What is Referral Marketing?

When someone buys a product from you and spreads your business by telling their friends about it, that is referred to as referral marketing. This is a great strategy for a company to use when they want a larger client base in a short period. 

You can consider referral marketing as an endorsement or recommendation from someone who has bought your products/services and is satisfied with what they have bought. 

This way it attracts more people towards your company and thus increases its revenue. To create awareness among people about your product or service, one should try using referral marketing techniques which will prove beneficial for your business in the long run. If done right, referral marketing can work wonders for your brand image & generate excellent leads at a rapid pace. 

With increasing social media activity on the web today – word of mouth is crucial for any organization to grow faster and stay ahead of the competition. The best part of referral marketing is that you don’t need a large marketing budget to generate remarkable leads from it. 

Since there are so many benefits of making referrals on social media platforms – companies have been focusing heavily on creating campaigns based on referrals on Facebook, LinkedIn, etc. A little effort goes a long way when comes to harnessing the power of referrals via social media platforms.

How To Create A Referral Marketing Strategy?

Asking for referrals is a great way to broaden your marketing reach, attract new customers and expand your business. But before you ask someone for a referral, you need to have a strategy in place. 

Think about it: Would you buy something if someone randomly suggested it? Probably not. You need more than that. It’s important that before anyone asks for an endorsement or referral, they know why they should do so. 

This means you need to provide prospects with clear reasons as to why they should use your product or service—and refer their friends and colleagues to do so as well. To start, write down what kind of people are likely to be interested in your product. 

Also, think about how you’re going to generate leads by attracting these potential clients. If social media is part of your marketing plan, figure out which channels are best suited for making connections with these people based on where they hang out online. 

Finally, consider what benefits or rewards might encourage people who are referred to make a purchase from you instead of from one of your competitors. The more value potential clients can see in taking action on any recommendations made by those who are already using your services, the better off you will be when asking for recommendations yourself.

How effective is Referral Marketing?

Although it’s relatively inexpensive, referral marketing is one of the most powerful forms of lead generation available.

Research says that 65% of B2Bs with a formal referral program believe that referrals are important to their company’s sales success. And while that number might be surprising on its own, what was even more surprising was how effective referral marketing can be. 

84% of consumers say they either completely or somewhat trust recommendations from family, and friends about products – making these recommendations the information source ranked highest for trustworthiness. With numbers like these, why wouldn’t you take advantage of what your friends and family are already doing? It’s free—or rather it costs nothing but time and effort—to get referrals, so there’s no reason not to do it. 

You won’t know until you try! Your business will thank you later. 

One of the major advantages of using referral marketing tactics is also one of its largest disadvantages: word-of-mouth spreads faster than anything else. Nowadays many social media platforms rely heavily on sharing; Instagram photos; Facebook posts; tweets; pins; all these things require people to talk about them with their networks for them to catch fire (just like an actual wildfire). 

But make no mistake: While there are tons of ways people talk about companies nowadays, referrals still reign supreme when compared with other methods. If someone recommends something to another person, whether online or offline, chances are that recommendation will carry far more weight than any other form of advertisement you could ever purchase. 

When we talk with our friends face-to-face or email back and forth with someone through LinkedIn or Twitter or whatever platform we use regularly, sometimes it feels more genuine than advertising campaigns where two parties are directly involved: advertisers who want us to buy stuff and people who sell stuff who want us to buy it.

Referral Marketing for Small Businesses 

If you’re a small business owner, you likely know that today it’s more important than ever to generate quality leads. The most effective way of doing so is through referral marketing.  But what exactly is referral marketing? It's simply getting your happy customers to refer their friends and family members who could benefit from your services or products. 

As long as your product or service offers high value at low cost, then referrals are sure to follow—and that’s where marketers can come in handy! Small businesses can employ many different methods for implementing referral marketing but every strategy usually starts with an incentive program for existing customers. 

Your initial aim should be simple: give them something compelling enough so they feel compelled to share their recommendations with others. To implement referral marketing within your own company, check out the steps below. 

1) Identify Promoters (Every Business Has Them); Promoters are people who love using your product or service enough to take action on their own accord. They're personally invested because they see personal value in what you offer; they like learning new things, and they like feeling like experts. 

Some promoters may be incredibly experienced while others might just love trying out new things. Either way, promoters will champion other potential consumers because they want everyone else to experience what makes them so excited about whatever it is that you sell/provide/do. 

To identify these promoters, ask yourself three questions: Who do I trust implicitly? Who do I look up to when it comes to my profession? What kind of content am I likely to share with my network/friends/family members via email or social media outlets? 

2) Ask These People For Their Help; Once you've identified a pool of potential advocates that include both customers and non-customers alike, make contact via phone call, email, social media message, or even snail mail. 

Ask these people if they would be willing to promote your products or services on their social networks—all in exchange for some kind of bonus gift card prize. To get any movement from these individuals, however, make sure that what you're offering is something worth giving away. 

When designing bonuses, think along these lines: Will my promotional offer entice someone already predisposed to like me? Think extra free time, savings money, exclusive parties/events/conferences. Even influential bloggers can be enticed by rewards as simple as a meal out at their favorite restaurant or tickets to upcoming big events in town. 

3) Use Social Networks for Measurement; Research shows that UGC consistently outperforms brand-generated content across various channels so don't shy away from asking your loyal followers to write reviews and tell stories about how much they enjoy your work. 

Not only can these testimonials be used for referral marketing purposes but they also help to bolster your reputation. 

Tip: An easy way to organize all of your customer reviews in one place is by creating a dedicated page or section on your website—one that gets regularly updated. 

4) Incorporate Gamification into Your Referral Campaign Create a referral engine so customers can easily share their special invite code with their social contacts without having to re-enter it over and over again. 

This integration can be quite simple—simply set up a few pre-existing auto-reply responses that encourage users to spread word of mouth about your brand/products/services. By adding a motivational twist to your referral marketing, you encourage people to share their referral links more frequently. 

Plus, they’ll likely tweet about their wins and prompt others to visit your site to read up on what others are saying about you. This kind of gamification encourages customers to play by your rules—meaning that they have a more vested interest in sharing their invites more often, thus resulting in higher-converting leads for your business. 

5) Follow Up on Leads Regardless of what kind of referral marketing campaign you implement—be it online or offline—it's vital that you always provide prompt support to anyone who reaches out about your product/service/brand with a question or query.

Advantages of Referral Marketing

There are many different advantages of referral marketing, but one stands out above all others. It can help you attract new clients by leveraging your current contacts with businesses that could use your services. 

And once you’ve attracted those clients, you’ll likely enjoy a higher level of engagement than what you would have received if they’d found your business through other marketing channels. So it’s not only a great way to get new clients but an excellent way to build long-term relationships as well. 

Disadvantages of Referral Marketing

High customer acquisition costs. The cost of acquiring a new customer may be higher for companies that use referral marketing. If your company needs to hire additional staff or go through legal processes, there is a cost associated with that. 

Additionally, there are potential legal risks involved in asking customers to act as salespeople on behalf of your business. If they fail to comply, you could be sued for unlawful interference. 

That said, most businesses wouldn’t consider it worth risking their reputation and future revenue generation by embarking on such risky strategies. It’s important to remember that most businesses only ask existing customers and loyal patrons to help spread the news about their products and services. 

There is no need to target strangers at random because referrals typically come from people who already like your company and want more of what you provide. With good service and quality products, it shouldn’t be difficult for these fans to convince others that buying from you will make them happy too. 

As long as you can ensure that your customers have nothing but positive things to say, then it’s unlikely your business will see much backlash if any legal issues arise.


The big benefit of referral marketing is building stronger relationships with your customers. By rewarding people for referring new customers, you create loyal advocates who trust you enough to send friends and family over for services or products. 

You also don’t need to spend money on ad campaigns; instead, your advocates help spread word of mouth on your behalf. That’s why it’s counted as one of the effective forms of marketing today!