The Magic of Referrals

Many popular forms of marketing, such as testimonials, case studies, and customer reviews, all rely on the principle of social proof. Social proof reflects the idea that people innately trust the opinions of their peers. And this trust runs deep—according to a professor of psychology at Knox College, sharing opinions with one’s peers has been so beneficial in dispensing valuable information within a community that it is considered an evolutionary behaviour. 

This valuable sense of trust has already been recognized and harnessed in many forms of marketing. However, one commonly overlooked marketing strategy which similarly relies on social proof is referral marketing. Sprout Social defines referral marketing as “a form of advertising in which businesses encourage customers to recommend their services, products or experiences to other people.”

Why Referral Marketing? 

There are many benefits to setting up referral systems. 

• Inexpensive: Unlike many traditional marketing campaigns that require significant upfront investment, referral marketing is relatively low-cost. Other than incentives such as discounts or free products, there are no upfront fees to referrals.
• High Conversion Rates: According to McKinsey, 63% of Gen Z consumers trust recommendations from friends above any other source.
  
• Efficient: Because your customers are incentivized to help you make a sale, they’re going to make sure they’re connecting you with people who they think have something to gain from working with you. 

How to Create a Customer Referral Program

1. Create a Referral Template

By creating a template like the one from HubSpot below, you streamline the process of reaching out to customers to ask for a referral.  

2. Identify Your Ideal Customer Profile

You likely already have a good idea of what you’re looking for in potential leads, however, it’s a good idea to take a moment to identify who you’re hoping to attract with your referral system. As HubSpot notes, if your referral system uses a form, you can even make a note of what strong leads look like at the top of the form.

3. Decide on Incentives

You’ll need something that’s sustainable while being valuable enough to motivate your customers to do a little legwork for you. For example, at Uber Eats, when a customer refers a friend, they get $15 credit — and when a customer first signs up, they get a $20 credit towards their first order. You could also offer gift cards, a month-long free subscription, or cash — as long as it’s feasible for the duration of the referral program. 

4. Follow Up

When you receive a referral, make sure to follow up on it quickly—letting them sit around for too long might lose you the opportunity! 

When done well, referral marketing can be a hugely successful, low-cost, sustainable marketing strategy. If you’re looking for a more widespread, lower maintenance approach that still relies on the principle of social proof, a testimonial might be the answer.