Referral Marketing: What It Is, How It Works, and Getting Started

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Creating raving fans for one’s business is a dream come true for all marketers.

Many think that this goal is almost impossible to meet, and only brands with tons of resources can achieve it. This is a huge misconception.

Here’s the truth:

Even as a small business, you can earn people’s trust and motivate them to convert and buy from you! The secret to doing that? Referral marketing.

If you’re eager to learn more about referral marketing and how you can leverage it for your business, read this guide.

Let’s start by defining referral marketing.

What Is Referral Marketing?

Referral marketing is a strategy where you get people to promote your business through word-of-mouth.

Here’s a simple scenario:

You just opened a local salon and are excited to grow your customers. To draw attention to your new business, you offer a free haircut to those who can refer 3 friends.

As a business owner, you need to make sure that this message spreads to as many people as possible. With that, you ask your staff to tell customers about it or post it on Facebook and Instagram.

Is Referral Marketing a Powerful Strategy?

Word-of-mouth is one of the best ways to make yourself known in your industry or niche. I’ve witnessed brands blow up the internet all because of word-of-mouth.

For example, Dropbox and their “free storage space” referral program.

(You’ll find examples of referral campaigns in the next section!)

A referral marketing campaign, when done right, can spread like wildfire. ?

Because when people are so enticed by your offer, they feel the urge to share it with their friends and family immediately!

Another reason why referral marketing works is that customers trust the opinions of real people or those within their social circle.

Here are some must-know stats about referral marketing:

  • Word-of-mouth is the main factor behind 20-50% of all purchasing decisions. – McKinsey & Company
  • Recommendations from friends and family are considered the most trustworthy source, according to 84% of respondents in 58 countries. – Nielsen
  • 78% of B2B marketers say that referral programs generate good or excellent quality leads. – Social Media Today
  • Referral marketing lowers your cost per lead in the long run. – Social Media Today

Examples of Successful Referral Marketing Campaigns

What does a successful referral marketing campaign look like?

These four companies gathered thousands of leads and customers in less time, thanks to their referral strategy. Let’s explore each one of them below.

1. Dropbox

Dropbox is a file storage company that was released in September 2008. Their campaign is one of the most popular cases of referral marketing.

In 15 months, they grew from 100,000 to 4 million users without doing Google Adwords.

Their referral program played a huge role in their growth:

Dropbox created a simple landing page where people could invite their friends to join Dropbox. As a reward, the referrer and referee would receive 500 MB of bonus space (up to 16 GB).

By rewarding everyone involved in the referral process, people had a strong motivation for sharing the campaign over and over.

2. Dollar Shave Club

Dollar Shave Club specializes in razor blades and personal grooming products.

Its founder, Michael Dubin, starred in a video that gained over 4 million views after 3 months of posting it on YouTube.

According to Dubin, their blades aren’t good… they’re “f**cking great.”

He knew how to use humor in presenting his brand new business. This made Dollar Shave Club memorable and share-worthy.

Those who watched the video had to tell their friends about it!

Within 48 hours of launching the video, about 12,000 people signed up for their service.

3. Evernote

Evernote is a note-taking and task management app launched in 2008.

In Evernote’s referral program, they offer points to you in exchange for inviting your friends to use Evernote.

What’s enticing about it is that they give 10 points for your first 3 referrals. And these 10 points allow you to enjoy their Premium plan for 3 months!

This strategy is a smart move.

Because now, people can maximize Evernote’s paid features and appreciate their value. They’re likely to become customers by the end of three months.

4. Airbnb

Airbnb started in 2008. Two designers, Brian and Joe, offered their space to travelers who needed a place to stay (because hotel rooms in the city were fully booked)!

Now, it has become a $4.2 billion company, according to Forbes.

Airbnb founders knew that referrals drive growth, and so they launched their first referral campaign (called Referrals 1.0) in 2011. Of course, they made improvements along the way.

Let’s take a look at their current referral campaign.

Airbnb offers travel credits to those who can successfully refer their friends through a referral link.

The referred friend has to create an Airbnb account and complete a “qualifying reservation.” That qualifying reservation refers to any of the following:

  • Booking and completing a homestay
  • Booking and completing an experience
  • Listing and completing a booking

Check it out: 11 Best Referral Program Examples (And Insights You Can Steal)

How to Create a Referral Marketing Campaign

To build a referral campaign that achieves the best possible results, it should follow these basic steps. Check them out below.

(It doesn’t matter if you’re creating a short-term campaign, like a contest, or an ongoing program for your business!)

Step 1: Set goals.

The first thing you should do is ask yourself, “What am I getting out of this campaign?” Are you hoping to grow your email list? Retain existing customers? Build trust and authority?

Step 2: Choose the right incentive.

You need to give people a reason to share your business with their friends.

Unless you can create a video that’s 100% sure to go viral (like Dollar Shave Club’s video), offer something tangible. When it comes to incentives, you have two options to give away:

  • Your product or service
  • A product that’s not yours but is related to your industry

Your product or service is the best incentive because it keeps you at the top of your audience’s minds. Dropbox, Evernote, and Airbnb were able to build brand loyalty by using their product or service as the reward.

If you’ll be running a referral contest, read this guide on picking a prize that attracts qualified leads!

Step 3: Create a referral landing page and share page.

How are you going to display your referral campaign? You need a dedicated landing page that contains the important details of your program.

Make everything easy to understand for your audience. Start by creating a good first impression with your page headline. Here are 10 tools to help you with that!

Present your incentive in a compelling way. Include its image or perhaps a short video where you show it and explain how people can benefit from it.

Add a simple form that collects people’s first names and emails!

To promote sharing, create a dedicated share page that contains social sharing options and a unique referral invite link that people can use to refer their friends.

Here at UpViral, we make it easy for you to set-up a referral marketing campaign.

You get to create beautiful landing pages and share pages, track the results of your campaign, and meet all your business goals.

Here’s how UpViral can be used in your business.

Step 4: Promote, promote, promote!

It’s time to spread the word about your referral campaign. If no one knows that your campaign exists, there’s no way for it to succeed.

Consider different ways to promote it. Here are some ideas:

  • Send a broadcast email to your subscriber list.
  • Place it on your home page – front and center or the header.
  • Add it as a call-to-action at the bottom of your blog posts.
  • Create a Facebook post or run a Facebook ad!
  • Partner with an influencer in your niche.

Final Thoughts

Referral marketing grows your small business fast. But if you already have a thriving business, there’s no reason not to use it!

Before I forget, please remember this: Seek to understand your customers first. When you do this, you’re able to create a referral campaign that delights and meets their needs.

I hope you learned from today’s post. Don’t forget to share it!