Referral marketing is well worth the effort. This has been proven over and over again by various studies. Referred customers are more loyal, they spend more, churn less and tend to refer even more referrals creating a viral loop, a much-desired situation for all kinds of businesses.
A Wharton study shows that:
- Potential customers trust referrals from friends and families 7 times more and
- Referred customers, when compared to any other group of customers acquired through a wide variety of channels, spend 16% more during their lifetime
Since referrals have been referred by already converted customers, they convert way better, in a shorter sales cycle. The reasoning behind this is that they trust the person doing the recommendation and hence they don’t need to filter out advertising material. When it comes to quality of the leads, referrals are spot on as they have already been introduced by an acquaintance. This works really well for services & products that require education prior to converting a lead. Every entrepreneur, business owner and anyone working in marketing knows how important referrals are for brands and to generate revenue from an existing audience.
When compared to other customer acquisition channel, referral marketing offers a higher ROI (return on investment) and is the only channel that can help you acquire new leads at a fixed cost. For instance, with advertising, you can get an average CAC (customer acquisition cost) based on previous campaigns. But with referral marketing, you will only pay out the rewards, if and only if a referral cycle is completed.
For the above reasons, referral marketing offers a huge opportunity for any kind of business that decides to embrace it. In this post, we will visit various techniques that have been applied by highly successful companies. We will describe and discuss in great detail each technique that can form a good basis for your referral marketing campaign.
In this post, we categorise all the referral marketing techniques into three main sections: Software as a Service (SaaS) or membership websites that have a logged-in area, Ecommerce and businesses who are looking to grow an email list. Some referral marketing techniques might appeal more to you than others, depending on what you’re doing and what you would like to achieve.
In this post, we will reference several referral marketing examples that are explained in great detail in Prime Referral Marketing Examples.
SaaS
This section will go through different referral marketing strategies tailored for SaaS and membership websites. Most of the strategies are backed up with real life examples who had successfully applied at least one of the techniques from this section. If you own a SaaS and would like to start getting leads through referral marketing, then this section is for you.
Strategy #1: Invite your past users, especially in-active ones
Give them a reason to return. The fact that in the past they used your service means that they saw value in what you are offering. The fact that they are not paying customers any more does not mean they cannot value the potential that you are offering, but it might be they need a touch base, a gentle and subtle reminder about your service.
Your referral campaign can be a quick touch base to invite them back to your SaaS, telling them about new developments whilst they have been away and lure them into becoming active by referring their friends in exchange for a reward. Your past users are a good start to get your referral marketing campaign cranking.
Strategy #2: Reward Stacking to help in customer acquisition and retention
The main purpose of any referral marketing campaign is to acquire new users/customers. But if played well, a referral strategy can help in both acquiring and also retaining existing users.
Check out how Dropbox implemented their referral marketing campaign in Prime Referral Marketing Examples. Dropbox gave away 500mb of free storage per new referred users.
These rewards were attractive enough to make Dropbox go viral. But that was not the only benefit Dropbox got out of it. Owning an upgraded Dropbox account, with plenty of bonus storage space for referring several users to Dropbox, offers plenty of reasons why one will stay using Dropbox and will not switch to a competing service.
When designing a SaaS referral marketing campaign, make sure that the rewards you give out are stackable. Stacking rewards will keep making it attractive to refer more and more friends but will also help in drastically reducing churn, building a resilient user base that will not switch to a competing service that might come along in the future.
Strategy #3: Referrals integrated within your SaaS, Membership website
Having a logged in area offers a huge opportunity to pitch your referral program at different stages in the customer lifecycle. Think of how SaaS like Hotjar and Dropbox integrated their referral campaign within their onboarding or else as a feature into their SaaS.
By adding a prominent CTA (Click Through Action), clearly visible from most screens, will highly increase your chances of getting your SaaS users interested in your referral campaign. Alternatively, you can also pitch your referral program to your SaaS users at different stages such as:
- Onboarding: by inviting your newly acquired SaaS user to invite their friends in exchange for a reward
- When hitting a limit: offer refer a friend as a means of extending their trial or increasing their freemium limit.
Deeply integrating your referral marketing campaign into your SaaS will drastically increase your conversions. SaaS such as Dropbox gave so much prominence to referrals that when hitting a storage limit, they ask to either upgrade or else refer a friend.
Strategy #4: Spread a discount out
We are not a huge fan of discounting your SaaS, the reason being that your pricing has drastic effects on your revenue and we don’t want the referral campaign to mess with your revenue projections. But, if you really want (or even need) to give out a discount, never ever, give out a discount in one chunk. For instance, a common mistake we see SaaS doing, is they give a free month for say 2 referrals! WRONG. Your referrer can benefit from the free month and then simply leave for good.
A better way how to dish out discounts is to spread them across multiple purchases, encouraging repeat purchases to benefit from the full discount. Instead of giving a free month, give out a 50% off the next 2 months. This idea has been inspired by how Lyft designed their referral strategy by giving $5 off for the next 3 rides. More details about Lyft referral campaign and other successful referral marketing campaigns in Prime Referral Marketing Examples post.
Strategy #5: Referral Marketing for SaaS Marketplaces
SaaS that have a marketplace model are quite unique and hence require a unique approach to their referral marketing campaigns. Inspired by what Lyft, Uber and Airbnb did (check out Prime Referral Marketing Examples post for more details), a referral marketing for a marketplace should focus on one side of the problem at a time.
So for instance, Uber, had to make sure there are enough drivers to match up the demand by those needing a lift. But no driver is going to join Uber if there is no demand for lifts. So what Uber did was, they introduced a referral marketing campaign to target passengers, knowing that if there is enough passengers who want a lift, drivers will join in and match up the demand.
The rewards given out for a new referred passenger on the Uber network are credit that can be redeemed into free lifts. Essentially what Uber did was fueling more demand on their network for lifts, making sure they match up the expectation of Uber drivers.
When designing a referral marketing campaign for a marketplace like SaaS, make sure you address the easiest chain (Uber addressed the passenger chain as it was easier for them to target passengers). Ensure that the rewards given out further amplify your effort to feed in more demand in the same chain.
Strategy #6: Fear Of Missing Out (FOMO) for exclusive upcoming features
Almost any successful referral marketing campaign had some kind of FOMO that helped to push it. FOMO will push referrers to act and share your campaign. Two of the best campaigns who used FOMO to help push their product/service are RobinHood and Hotjar (check out Prime Referral Marketing Examples post for more details).
For SaaS, you might want to give out exclusive or early access to those who refer your SaaS with their friends. Users will walk that extra mile to get access to a new feature that has just been baked. Don’t limit this strategy to new SaaS launches. Every new feature can have its own launch, with a referral marketing campaign associated with it. This will help in creating many mini launches for the same SaaS.
ECommerce
This section will focus on referral ecommerce marketing strategies specifically for web stores. Through the strategies found in this section, an ECommerce business can:
- easily acquire leads below the existing average Customer Acquisition Cost (CAC); and
- Increase repeat purchases by providing discounts to existing customers in exchange for a referral
Strategy #1: Invite past buyers
Past buyers have already converted. So they are already convinced of the quality of your products and of the excellent service you provide. Buying again from your store might be just an email away.
It would be great to give them a discount and get them to buy again from your store. But it would be even better if you can get them to bring along a friend to purchase from your store. For instance, a very common reward is
“10% off your next purchase for referring a
friend who will get $10 off the first purchase”
The aim of this kind of referral campaign is to make it easy for your referrers to convince their friends to by from your store and hence benefiting from a discount themselves. After all who does not like a free $10 off when being referred to a store!!!
Strategy #2: Pitch in Thank You page
How much time have you invested in designing you Thank You page? Let me guess? NADA. The thank you page is yet another opportunity to push your referral program, by offering enough incentive to your newly acquired customer to share their latest purchase with friends.
But what can you offer to a converted customer? Think of a minor upgrade that you can add to their purchase in exchange for a referral. Minor upgrades can be:
- Priority shipping at no extra cost
- Complimentary product added to shipment for free.
- Samples of complimentary products for free. Usually used by fragrances and beauty products.
- Voucher with discounts on future purchases
Make sure you make good use of your thank you pages. Don’t do like 99% of the stores who simply waste precious real estate space by not pushing to get referrals in their thank you page.
Strategy #3: Referral link with every newsletter email you send
Almost 100% sure that you are sending some kind of newsletter, highlighting new products to be released or currently being sold at your Ecommerce store. Newsletters are a great way how to keep in touch with your existing and future customers who have shown interested in your store.
Make sure to always include two very important links in each email you send out:
- Share Page URL: The share page URL is where your newsletter subscribers can go to share with their friends and acquittances via email invites, social media shares or else by sending private messages on chatting apps!
- Unique Referral URL: The unique referral URL is associated with the referrer. This link is tracked so that if someone visits your Ecommerce store through it and converts, a referral is attributed to the associated referrer.
By always including these two very important URLs and highlighting the rewards waiting to be redeemed in exchange for referrals, you will ensure you are constantly giving enough exposure to your referral marketing campaign through your email list.
Strategy #4: Referrals integrated within your Ecommerce Account
Most Ecommerce platforms have a logged in area. Becoming a customer involves filling in important information such as first name, last name and email. This is enough for an Ecommerce platform to create a profile for a customer, keeping on file information such as shipping and billing addresses, order status information and payment information.
Having a logged in area for your customers gives you plenty of room how you can integrate and promote your referral marketing campaign. You can add a section, which is totally dedicated to referral marketing, making it easy for your existing customers to refer their friends. Through this referral section, your referrers will also be able to track how far are they from getting their next reward.
Strategy #5: Repeat purchase through referral marketing
When planning your referral marketing campaign for your Ecommerce store, make sure you are witty with your choice of rewards. Do not give out a reward in one chunk such as $50 off your next purchase. Buyers will dispose off the voucher and might not come back to your store. Spread the reward out for both the referrer and the referral onto multiple purchases. For instance, $20 off your next 3 purchases, instead of $60 off discount. This will push for repeat purchase from both the referrer and the referral.
We see a lot of stores offering a reward along these lines:
“$10 off for you and your friend”
Such referral marketing campaign will not give out the best results possible. New referrals will most likely redeem their first-time referral voucher and will not come back. We recommend you give out more say $20 to both referrer and referral but split into 2 purchases. This way you are giving the same discount per purchase but you are significantly increasing your chances of getting repeat purchases.
Strategy #6: Fear Of Missing Out (FOMO) for upcoming products
We are sure you are aware how much FOMO is important to sell, especially when you would like to promote upcoming products. We have helped Ecommerce store to continuously, week after week, use FOMO to push for new leads by making upcoming products exclusively available to those who refer at least one friend.
Think of this strategy as a VIP customer who is able to pre-order or buy upcoming products before anyone else just because they have been loyal to your Ecommerce store and referred at a lead to your store. This technique requires a bold decision to make upcoming products exclusively available only to a set of customers. But according to our experience, such technique drastically improves your chances of getting new leads to your Ecommerce store which will significantly increase your store’s revenue.
Email List Building
This section will focus on how a business can increase the number of subscribers in an email list. Even if your business’s primary goal is not to have an email list, the techniques in this section can help you improve your email list building techniques, creating another channel to acquire new leads.
Strategy #1: Invite all your subscribers
Whilst it is a not a prerequisite to have a list to get started with referral marketing, having a list is a good plus as it will give a good kickstart in promoting your referral marketing campaign. Inviting existing subscribers should be done explicitly and implicitly. This can be done by:
- Sending a dedicated email to existing subscribers describing your referral campaign, promoting your rewards and ask your subscribers to help you get new subscribers in exchange for rewards
- Including unique referral link associated to a subscriber in each and every email. Just like having an unsubscribe link in each email, you should have a referral link that subscribers can share with their friends to get them to subscribe.
Strategy #2: Ask for referrals straight after sign-up
Most thank you pages are very simple. They will simply ask new subscribers to check their inbox and confirm their subscription. We recommend you take it a step further. Ask the newly acquired subscriber to share your newsletter with their friends, straight away! If someone subscribed to your email list, they must have understood the value you are providing and they will most probably be willing to share it with their friends. This strategy alone can get you as many as 12%-14% new sign-ups.
Strategy #3: Waiting List for upcoming Product or Service
Prior to launching a new product or service, any business must focus on building an email list, Most businesses simply let their leads wait until they launch the product or service or will simply send brief updates every now and then. By integrating a referral marketing campaign early in the game you will get amplification in your marketing efforts. Check out how Hotjar grew to 60,000 emails prior to launching their service in Prime Referral Marketing Examples post for more details. They combined their waiting list with their referral marketing campaign to get a huge list to launch to.
Strategy #4: Give an incentive to sign-up and a bigger incentive to refer
We are pretty sure you know how to grow a list by giving an incentive to your visitors to convert and sign-up. Unfortunately, most marketers will simply focus on providing a good value bait to get new subscribers and will stop there. But when it comes to rewarding referrers, they will offer something which is not worth the effort. Think of referrals as free advertising which will cost you far less than advertising and which is fully automated. The value of getting referrals is huge, so the rewards you provide to your referrer must match this. We usually recommend you provide your referrers with some exclusive reward which you cannot buy or get in any other way except for referring new subscribers.
Conclusion
If you had to ask any entrepreneur or marketer, how important referrals are to a business, they will agree and say referrals are really important and that one should focus on getting referred businesses. Unfortunately very businesses act on this immense opportunity, deciding on focusing on acquiring leads only through advertising.
Irrespective of the industry, type of business and goals a referral marketing campaign can help you business flourish. When it comes to implementing a referral campaign, always consult with referral marketing experts that can help you by providing the necessary tools to make the job easier but also will guide you as to how you should navigate your referral campaign. This will ensure the best results in the shortest time span.