Referral Marketing: The Ultimate Guide for 2022

What is referral marketing?

Let’s start with the basics.

Referral marketing is any effort a brand makes to get people to recommend it to friends, family, or colleagues.

Typically, this is achieved with a referral program. Take a look at Glossier’s referral program to get an idea of what a successful referral program looks like.

As you can see, Glossier gives people $10 for each person they refer. Since the people that see this message are current customers, it’s clear they like the products, so $10 is a great reward for just telling their friends about Glossier.

The idea is to take a natural interaction between people – recommending a product or service – and incentivizing it to happen more often.

The act of recommending is also called word of mouth. It is something that usually happens organically when someone thinks a product will benefit someone else.

But it’s called referral marketing for a reason. Brands can do a variety of things to make these referrals happen regularly.

But why go through all that effort to get referrals? Well, you might already know the answer to that question. But let’s talk about it.

Why referral marketing is necessary

Notice that we used the word necessary in the title of this section. That’s because referrals are the most powerful influencers of purchase decisions. What we mean by this is that when someone gets a brand recommendation, that person is a lot more likely to choose that brand over the competition solely because someone he or she knows vouched for it.

In fact, up to 50% of all purchasing decisions are influenced by referrals. But that is not the only impressive stat about referral marketing.

Referral marketing generates twice the sales of paid advertising.

In addition, referred customers are more profitable and more loyal to the brand.

Sounds great!

But why are referrals so effective?

In any purchase, there needs to be a level of trust for the product and the brand. Without trust, people would think the products don’t work as advertised.

After all, every brand talks positively about itself. But, we’ve all seen false advertising many times and know that we can’t trust every brand immediately.

When someone recommends a brand, it’s because they had a positive experience with it. This fact has resulted in people trusting other people for product recommendations more than any other source.

92% of consumers trust brand recommendations from people they know.

These statistics alone should tell you that investing in referral marketing is a must.

How to increase organic referrals

Before we get into starting a referral program, you need to consider that people make referrals for brands they like. So it’s in your best interest to be customer-centered and focus on providing great products and service.

Even if you provide amazing incentives, your referral marketing strategy won’t be as successful if you don’t optimize the product and user experience.

Great experiences make for great referrals. That is probably the most important thing if you want people to remember you.

When you have an amazing brand experience, it feels refreshing and it can lead you to tell everyone about it, offline and online. This happens all the time. Just search any brand’s name on Twitter and you will see how much people like to share their experiences online.

Although this also includes negative experiences. You could say that people sharing negative experiences online are negative referrals, which also have an effect on purchase decisions and cost potential clients.

So try to regularly improve the interactions customers have with your brand. Customer service improvement is a big part of this.

Customer service is a major weak point in many brands, and it affects the overall experience. A great customer service sets brands apart and it’s an aspect worth recommending.

But customer service isn’t the only thing you should consider improving.

Unique unboxing experiences are also something that makes brands worth recommending.

The bottom line is that people will talk about their experiences with your brand constantly. So, it’s better that they have only good things to say about you.

Recommended: 5 Tips to Boost Customer Referrals

How to start a referral program

Referral programs are the best way to get referrals, period.

A referral program is basically a system to reward customer referrals through cash payments, store credit, or discounts.

It can work in different ways, but it typically involves giving customers a unique code or link they can share with people they know. After the referred registers or makes a purchase, two things can happen.

The person making the referral gets a reward.
Both, the person making the referral and the referred get a reward.

It’s up to you to decide how you want to incentivize referrals, but it’s recommended that you try the latter. This way you are incentivizing signups or purchases as well. Two birds with one stone.

Steps to start a referral program

1. Choose the right rewards
2. Make your referral program easy to find
3. Invite brand ambassadors
4. Consider affiliates
5. Track your referrals

It’s a great idea to start your own referral program because people really respond well to these incentives and increasing referrals is almost a given. In addition, if the product and experience are great, then these referrals will convert better.

At the end of this article you will find some of the best referral programs out there so you can get some inspiration for your own.

Now, let’s go through the steps to start a successful referral program.

1. Choose the right rewards

To start a referral program you first need to choose how you will be rewarding them. This depends on your goals and your budget, but there needs to be an incentive.

Credit/Discounts/Coupons

Many brands opt for offering credit once the referral is successful. We can see this payment system used successfully by Ubereats. This is how their program works.

Every person that signs up to the app gets a unique personal code. When people use that code for their first order, they get a discount and so does the code’s owner.

The system works because regular users appreciate any discount, so it’s at the top of their minds to tell their friends to use their code for their first order.

You can even see people sharing their code online whenever possible. This action of sharing codes online should also be encouraged.

Once a referral program gets to a certain level of popularity, people who are not users will be motivated to become one simply because they now know they will get a discount on their first order.

And once they are in, it’s just a matter of continuing engagement with the new customers so they make repeat purchases and refer others to get more discounts.

This approach works well for these types of services, but there are other methods that might suit your brand better. For example, commissions.

Commissions

For this approach, you need to provide your customers with unique links to products they can share with people. The purpose of the unique links is to be able to track the clicks and purchases. For each purchase, they get a pre-established commission.

Commissions are a great option because you are paying for conversions. You don’t have to pay anything upfront so you can have as many people in your program as you can manage.

This payment method is also a big motivator for people. The reason being that if they put enough effort into it, they can earn a consistent income. An income they can use outside the store. Commissions motivate people with an audience to refer and talk positively about your products since it will result in more money for them.

For these reasons, it is usually the preferred payment method for affiliate/ambassador programs, which we will talk about later in this guide.

Below, you can also find the best way to generate links and track referrals.

Charitable donations

Another way you can reward referrals is by offering charity donations. This can work in the following way:

For every referral, you get $10 and we donate $10 to this month’s selected charity.

This method is a way to give back to the community and it is a valuable incentive for many people. You should also consider this option if you think it is something your customer base will appreciate.

2. Make your referral program easy to find

Now, you have to create a page for your referral program to live in and that’s easy to find. The easier it is to find, the more people will be part of it.

But first, think about how you want people to join your program.

Some referral programs register people automatically, like the example we mentioned before, Ubereats.

However, other programs require registering first through an application form. This is something brands do when they want to review the applications to select ideal candidates only. This way there is more control over the program. Or, if the brand wants to make sure people read the terms and conditions before participating.

Once you have decided how you want your loyal customers to be part of the program, create a page where people can access the program and read any relevant information.

If you are using unique codes, then this page should be where people can see theirs and easily share it through any social channel.

Otherwise, this page should be the application form.

Many times, brands make the mistake of hiding their referral program deep in their websites or apps. Make it visible in the header or footer of your website. Or use pop-ups that show how much people can earn for each successful referral.

After that, send an email to let everyone know in your newsletter about the program. Also, promote it as much as possible.

Glossier referral program email promotion

3. Invite brand ambassadors

Brand ambassadors are a tool to take your referral marketing to the next level. They are loyal customers who started out as fans of your brand. Their love for your products and services allows them to create branded content that feels authentic to the consumers. As opposed to paid advertisement or even content from the brand itself.

Through their social media content and personality they can build a connection for your brand and generate referrals.

Brands can recruit any person to become an ambassador depending on the strategy and marketing goals.

The first thing that comes to mind is influencers. But it doesn’t have to be a super expensive famous celebrity influencer for the strategy to work. In fact, small influencers are better for brand ambassador programs because they have better engagement and conversion rates.

Sure, their reach is smaller, but add them together and you end up with a similar reach for less money. That is why brands recruit even thousands of ambassadors.

It is worth noting that with ‘influencer’, we mean people with any social media following. The important thing is that they already have a genuine connection with your brand.

Brand ambassadors are a great addition to any referral program for those reasons.

But ambassadors can do more than create social media content. Their versatility allows brands to also involve them in offline activities like hosting classes or events.

Check out our ultimate ambassador marketing guide to know more about creating an ambassador marketing strategy.

4. Consider affiliates

Affiliates are a type of brand ambassador but their promotion mainly lives online. They are customers who connect with your brand and already have a following online. Their main goal is to generate income from their audience.

A common example is people who review products on Youtube. If you check the description of those videos where they link to the products, you will find that those are affiliate links.

You can know this because typically after the main url, you will see unique characters to identify it.

The biggest example of a company using affiliates to generate referrals is Amazon. While for the most part, Amazon is not selling their own products, they have a massive affiliate network to attract customers to the site. This program has undoubtedly been a big part of their massive growth.

After joining, people can get a unique link for any product they like and use it in their content. Giving them the freedom to promote products that they know their audience will like.

Seems easy enough. However, to have these referral links capabilities, you will need a referral marketing tool to generate the links and track their performance.

Let’s talk about tracking referrals.

5. Track your referrals

As you can imagine, tracking referrals can be a challenging task without the necessary tools.

After all, you need a way to generate unique links and codes for each person who joins the program and to measure the ROI.

Without reliable data, you won’t be able to know what’s working. So you won’t know if your efforts are even worth it.

The most basic way to track referrals is by generating links with UTM parameters, which get tracked on Google Analytics. This, in combination with spreadsheets can give you the organization you need if you are running a very small referral program.

Referral tracking software

Like many other processes in a brand, spreadsheets and simple tools are great for handling small amounts of data. However, once your program grows it will be necessary to use smart tools.

SocialLadder’s Deep Links feature allows your ambassadors to generate their own links for any product on your site. They can share these links on their own content whenever they like, similar to Amazon’s affiliate program.

Then, every click and purchase coming from the link gets tracked on the same platform. This way, you get a clear picture of the ROI from your referral marketing efforts.

Additionally, SocialLadder is the only referral platform that also lets brands discover ideal candidates, customers, influencers, students, and advocates for their referral program.

Brands can also easily communicate with them and assign online/offline tasks, in case you have bigger plans for your program.

Referral program examples

Let’s take a look at some of the best referral marketing programs out there to inspire you.

Dropbox

Dropbox is a very popular online storage brand. Everyone knows it. And their referral program is just as popular.

At the beginning of the company, when they didn’t have as many users, they started a referral program and it did tremendously well.

The program consisted of offering 500 mb of free storage for anyone who made a successful referral as well as 500 mb for the referred.

The results? Dropbox permanently increased their signups by 60%. 2.8 million referral invites were sent in the first 18 months, and now, 35% of all their signups come from their referral program.

Dropbox knew exactly how they could increase referrals and drive signups without cash compensations or discounts. Instead, they gave away a part of their product for free. They know that a large number of those people will run out of free storage and need to upgrade.

Dropbox’s success teaches us that if done correctly, referrals are a powerful growth driver.

goPuff

goPoff is an online delivery service with a successful referral program. Just as other delivery apps, their referral program is a two-sided system. Meaning that the person making the referral gets a reward as well as the referred.

Two-sided programs are great because they encourage the two things you are trying to achieve. Increasing referrals and signups.

goPuff allows its ‘influencers’, as they call the participants, to promote their referral links through email, social media, websites, or directly to their family and friends.

Skillshare

Skillshare is a brand that offers online courses on a variety of topics. You might have heard about them thanks to their referral/affiliate program.

Skillshare uses the affiliate/ambassador approach by generating unique links for any course their affiliates would like to talk about. Which they can promote on their own channels.

This gives them the freedom to create the best content they can and focus on the courses that would connect with their audience. If someone’s audience is interested in finance, then it’s probably not the best idea to promote a cooking course.

This approach is a great way to increase referrals because you are giving the people the tools and creative freedom to make the best referrals.