What is Referral Marketing? And How to Use it Successfully?

What is Referral Marketing? & How to Use it Successfully?

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Digital marketing is an ever-evolving industry. Businesses are constantly looking for innovative ways to increase their reach and establish a loyal customer base. Here comes: Referral Marketing. In this blog, we will dive in to learn:

  • What is Referral Marketing?
  • Why Referral Marketing is Important?
  • How to Use it Successfully?
  • Types of Referral Marketing?

According to surveyed business-to-business (B2B) technology vendors, their most successful marketing tactic during the COVID-19 pandemic is customer referrals, with 49% of tech vendors having used them successfully (Statista).

Imagine this: You visit a place that your friend has already visited. You are looking for a restaurant in town. You could either Google or scroll endlessly. Or you could ask your friend, who has already visited and knows some good places to eat. You should probably ask your friend, as it will be easier for you. This is the effectiveness of referral marketing.

Referral marketing is a great technique for using your existing customer base in order to establish relationships with new ones. You can reach out to your potential customers by connecting with your customers’ networks who would like to know more about your brand and business. There is no doubt that word of mouth is a strong tool. With the help of social media, people can share their experiences with others more easily than ever. Referral marketing transforms this inherent human tendency into a smart marketing tool for businesses.

What is Referral Marketing?

Referral marketing is a type of advertising in which businesses encourage customers to suggest their products or services to their contacts. Unlike word-of-mouth marketing, which is based on individuals sharing information naturally, referral marketing is a purposeful strategy that includes incentives and prizes for consumers in exchange for successful referrals.

The theory behind referral marketing is that individuals are more inclined to believe recommendations from people they know and trust than ads from brands and businesses. Businesses can gain tremendous growth and customer acquisition by taking advantage of this trust.

Why Referral Marketing is Important?

Humans are social individuals by nature. We automatically share our adventures and experiences with our friends and families. Referral marketing is important because customers trust the views of actual people considerably more than they believe the opinions of brands. Somehow, we learn from other people’s experiences as well. Let’s study what makes referral marketing so important for businesses:

Customer Longevity is High

Referred customers have a 16% higher lifetime value than average customers. This implies that gradually, customers who turn up via a referral will bring in greater revenues than those who come from other sources. Keep in mind that every new customer you get costs your business money, whether through advertising, promotions, or other marketing methods.

Referral customers have higher longevity than paid customers, so they can pay off those expenditures faster and help your business save money in the long term.

Referral Marketing is Cost-effective

This technique has extremely minimal initial expenditures. All that is required is a dedicated customer base, a well-thought-out strategy, and some innovative referral marketing concepts. That is not to imply you should not compensate your consumers for recommendations. Offering incentives such as discounts or free items encourages consumers to spread the word about your company. Make sure to take into consideration certain fees for incentives and planning.

Builds up trust

Human beings trust each other. That is simply a fact. Consider this: if you’re searching for a new product or service, you are far more likely to buy if you get a suggestion from someone you know. You could even go through internet reviews before making a purchase to ensure you get precisely what you want.

This is sometimes referred to as social proof, which is the belief that if others are doing something, it must be okay for us to do the same.

Probability of Conversion

When compared to more traditional types of promotion, referral marketing often results in greater conversion rates. Customers who receive word-of-mouth referrals receive customized suggestions from someone they trust. This increases their likelihood of acting on the advice and making a purchase.
According to data from McKinsey, 63% Gen Z consumers say that recommendations from friends are their most trusted source for learning about products and brands.

Read more:

How to Use Referral Marketing Successfully?

Customers are encouraged to promote a company’s products or services in exchange for a reward through referral marketing. This might include discounts, free things, or other advantages that make it worthwhile for them to participate. There are different approaches to referral marketing for B2B and B2C businesses. Here is a short rundown of both approaches:

Referral Marketing Programs for B2B Businesses

A 2023 study says that 82% of B2B sales leaders believe that referrals generate the best leads. As a result, referral marketing programs have become vital for B2B businesses.

B2B companies are no strangers to lengthy sales cycles. To complete a contract, extensive research, months of vetting, and winning the trust of various parties are required. There are several approaches you may take to expand your B2B referral program:

  • If you are a product-oriented business, you can begin by providing incentives such as discounts to customers who promote you to their friends and families. You might also provide a loyalty program in which customers gain points for suggesting you to their near and dear ones. For example, Sprout Social has partnership program on their website:
Source: Sprout Social
  • If you are a service-oriented business, try offering time-limited service discounts. For instance, a free day or month. Rewards for future purchases and services can also be provided.
  • For a SaaS company, you may collaborate with a tool that bridges the gap in your offering and gives users a discount if they sign up for both platforms.

Remember that it does not have to be just the customer’s referrals. A great way of generating new leads is to accept recommendation from other companies in exchange for discounts and rewards. In addition, it could be worthwhile to investigate which businesses are seeking advice and set up a referral marketing scheme that benefits both companies.

Referral Marketing Programs for B2C Businesses

B2C firms have an excellent opportunity to benefit from referral marketing because they are in direct contact with their customers.

  • Offering rewards in return for recommendations is one of the top referral marketing ideas for B2C businesses. This might be a coupon code, a free product, a gift card, or any other reward that motivates customers to tell their friends and families about your business.
  • Customers can also be rewarded through loyalty schemes, in which they receive points for each reference or purchase they make with their referrer. Customers can accumulate points over time and redeem them for discounts, other rewards, or special deals.
  • Email marketing campaigns are another excellent referral marketing technique. By integrating social sharing icons in your emails, you enable customers to swiftly and simply share your products, news, and promotions.

Take note here: Whenever you develop a referral program, it should be a fundamental part of the customer experience. Every customer touchpoint, from website navigation menus to the checkout page, should feature referrals. In a similar way, ensure that your referral program is integrated with other essential systems, such as e-commerce technology, CRM, and payment systems so that you can track all referral activity.

Also read: Top 10 Best E-Commerce Platforms Worldwide

Types of Referral Marketing

You can use referral marketing to promote your business in a variety of ways. Here are 3 types of referral programs:

Direct Referrals

Direct referrals occur when your current customer base contributes to brand exposure with minimal to no marketing efforts. It is the most conventional and transparent form of referral marketing. There are no incentives, freebies, or commissions. The consumer is just pleased with your company. This is an excellent type of referral marketing.

Referrals with Incentives/Rewards

The most popular type is incentives or rewards. A person gets an incentive to suggest your products or services to their audience in this type of referral marketing. When the referrer makes a purchase or joins a subscription list, they will receive a discount, cashback, or other incentive. If you give rewards, make sure they are sufficiently substantial to attract customers and create customer loyalty.


In 2022, the number of global e-mail users amounted to 4.26 billion and is set to grow to 4.73 billion users in 2026. It is one of the most effective referral marketing tools. You can use email marketing to deliver targeted communications to consumers and prospects about specials or referral programs. Email newsletters may also be used to keep your customers and prospects up-to-date with the launch of new products or services.

Who may benefit from referral marketing?

Referral marketing may benefit any type of business. This type of marketing plan may be quite beneficial for businesses ranging from small sole proprietorships to major enterprises. Many businesses that provide products and services might benefit from referral marketing efforts. Referral marketing is commonly used by the following businesses:

  • Airports, hotels, and travel agencies
  • Doctors, dentists, and health professionals
  • Retail stores
  • Restaurants
  • Automobile companies
  • Banks
  • Specialty stores

Advantages of Referral Marketing

New channels and strategies are used by the marketing teams to attract new customers. This often leads to individuals having a hard time with advertising and being affected by brand messaging. Because of the high level of competition, some businesses are unable to successfully connect with their target consumers. The people do not trust the products that they see advertised, and this is where referral marketing comes into play. People are more likely to listen to suggestions from family and friends. Aside from increasing customer trust, this marketing method has certain other benefits:

  • Increased ROI
  • Enhanced brand awareness
  • Larger customer base
  • Greater customer retention rate
  • Increases social media reach
  • Improved customer engagement

Examples of Referral Marketing


The renowned file hosting provider, Dropbox, created one of the most successful referral programs and grew by 3900%. Everyone is wondering how they did it, and the simple answer is Referral marketing. The program pays those who suggest friends and accept the invitation. Furthermore, their onboarding process is quick, the benefits are obvious, and the invitation method is easy.

Image Source: Viral Loops

Old Spice

The premise behind viral content is word-of-mouth marketing. The Old Spice advertisements with Isaiah Mustafa are an example of an effective referral marketing program. It was originally released on YouTube only. They were so amusing that people shared them around and told their friends and family about them. It ended up being the world’s fastest-growing online viral referral marketing campaign, with over 23 million views in just 36 hours. Their conversion rates skyrocketed as a result of the traffic. It brought up Old Spice brand sales by 103% and permanently transformed the way they conducted marketing and customer acquisition. A simple referral marketing campaign transformed potential consumers into loyal customers overnight.


Referral marketing has been recognized as one of the most effective marketing techniques employed by marketers at all phases of the sales funnel. This is because new customers acquired through recommendations have already developed confidence in your brand. In this blog, we explored:

  • What is Referral Marketing?
  • Why Referral Marketing is Important?
  • How to Use it Successfully?
  • Types of Referral Marketing?

Referral marketing is just a more trustworthy method of getting information prior to purchasing. A potential consumer may conduct all of the research they want, but if their mother or a friend urges them to follow a particular brand, they will follow the lead. That is how effective word-of-mouth referral marketing is. People listen to their families and friends, and you can be confident that they will not lie to them.

A brand is not left hanging in the wind and hoping for referrals. There are steps you can take to expedite the process. Through effective referral marketing, companies may harness the power of testimonials. This prioritizes a systematic business process above a rapid referral marketing plan and maximizes the lifetime value of your product or service.

Creating a referral marketing plan is a strong technique that will continue to bring in new consumers, boost revenue, and lead to a higher percentage of retention.

More resources for you:

Unlock 10 Types of Facebook Ads for B2B Business [2024 Updated]

Inbound vs Outbound Marketing: What’s the Difference?

What is Meme Marketing? Everything You Should Know


How successful is referral marketing?

According to studies, 71% of buyers are more inclined to buy if they are mentioned on social media. With millions of messages being transmitted online every minute, a company must be visible and market itself on the digital channels that its potential consumers utilize the most.

What is the power of referral marketing?

Businesses may use referral programs to recruit new customers and maintain existing ones. Businesses may leverage the power of word-of-mouth marketing to generate expansion by rewarding current customers to recommend their friends and family.

Is referral marketing paid?

Referral programs are often divided into two types: incentive payment and non-incentive payment. The former is far more frequent and typically includes benefits like cash, prizes, discounts, shopping vouchers, or access to the service for a limited period.

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