What is customer referral marketing?

Dhiraj Nallapaneni

7 min read Last Updated Jul 24, 2020

customer referral marketing

Trust for traditional marketing channels is lower than ever. But that doesn’t mean businesses should give up their marketing efforts entirely. It just means they need to be smart about using channels that work better. There’s one channel that works like no other: customer referral marketing. 

Customer referral marketing leverages a simple insight: While customers might not trust your marketing team, they do trust the recommendations of their friends and family members. So let’s talk about what referral marketing is and how you can get started. 

What is customer referral marketing? 

Customer referral marketing is when businesses enable and encourage customers to tell friends and family members about products and services. 

What is a referral marketing program? 

A referral marketing program is a systematic method of encouraging customers to refer a business to their friends and family members. 

Why does referral marketing work? 

Here are a few reasons why referral marketing is so effective in attracting new customers. 

It’s Effective 

Nowadays, customers are trusting traditional marketing less and less. A recent study by Hubspot found that trust for marketers was at a stunning 0%. 

The modern consumer goes out of their way to avoid any sort of marketing. More and more people are running Adblocker, throwing out direct mail, and watching Netflix to avoid television ads. 

While customers might not trust marketing departments, there is something they do trust: recommendations from people they know. After all, how many times have you checked out a restaurant or a barber after hearing a rave review from a friend?

The reason why referrals work is simple: It’s all about trust. While customers don’t trust marketing departments, they do trust their friends and family members. Referrals help you to leverage this trust to your advantage. 

It’s Cheap 

Unlike other forms of marketing, referral marketing doesn’t require much expenditure on your part. After all, it doesn’t cost money for a friend to tell a friend about a great business. 

While many businesses do incentivize referral marketing with an offer or discount, referrals tend to pay for themselves. A customer who comes in based on the recommendation of a friend or family member is much more likely to stick around. According to the Harvard Business Review, you can expect 16% more profits from customers who have been referred by a friend or a family member.  

It’s Easy 

If you’re a small business owner, you might be wondering whether you have the time to do referral marketing with all the other important business matters that you have to attend to. Referral marketing strategies can be implemented by businesses of all shapes and sizes. 

Chances are that you have tons of happy customers who would love to promote your business. The difficult part is being able to track each one of your customer referrals. Of course, even that can be simplified with referral marketing software. 

Building a referral marketing program 

If you want to get started with a referral marketing program, here are a few tips that can help. 

Provide a killer customer experience 

Before anything else, it’s important that you deliver great customer experiences. At the end of the day, great incentives will not motivate customers if they don’t feel great about your business. 

In order to make sure that you’re doing a great job delighting customers, consider sending surveys. It’s an easy way to gauge your overall customer satisfaction levels and identify potential weaknesses in your customer experience. 

Set goals and expectations 

Before you get started with your referral marketing program, it’s important to set goals and expectations. Think about what you’re expecting to get out of your referral marketing program. How many new customers do you think will be referred to your business? 

It’s important to keep your expectations realistic. Most of the time, referral marketing doesn’t lead to word-of-mouth spreading like wildfire. Remember that your customers are busy people and even happy ones may forget to refer your business. 

Find out how you plan to incentivize referrals 

Think about how you can incentivize your customers to refer your business to friends and family. Maybe you can offer a discount for each referral that they have. 

If you don’t have the resources to incentivize customer referrals, you don’t have to do it. While it does provide extra motivation for your customers, there are plenty of successful referral programs that don’t use incentives. 

Set up a system for tracking referrals 

In order to reward your customers for their referrals and determine the effectiveness of your overall strategy, there are a few things that you should be tracking. 

  • How many new customers you’re getting through referrals 
  • Who referred the new customers 
  • Which customers do you need to give a discount to
  • How much money are you spending on your referral incentives

Keeping a detailed record of these different factors will help you understand how well your referral marketing program is working in bringing in new customers. 

Thank and reward your customers 

Once your customers have referred your business, show them your appreciation. Send them a text message or an email showing your thanks. If you offered an incentive in return for the referral, be sure that they’re being properly compensated. 

Reviews and referral marketing

When you’re building your customer referral program, consider also implementing a plan to get your business more reviews. While you might not think of reviews as referrals in the same category, they work great in conjunction with one another. 

Online reviews can make your referral marketing program more effective. It’s easier for a customer to recommend your business to a friend if you already have thousands of great reviews online. They won’t have to put in as much effort to convince their friend that you have great services when you have credibility in the form of reviews. 

Reviews help bring in new customers for many of the same reasons that referral marketing does. While a potential customer may not know a reviewer personally, hundreds of reviews do show social proof. 

Referral marketing for small business 

While it might seem easy for big businesses to implement a referral marketing program, it might seem almost impossible for a small or mid-sized business. Believe or not, with the right tools referral marketing can work for any business. Here’s an example for you. 

Pennsylvania Center of Dental Excellence 

The Pennsylvania Center of Dental Excellence is a 1-location dental practice based in Philadelphia. While a small business like this typically doesn’t have the time nor the resources to run a referral program, the practice manages to get customer referrals through BirdEye’s all-in-one platform. 

It works like this: Three days after a patient visits the practice, a referral request is sent automatically with the following message. 

Hope you had an experience worth talking about! Introduce us to your family, friends and colleagues using one of the options below.

The Pennsylvania Center of Dental Excellence uses BirdEye to send out these referral requests. The link attached allows patients to post on social or send a pre-filled message via text or Facebook Messenger which includes a link to the business’s page. 

I had a great experience with Pennsylvania Center of Dental Excellence! Sharing their information with you here, please check them out by clicking the link below!

How BirdEye can help you supercharge your marketing

BirdEye’s platform can make customer referral marketing easy. The BirdEye platform allows you to send referral marketing requests to your customers via text and email. But that’s not all. BirdEye’s all-in-one customer experience platform allows businesses to collect and manage reviews, interact with customers, and collect quality feedback via customer surveys.