Have you ever considered or even calculated how many sales your business has made and continues to make through referrals from your current and loyal customers? People trust what others recommend; after all, those people have already tried the products and services and can give their honest opinions.
Therefore, investing in customer experience and loyalty is a great way to have organic "salespeople" for your brand.
Do you know how referral marketing works and how it can be your ally in sales? Learn more about the topic right now!
What is referral marketing?
Referral marketing isa strategy based on encouraging a business's customers to recommend a product or service to other people.
In this way, people who have already validated your product, service, or experience become spokespeople for the business and organically attract new consumers to a brand.
This type of strategy aims to benefit existing customers, whether through discounts, programs, or rewards, so that new customers can come to the business in a cheaper and more strategic way.
According to research by Nielsen, 92% of consumers trust recommendations from friends and family more than any other form of advertising. Furthermore, a study by the Wharton School of Business showed that referred customers have a 16% longer customer lifetime value and an 18% higher retention rate than non-referred customers.
What are the benefits of referral marketing?
This type of strategy offers several advantages for the business, and we've compiled some of them to make it even clearer how it can be a major differentiator for your results!
The company gains more qualified leads
When someone recommends something to another person, they know what pain points and needs that person needs to solve, right? Nobody recommends products or services that don't make sense at the moment, so if your brand was recommended by a customer, there's likely great potential in that new lead.
Referrals bring highly qualified leads to your database, facilitating prospecting and the buyer's journey
The sales cycle is shorter
As we mentioned, by acquiring qualified leads who understand their pain points and needs, the product sales cycle becomes much shorter. Having received a recommendation, the company gains credibility, and the doubts of those referred decrease, making the purchase process faster and simpler.
The CAC (Customer Acquisition Cost) is reduced
Customer Acquisition Cost (CAC ) is all the investment and effort your teams make to acquire new customers and guide them to purchase. By having referred customers, your team doesn't need to reach out to leads and dedicate themselves to a lengthy conversion process, since your existing customers have already generated value for your brand.
In this way, just as the sales cycle is faster and shorter, the acquisition cost is also reduced, since new customers arrive organically.
It increases brand reach
Referrals can help your brand reach places and people that your teams hadn't even considered or mapped out yet. This way, your business reaches large numbers of people, and expansion happens naturally.
Attract new customers: make your brand "recommendable"
Before we actually talk about how you can create strategies for your referral program, it's important to reflect: are your products, services, and brand in general recommendable?
It's necessary to take a step back and analyze what already exists in your strategy. Is your customer treated well? What are the experiences delivered like? Does your company deliver on its promises? Is your brand easily discoverable online, and if a potential new lead searches for your solutions, will they find them quickly and easily?
It's necessary to understand these initial aspects in order to then invest in your program to retain those who are already with your brand and attract new customers through referrals from those who already know the business.
How to create an attractive referral program?
To take advantage of referral marketing in your sales and results, it's important to have planning and strategies, and some steps are essential:
Define your goals
Understand this strategy as a marketing and sales campaign; therefore, it's necessary to have clear objectives about where you want to go. Especially at the beginning of the strategy, it's helpful to create more specific goals, such as increasing sales of a particular product in your portfolio, attracting a specific customer profile, or achieving a certain target value, for example.
Having objectives is essential for a well-designed strategy and for directing all efforts toward the desired outcome.
Meet your promoters
Referral marketing isn't for your entire customer base; after all, even if they like your product or service, not everyone is willing to recommend you, and you need to be clear about that.
Therefore, it is necessary to know who its promoters are and what profiles are most likely to be interested in the program.
In this case, the NPS (Net Promoter Score ) survey is very important for classifying your customers into three profiles: detractors, neutrals, and promoters. It's among these promoters that your company will have a greater chance of success!
Offer attractive and clear incentives
Having clear incentives that attract your customer promoter is essential for referral marketing. Therefore, it's necessary to have benefits that are incentives for both the referrer and the referred.
Remember that the benefit can go beyond discounts and may actually be related to your product or service. Dropbox – a form of cloud storage, for example – has a referral program that gives you account space based on referrals made by your customers.
In other words, more than just a discount, here he rewards with actual service and effectively resolves the customer's pain point.
Therefore, it's important to know your customers, their expectations and needs, and to define which incentives actually make sense.
Simplify the referral process
Create a mechanism for customers to refer new people, but ensure it's simple and quick. People don't want to waste a lot of time with various rules and steps to refer others or make new purchases, so make sure the rules are simple and the process isn't a problem for your current and future customers.
Spread the word about the referral program
In order for your brand advocates to recommend your brand and participate in the benefits offered, they need to know about your program , and you need to invest in promotion. Work on communicating and promoting this strategy, invest in content, social media, email marketing, and make it clear to customers the benefits of recommending your company to others.
According to research by Referral Candy, 89% of satisfied customers are willing to refer others, but only 29% actually do so. This happens because they forget to do it, and your company needs to remind them to make such referrals.
Measuring the success of referral marketing
Sometimes, the biggest problem with business strategies is measuring their results. Metrics aren't always clear, and results can seem misguided, which—often wrongly—makes the strategies less effective.
There are no right or wrong metrics, and you need to understand your specific context to determine what truly makes sense. However, to help you with this potentially complex task, we've compiled some key performance indicators (KPIs) to measure the success of your program.
1. Penetration rate
How many of your customers joined your referral program? This metric will assess how many of your customers are actually joining your program, and it's important to compare this to your NPS to understand if there was good penetration.
From this, it's possible to devise better communication strategies and ways to make it clear to promoters who haven't yet joined the program why they should be a part of it.
2. Indications received
Here, it's about calculating how many new leads the company received from the program. With it, you can see which customers are the most engaged and which profiles make the most sense for your program.
3. Conversion rate
Unfortunately, not every referral turns into a sale, which is why the sales-per-referral rate is important for a company to find out how many referrals actually became business. It's the main metric and represents the importance of referrals in the total volume of your cash flow.
The sales rate per referral (%) as a percentage of your total sales can be measured using the following formula:
Referral rate = number of sales per referral / total number of sales x 100
With it, it's possible to understand, over a given period, how much the recommendations impacted your goal.
Conclusion
Referral marketing is a great ally for businesses; after all, nothing is better than relying on your existing customers to reach new potential consumers, right? Investing in attractive incentives, demonstrating value to your audience, and providing benefits to those who trust your business are the first steps to making your program a success!
How has this strategy been implemented in your business? Are referrals already structured, mapped, and rewarded? Take advantage of your increased knowledge on the subject, understand your promoters, launch your programs, and reach even more people to introduce them to your products and services.
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