Essentially refer a friend or referral marketing is using word of mouth to promote your product or service to generate new business. It is about encouraging your existing clients to tell their friends and family about your business with the hope that their influence will create new customers.
The key to successful recommendations is to offer great customer experience and to actively persuade your current customers to spread the word about your products and services.
What are the benefits to small businesses?
Referral marketing offers a number of benefits to small online business owners. Key to its power is the fact that the majority of people trust the opinion of friends, family and even other customers over most of the other forms of marketing that we generate.
“74% of consumers identify word-of-mouth as a key influence in their purchasing decision”
Low cost: With word of mouth marketing, even if you are offering some sort of ‘refer a friend’ scheme, acquisition costs are usually low if not negligible.
Effective: Recommendations from friends are one of the most effective ways to influence the purchasing decision and generate new customers.
- People are 4 times more likely to buy when referred by a friend
- 85% of small businesses surveyed said there customers learnt about them through word-of-mouth
Trustworthy: People are far more likely to listen to the opinion of, and trust, people they know.
- 92% of people trust recommendations from people they know
Targeted: Referral marketing is usually highly targeted. Most people recommending a particular product or service to a friend is doing so because they feel that their friend will be genuinely interested in what it is that they are recommending .
Healthy profit margin: Referred customers are great customers!
- Referred customers bring 25% higher profit margin
- Lifetime value is 16% higher for referred customers
How to increase referrals and recommendations
So we’ve established that getting referral marketing up and running makes sense for your business. So where is a good starting point? Firstly, ensure that you have implemented all the things that will positively influence customers’ experience of your business. Only then look at active ways you can encourage your customers to refer and recommend.
Focus on getting the basics right first
It may sound obvious, but there is no point actively asking your customers to recommend you to their friends if your product, service or all-round customer experience is poor. Nobody is going to refer a friend or post a glowing review if they’ve had a less than positive encounter with a business. So focus first on getting the fundamentals right. For example:
- Offer exemplary, personalised customer service.
- Interact and engage with customers. For example reply to comments posted by customers on social media or your blog posts.
- Strengthen brand trust and build you business’ authority and credibility. For example create a resources page with industry relevant information, articles and blog posts, speak at relevant conferences and industry events, implement security logos and Trustmarks on your website.
Actively encourage your customers to recommend you
83% of satisfied customers are willing to recommend products and services but only 29% do.
If you’re confident that your business is all that it should be, then look at how you can actively encourage customers to recommend you to their friends and colleagues. I say actively encourage because even if your customers absolutely love you, the chances are they will still need a bit of nudging in the right direction.
Sometimes, you just need to ask. If you find yourself coming off a particularly positive phone call with a customer then ask if they’d mind providing a review of your product or service. Try posting a request on social media for feedback. It is also a good idea to get bit more proactive with referrals. For example think about setting up a Refer a Friend programme and actively generating customer testimonials.
1.Run a Refer a Friend scheme
A refer a friend scheme is a great way to bring referrals in. Asking customers to provide you with the contact details of a friend who may be interested in your product is a great way to build up your referrals. Keep in mind you may need to incentivise your customers to boost response. In the Boden example below, if a current customer recommends a friend successfully then they receive a £10 Boden voucher and the friend receives 20% off her first order – appealing both to the customer and the friend they refer.
Offering some type of reward or incentive will improve your recommendation rate but it doesn’t necessarily follow that a monetary reward is the most effective. Research indicates that offering a reward increases referral likelihood, but the size of the reward does not matter and that non-cash incentives are 24% more effective at boosting performance than cash incentives. Ultimately it will depend on your audience and it might be worth you testing a few alternatives to see what pulls in the best results.
2. Implement customer reviews
Recommendations from friends come at the top of the list for people’s most trusted source of product information. But interestingly online opinions and reviews from other consumers rank pretty highly too.
- 68% of people trust online opinions from other consumers which places online opinions as the third most trusted source of product information
- 61% of customers read online reviews before making a purchase decision
- 63% of customers are more likely to make a purchase from a site that has user reviews.
Start collecting reviews and testimonials from customers to have visible on your website. Ask customers who have recently purchased a product or service for their feedback. You can also sign up to product review platforms such as Trustpilot or Feefo who will help automate the process for you.
Make referrals easy
To help get a response to your requests for feedback, ensure you make it as easy as possible for your customers to refer their friends or leave a review. The more rings customers have to jump through to make a recommendation the lower your response rate. Here is a great example from Hello Fresh’s Refer a Friend scheme. A simple link takes current customers to a registration page where they can quickly and easily enter their friends email addresses – Hello Fresh does the rest.
Referral marketing is a great way for small businesses to generate new customers. The three key points to take away are:
- Make sure you get the basics right first such as excellent customer service.
- Actively ask your customers for referrals
- Make it is as easy as possible for them to refer their friends.
We’d love to hear your thoughts and experiences on Refer a Friend so please do leave a comment.