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, they've already tried and given their true opinions about products and services.
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 sales ally? Learn more about it now!
What is referral marketing?
Referral marketing, or referral marketing , is a 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 their product, service, or experience become spokespersons for the business and, organically, attract new consumers to a brand.
This type of strategy seeks to benefit existing customers , whether through discounts, programs, or rewards, so that new customers can reach your business more affordably and strategically.
According to research , 92% of consumers trust recommendations from friends and family more than any other form of advertising. Furthermore, a Wharton School of Business study showed that referred customers have a 16% longer life cycle 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 your business, and we've gathered some of them to make it even clearer how it can make a big difference to your results!
The company gains more qualified leads
When someone recommends something to someone else, they know what pain points and needs it needs to solve, right? No one recommends products or services that don't make sense for them, so if your brand was recommended by a customer, there's likely to be great potential in this new lead.
Referrals bring highly qualified leads to your base, facilitating prospecting and the purchasing journey
The sales cycle is shorter
As we mentioned, by gaining qualified leads who understand your pain points and needs, the product sales cycle becomes much shorter. By receiving a recommendation, the company gains credibility and the referrals' doubts are reduced, making the purchase process faster and easier.
CAC (Customer Acquisition Cost) is reduced
CAC or customer acquisition cost, is the total investment and effort your team spends on reaching new customers and nurturing them to purchase. By having referred customers, your team doesn't need to pursue the lead and dedicate themselves to a long conversion process; after all, your own customer has already generated value for your brand.
This way, just as the sales cycle is faster and shorter, the acquisition cost is also reduced, as new customers arrive organically.
Increase brand reach
Recommendations can help your brand reach places and people your teams haven't even considered or mapped out. This way, your business reaches a large number of people, and expansion happens naturally.
Attract new customers: make your brand “recommended”
Before we actually talk about how you can create strategies for your referral program, it's important to consider: are your products, services, and brand in general recommendable?
It's important to take a step back and analyze your existing strategy. Are your customers well-treated? What are the experiences delivered? Does your company deliver on its promises? Is your brand easily discoverable on social media, and if a potential new lead searches for your solutions, will they find it quickly and easily?
You need to understand these initial aspects so that you can then invest in your program to build loyalty among those who already have your brand and attract new people through referrals from those who already know the business.
How to create an attractive referral program?
To take advantage of referral marketing for 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, so you need to have clear objectives about where you want to go. Especially at the beginning of the strategy, it's a good idea to create more specific objectives, such as increasing sales of a specific product in your portfolio, attracting a specific customer profile, or achieving a certain target value, for example.
Having goals is essential for a well-designed strategy and for all efforts to be directed towards where you want to go.
Meet your promoters
Referral marketing isn't for your entire customer base. After all, even if they like your product or service, not everyone will be willing to recommend you, and you need to be clear about this.
Therefore, you need to know who your promoters are and which profiles are most likely to be interested in the program.
NPS survey , is very important to classify your customers into three profiles: detractors, neutrals, and promoters. It is in these promoters that your company will have a great chance of success!
Offer attractive and clear incentives
Having clear incentives that attract your promoter customer is essential for referral marketing. Therefore, you need benefits that are incentives for both the referrer and the person being referred.
Remember that the benefit can go beyond discounts and may be related to your product or service. Dropbox , a cloud storage service, for example, has a referral program that provides account space based on referrals from its customers.
In other words, more than a discount, here he rewards with his actual service and achieves the resolution of the customer's pain.
Therefore, it is important to know your customers, their expectations and needs, and define which incentives actually make sense.
Make the referral process easier
Create a mechanism for customers to refer new people, but make sure it's simple and quick . People don't want to waste time with multiple rules and steps to refer new people or make new purchases, so make sure the rules are simple and the process is hassle-free for your current and future customers.
Promote the referral program
For your promoter customers to recommend your brand and participate in the benefits offered, they need to be aware of your program and invest in advertising. Work on communicating and promoting this strategy, investing in content, social media, and email marketing, and make it clear to customers the benefits of referring your company to others.
According to a survey by Referral Candy, 89% of satisfied customers are willing to refer, but only 29% actually do . This is because they don't remember to do so, 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 results. Metrics aren't always clear, and results can seem lost, which—often incorrectly—makes strategies less effective.
There are no right or wrong metrics, and you need to understand your scenario to understand what actually makes sense. But to help you with this task, which can seem complex, we've put together some indicators 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 it to your NPS to understand whether there's been good penetration.
From there, you can think of better communication strategies and ways to make it clear to your promoters who haven't yet joined the program why they should be part of it.
2. Nominations received
Here, it's about calculating how many new leads the company received from the program. This allows you to visualize 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, so the referral sales rate is important for companies to determine how many referrals actually turn into business . It's the key metric and represents the importance of referrals to your total cash flow.
Your referral sales rate (%) on your overall sales can be measured by the following formula:
Referral rate = number of sales per referral / number of total sales x 100
With it, you can understand, over a given period, how much the recommendations impacted your objective.
Conclusion
Referral marketing is a great ally for businesses. After all, there's nothing better than relying on your customers to reach new potential customers, right? Investing in good incentives, demonstrating value to your audience, and offering benefits to those who trust your business are the first steps to a successful program!
How has this strategy been implemented in your business? Are referrals already structured, mapped, and rewarded? Take advantage of the fact that you know more about the topic, understand your promoters, launch your programs, and reach even more people who want to learn about your products and services.
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