Referral Marketing: What is it and how can you use it to grow your business?

As humans, we tend to share our personal experiences with those around us. Whether an online clothing store took too long to deliver your order, or a new pizza joint down the street exceeded your expectations, you might share the experience with friends and family during a casual conversation. While this may not mean much to you, your opinion can hugely impact those businesses. Every time you refer a business, you give them free marketing from a trusted source.

The next time your friends want pizza, they may consider visiting the restaurant you recommended. This is how referrals help increase a business's potential revenue.

However, no matter how great a business is, situations like these don't happen often. Most of the time, people forget or do not make much effort to refer businesses to others. This is where the need for referral marketing comes in.

What is referral marketing

As the name implies, referral marketing is when happy and loyal customers refer your business to potential customers. How is this any different from other forms of advertising? Although referral marketing requires you to intentionally encourage people to promote your brand, you needn't ask them to follow a scripted sales pitch or falsely rave about your business. Here, your goal is to bring new leads to your business by asking people to share their real experience. While word-of-mouth does happen organically, you can follow a few marketing strategies to speed up that process and get more people to spread the word about your business.

What makes referral marketing effective?

The impact of word of mouth can be huge. According to a 2021 Neilson report, a survey of 40,000 respondents found 88% of people trust recommendations from friends and family over any form of advertising. What's more noteworthy is that these recommendations have a 50% higher level of trust than banner ads, mobile ads, SMS messaging, or SEO ads.

Referral marketing revolves around trust, and it works because people know their loved ones will only recommend brands they have confidence in. They have no reason to jeopardise their relationship by suggesting a shady or untrustworthy business.

If your business is struggling to find the recognition it deserves, referral marketing can help you boost your credibility and generate more sales. Here are a few referral marketing strategies you can easily adopt to encourage your loyal customers to vouch for your business:

Reward your cheerleaders

Rewards and incentives prompt people to make an extra effort to refer to your brand. It is a way of you acknowledging their contribution to introducing new leads to your business. An easy and organised way to do this is by starting a customer referral program. As long as you don't lure people into faking their experience, there are no hard and fast rules on how you should incentivise the referrer. Whether you want to provide a 10% discount on their next purchase, gift them branded merchandise, or give them credit points they can redeem later, it's up to you to choose the reward system that works best for your business.

For example, at Zoho, we follow a two-way reward system where if you refer someone to us, you receive 15% of your referral's subscription fee as Zoho Wallet credits. At the same time, your referrals can earn $100 in promotional credits when they sign up, which they can use to purchase any new Zoho app.

Leverage social platforms

As a business, social media is the only place where you can easily engage with the majority of the population (which can include most of your potential customers). If you know how to use social media effectively, it can serve as a powerful channel for increasing the effectiveness of your referral marketing efforts. If you've been using social media solely to promote your products, start making it a habit to regularly tag your customers (with their permission) and highlight customer reviews/feedback in your profile. This builds social proof and lets more people know that you're a legitimate business. A Brightlocal study found that 79% of consumers trust online reviews as much as personal recommendations from their friends or family. If a customer notices their feedback being highlighted, they may feel encouraged to re-share the post on their social profile, giving their network a positive introduction to your brand.

If you're wondering how to get people to review your business in the first place, read our post on five ways to encourage customers to write reviews for your small business.

Give your customers a stellar experience 

It's a no-brainer. A company's reliability is often reflected in the quality of its customer service. It doesn't matter how exceptional your products are or how competitively you price them, people aren't going to recommend your business if they've had a terrible time dealing with you. Good customer service doesn't depend solely on the number of support tickets you close. It can depend on many factors, including the empathy your employees show towards your clients, how quickly their issues are resolved, and how well their feedback is received and acted upon. A 2021 report by Podium surveying 2,376 respondents revealed that 56% of consumers had changed their perspective on a business based on that business’s responses to reviews. So, the next time you receive negative feedback, make sure you take ownership of the situation, acknowledge the problem, and address the customer's source of distress. This can assure them you're a trustworthy business, and might help others change any negative perception they had towards your brand.

Just ask!

As long as you are convinced you've done a good job servicing a client, there's no reason for you to refrain from asking people to refer to your business. Remember, while people might love your business, they can get caught up in their busy lives and forget to recommend your business until you remind them. The key is to identify satisfied customers and approach them at the right time, asking: “Do you know anyone who would love our product or service? Would you mind referring them to us?” You can make referring easy for your consumers by integrating social share buttons in your follow-up emails.

We hope this blog encourages you to start focusing on referral marketing. Have any suggestions or ideas that can help businesses grow? We'd love to hear from you in the comments!