The importance of referrals for your business explained

Dhiraj Nallapaneni

4 min read Last Updated Jul 24, 2020

importance of referrals

When you have a problem that needs solving, where do you look? For most people, they turn to their network. Whether you are looking for a new healthcare practice, a new car, or a realtor, you typically reach out to the people you trust – your friends, relatives, or people you know who will guide you without bias. These people, whose opinion you trust, act as promoters of the business they recommend. The impact and importance of customer referrals are undeniable. It is a powerful tool to acquire new customers without actually making a big dent in your marketing budget.

With referrals, businesses can enable the most powerful marketing engine that they have: their own customers. 

Impact of referrals 

Not sold on the importance of referrals? Here are a few numbers that might change your mind. 

  • Customers are 4x more likely to buy when they have a recommendation from a friend (Nielsen). 
  • You can expect 16% more profits from customers who have been referred to a business. (HBR
  • 64% of marketing executives said that word-of-mouth recommendations were the most effective form of marketing. However, only 6% of executives say that they’ve mastered it. (Forbes

Meanwhile, trust for traditional forms of marketing is low. 

These stats tell the story: customers trust their friends and people they trust to help guide their purchase decisions significantly more than they trust typical marketing. 

Before we talk about how you can create a successful customer referral marketing program, let’s talk about what makes referrals work. 

Why referrals work 

Here are 3 reasons why referrals work so well in helping businesses attract new customers. 

  • Customer referrals are low-cost 

Unlike Google ads or Facebook ads, customer referrals, when done correctly, are inexpensive. 

  • Customer referrals lead to more trust 

When a potential customer comes to your business, they’ll be more likely to trust you. After all, they know their friend or family member had a positive experience. 

  • Customer referrals create a virtuous cycle

Once your business’s referral engine is working smoothly, it can lead to more and more growth. Customers who come in through referrals can, in turn, give you more referrals. 

Creating an effective referral marketing process

Now that you know more about the importance of referrals, here’s how you can get started with referral marketing. Here are a few steps that you can take to make sure that your referral marketing process is working effectively and attracting new customers. 

Deliver fantastic customer experiences 

Customers don’t want to give recommendations to businesses that they just feel “okay” about. In order to make sure that your customers want to rave about your business, take time to improve your overall operations, and ensure that you’re delivering world-class customer experience. 

Reach out to your customers at the right time 

Strike when the ‘iron is hot’. If you are confident that you have provided an excellent experience to your customers (eg: feedback in the form of reviews and survey responses) the time is right to ask them to refer your business.  

Offer an incentive to your customers to refer your business 

Chances are that you have tons of happy customers. The problem is that not all of them will go out of the way to refer your business within their network proactively. To help give your customers an extra push, offer an incentive in the form of a discount or a gift card (or any other item of value to the customer) for every recommendation. 

Make the process easy 

If the process of giving a recommendation is too lengthy and complicated, even your most motivated customers aren’t going to go through with it. Make sure that you’re making it easy for customers to share a referral. Give them something that they can easily share through text or email. 

Get your customers to do your marketing

Customer referrals are a great way to get more customers at a low cost. So what are you waiting for? Get started asking your customers for referrals.