could offer to people who refer your brand. You could also offer the same reward to new customers as an incentive to join.
Rewards for your referral partners could be:
- Cash bonuses
- Early access
- Free products
Whichever reward you think of offering, make sure that it’s affordable for your brand. There’s no point offering referral partners (and their friends) a $150 bonus if their average lifetime value is just $50.
You’ll also want to set terms and conditions for eligible customers. Is there a certain number of people a partner can refer? At what point is a conversion defined: the initial purchase, or 30 days after the initial purchase to cover potential refunds?
Finally, think about the goal of your campaign. Set a figure for the number of conversions you’d like to make, along with the number of referred customers you’d like to see within a month. This is how we’ll measure success.
2. Building your referral program
Once the basics of your campaign have been outlined, it’s time to move onto the fun part: creating your referral program!
To do this, you’ll need a software that can:
- Allow customers to join your referral scheme
- Generate custom URLs that partners can use to refer their friends
- Track conversions from each partner
Luckily for you, that’s what Salescamp was built for.
Our software can do all of the above, and help you to create your first referral program from scratch. With a 14-day free trial, you’ll be able to embed it on your small business’ site – without extensive coding knowledge needed – and start building your referral team instantly… Bonus!
3. Implementing your new strategy
Now your referral marketing campaign has been set-up, we’ll need to think about how we can drive traffic to the page and build our partner list. Often, your free bonus will be enough of an incentive for partners to sign up, but they need to know the program exists first!
Start to implement your new strategy by sending an email to previous customers. Let them know about your new program (including the bonuses they could earn), and direct them to your sign-up page.
It’s also wise to create a resource centre for your partners. Give them pre-made social media copy and email templates to share with their friends.
Granted, writing content for your partners to use can be time-consuming. But, swipe email files have helped partners to earn over $15,000 in bonuses. Think about how many customers they must’ve driven to the business’ site in order to earn that!
4. Evergreen promotion
Great job! You’ve built your program and got the first few partners on-board… But what happens next? Is it possible to constantly attract new referral partners without much effort?
The short answer: Yes. Your small business can promote its referral marketing program year-round!
This type of campaign, often referred to as “evergreen”, constantly drives people to sign-up to your program. The best part? You can do it on autopilot.
The chances are, you already have an email that automatically gets sent to new customers after they purchase. This welcome email (or a ‘thanks for purchasing!’) note can be optimized to encourage them to become a referral partner.
Here’s how SkillShare are doing this for previous purchasers:
Simple enough, right?
As part of your evergreen promotion, you could also share the sign-up link:
- On social media
- In your website’s footer
- On your FAQ page
…To constantly drive traffic and raise awareness of your referral marketing program.
5. Is my program successful?
Your program has been live for a week. But, instead of focusing solely on the results you’ve generated, it’s a good idea to refer back to your goals. Remember how we mentioned this was how we’d measure success?
Let’s say that when I started my referral marketing campaign, I set a goal of bringing three referred customers in per week. My program’s been running for a week, and my referral partners have already generated seven sales.
You could say that my program is a success!
But in business, success (and results) relate to money. We need to ensure that our program has a good ROI so we’re not building a scheme that doesn’t pay-off in the long-term.
To calculate the ROI of your referral marketing program, compare the profit generated against the costs of running the program.
For example, my profit for the month may be $2,500, but I had to pay:
- $39 for the SalesCamp software
- $500 in partner bonuses
Using the ROI calculation of (Profit – Cost)/Cost, the ROI for my campaign is 363%.
This means for every $1 I spend running my program, I make $363 in return. Not a bad result!
If you find that your ROI figure is negative (or not as high as you’d hoped), head back to step four and continue promoting your program. You could also reach-out to influencers and put a primary focus on referral sign-ups in the following month.
As you can see, referral marketing programs can be crucial for businesses – and a major money-maker. Not only do they help to generate profit, but they can build community around your brand. That’s never a bad thing!