Written by Chris Tweten
Referral marketing is one of the most cost-effective channels for startups to gain new customers and grow their businesses. In this blog, we’ll cover six reasons why referral marketing works so well.
Referral programs may sound tricky, but they can be far more successful and easier than generating leads from scratch. Give your customers the chance to spread a little word-of-mouth marketing about you, while keeping them engaged with your brand.
Referral marketing is successful because of how much our brains are pre-wired for altruism and extroversion.
Have you ever subscribed to a streaming platform that sounded interesting but wasn’t really your thing? Have you ever bought something just because a friend recommended it?
If you even thought the word ‘Yes’, then you’ve been influenced.
But don’t feel bad about it. The human brain is wired to be influenced by those we trust. Studies show that people are 4 times more likely to make a purchase when recommended by family or friends.
And that’s exactly why customer referral programs are so effective in 2021.
Referrals are based on basic human psychology and it’s likely customer referrals will still be effective 100 years from now. How does investing into a customer acquisition channel that’s built to last sound to you?
1. Referral Marketing Builds a Strong Customer Base
Referral marketing gives your startup an opportunity to create relationships with prospective customers, which can lead to better sales conversions and a more loyal clientele.
Referrals give your startup more credibility and build a positive customer feedback loop.
When customers refer others to their company, they are invested in the success of your company, resulting in higher conversion rates for prospects because referrals come from people who already feel confident and happy with the brand.
Your current customer base will also be encouraged by any offers you offer them if it benefits both parties – when they get something out of recommending your product/service, so do you! Instead of just asking for recommendations, provide incentives such as discounts on upgrades or free shipping to increase return visits once someone converts into a customer.
2. Referral Programs Build Trust
When people refer others they know or trust, it builds the amount of credibility you have in the marketplace and helps you establish yourself as a trustworthy brand.
Referrals remind customers why they like your company. When someone recommends you, it makes them feel good to share something they enjoy with a friend and show that they have the same values as your company.
Referrals reduce the amount of effort needed to convince people who are on the fence about purchasing your product or service because their friends already trust it so why shouldn’t they?
Customers feel like they are a part of the company. The buy-in factor is much higher if they are encouraged to share your brand with their network because it means they have a stake in what you are doing.
3. Referrals are Cost-Effective
You only pay when someone buys something: The cost of acquiring one referral through referral marketing is much cheaper than other channels such as advertising on social media or print ads.
- Referred leads are more likely to convert to paying customers.
- Referred customers are less likely to churn than other acquisition channels.
- Referral programs improve retention and customer lifetime value (LTV).
Since referral marketing hinges on word-of-mouth and the goodwill of your existing customers, your customer acquisition costs can be cut down considerably. If you are looking to cut down your cloud costs, it’s recommended to kickstart your FinOps journey, make sure to set the right FinOps KPIs and have an eye on your costs.
How is that possible? Well, it’s a lot less expensive from an advertising perspective to market your business towards existing customers than it is marketing towards new ones.
4. Referrals Build Social Currency
Before diving into it, let’s start with a definition of social currency:
Social currency is based on a brand’s ability to fit into how today’s consumers converse, connect, and share information in the mobile and social media age.
Referrals give potential customers an opportunity to learn more about what you have to offer outside of just seeing ads online or in passing. It’s also a great way for startups to generate awareness among their target audience by encouraging blog posts, reviews and social media mentions.
“When a person shares your brand, they are investing their social currency in you. If their friends, family, and followers like what they see, your social currency will increase.”
5. Identification of Loyal Customers
Referrals are a great way to identify your best customers. When you ask for referrals, it’s likely that people who refer often will be the ones with whom you have had the most positive interactions and longest tenure as clients or customers.
This is the type of customer that’s worth investing in, and they are more likely to share your company with communities they engage with.
It’s a lot easier to build and maintain your company by nudging referral invites out from the inside than it is to go outside and work. A referral request can create a sense of trust between the buyer and seller, leading to loyal customers.
6. Referral Programs are an Owned Acquisition Channel
Referral marketing is an owned channel, which means you have complete control over how it works and what message your company wants to send.
This leads to a more cohesive brand identity while reducing the risk of inconsistent messaging across other channels such as social media. Building your business solely on rented channels (ones you don’t own) can be potentially disastrous.
Putting resources into owned channels will safeguard your startup from the perils of the rented channel. There is no better investment than in yourself – so take control over how referral marketing works at your company and reap the benefits.
Referral Marketing is Here to Stay
Referral marketing has been around for centuries.
It’s one of the most popular and cost-effective ways to build a customer base, generate referrals, and create social currency for your startup.
Developing your own referral program can be a massive drain on resources, making referral software a great option for startups looking to get started.
GrowSurf allows you to set up a fully automated referral program in under a day with integrations to popular platforms like Stripe and Hubspot. Start your free trial now!