A One-stop Guide to Referral Marketing With Strategies
A brand reaches its pinnacle when it becomes part of everyday language. Think of Google—what began as a search engine is now a verb for searching. The same goes for Band-Aid, Kleenex, and Jacuzzi. That level of cultural adoption is every brand’s dream—success that goes beyond sales to universal recognition.
But getting there takes time, consistent marketing, and relentless effort. While today’s tools offer many ways to promote your brand, referral marketing remains one of the most powerful—and cost-effective—ways to grow. After all, nothing beats the credibility of a recommendation from a satisfied customer.
The birth of ‘airbnbing’ was simple—the idea was to get people to stay in a neighborhood flat overnight or to borrow a family’s rollaway bed during travel. With this simple intention in mind, they increased their guest arrivals from just 21000 (in 2009) to a whopping 1+ billion (in 2021). (Source: AirBnB)
So how did this born-out-of-necessity business make its entire way to fame? Or perhaps, what made Airbnb a billion-dollar business?
Any guesses? Well, it's because of a well-planned, well-timed, and well-executed ‘referral marketing program.’
Referral marketing is one of the most cost-effective growth channels for a business. Period.
To help you make the most of this marketing strategy, we have put together a detailed guide that explains the basics of referral marketing, lessons to learn from big brands, mistakes to avoid, tips to create a successful referral program, and more.
What is referral marketing?
Referral marketing is a strategy that leverages loyal customers and advocates to promote a brand within their network in exchange for rewards. It involves using the influence of referrers—whether individuals or influencers—to generate awareness and drive engagement, either through one-to-one recommendations or broader one-to-many outreach, ultimately leading to increased sales and brand trust.
How does referral marketing work?
A person refers your products or services to their friends, family, audience (in the case of influencer marketing), contacts, etc. The referee buys the said item or service for the process to end successfully.
Let’s understand referral marketing with a real-life scenario. Let’s assume that you want to buy a brand-new washing machine. Right after exploring some options, you’ll check out all the customer reviews on the internet and might even ask your friend (who bought that product before) to share his/her experiences with the brand.
Your friend then validates the product, gives you an assurance that it’s a great product, convincing and persuading you to make a purchase.
That’s referral marketing in a nutshell.
Referral marketing has similar effects as word-of-mouth, but the only difference is that the company initiates and manages it.
This works because consumers tend to trust businesses more after getting a recommendation from another person, especially if it’s someone close.
Benefits of referral marketing: 10 Reasons they are effective
Referral programs are ideal for businesses as they make existing customers feel valued and encourage them to share the brand with their network.
Here are some key benefits of referral marketing:
1. Leverages peer-to-peer influence
In the era of consumerism, shoppers seek product advice from individuals who are already on their friends list. Here, referrals WOMM (Word of Mouth Marketing) wields power over a significant slice of the market. Therefore, referral marketing is the only superior tool to change buyers' thoughts and overcome their cynical scorn for salesy outreach.
2. Elevates customer retention rate
To go after a market that is new to your product, there is a need for more marketing money, marketers, and even more effort. The overheads are often sky-high, making brands question if it’s worth at all prioritizing new consumers over existing ones.
While it’s something to be debated, marketers are already sitting on a heap of opportunities because referrals can take your value proposition to the uninitiated without costing.
3. Shorter time to market
When conventional marketing encounters a stumbling block, it is because it has less inertia. It lacks the persuasiveness to wow a larger chunk of the market in limited time. Referral campaigns, on the other hand, may be developed and implemented in the smallest amount of time because they do not necessarily involve sophisticated funnels and frameworks.
What is the advantage of this? Customers who are deemed unsuitable for the sales persona might be exempted from the campaign. When time isn't wasted pursuing clients who may never return, it helps you explore even more intriguing opportunities.
4. Increases brand awareness
As it’s called word-of-mouth marketing, it’s not difficult to realize that people are going to improve brand awareness by talking about your company to others. Even the percentage that won’t convert will still know about your business, continuing the chain of conversations.
5. More brand advocates
Driving customer advocacy is crucial due to utter social distrust of businesses and marketing. Of course, no business will tell you their products are flawed. But having live people vouch for a brand, praising it, and recommending the right items and services are what most potential buyers are looking for.
6. Better CLV (Customer Lifetime Value)
A referred customer is predisposed to return while also possibly becoming a referral to another. They provide so much value to a business that on an average, a referred consumer pays 15 to 25% more on their initial transaction.
7. Reduces CAC (Customer Acquisition Cost)
Referral customers are usually cheaper for the business than completely new ones. The costs include the rewards to the existing customers (which usually pays off as well), the number of employees working on the program, as well as customer referral technology.
8. Easy to incentivize referral behavior
Tracking referrals is an invaluable way to see what makes them a firebrand. The information gleaned through referral behavior research is sufficient to decide what tailored hampers and experiences are more relevant. This would provide them with the impetus to spearhead advocacy.
9. Higher ROI and lesser expenditures
Merging referral marketing with loyalty rewards will result in a high synergy effect that will greatly reduce the overhead cost and time. Because curating and running a reward program is less expensive than running Facebook ads or Google PPC. Referral marketing has repeatedly demonstrated how social recommendations drive customer action with only rewards as carrots.
Types of referral marketing programs
The beauty of referral marketing is that there are several ways to satisfy consumers, partners, and employees to encourage referral behavior. These are four common methods of referral marketing to increase their revenue.
1. Direct referrals (word of mouth)
The most optimal type of referral that businesses rely on is direct referral. It entails a highly driven consumer who is not only aware of the product but also appreciates the advantage. They are capable of persuading peers and anyone within their grasp to become new consumers.
It does not need large-scale promotion but rather depends on consumers' faith in their peers who are early adopters.
2. Email referrals
Marketers have utilized referral emails for years to target possibilities inside their current network. They do this by identifying subscribers who can vouch for the brand and sending them reward-based emails. The emails do not have to adhere to specific standards; instead, they may be brief and to-the-point communications that position your brand as a value-driver in the network.
3. Referral from reviews
Did you know that today the majority of buying decisions are made based on reviews? Local searches on products and services help buyers decide whether the brand meets their expectations.
Brands that know the importance of reputation management do what it takes to ensure they have a favorable opinion in the public’s eye. brands that aren’t taking this exercise seriously risk losing potential customers to their competitors.
4. Social media referrals
Did you know that today the majority of buying decisions are made based on reviews? Local searches on products and services help buyers decide whether the brand meets their expectations.
7 Referral marketing strategies that can drive valuable leads
Now, here’s the big question: How to create a referral program that creates a spark and gets the fire going while fostering customer engagement. Well, it starts and ends with implementing the right referral marketing strategies. And below are a few to make a note of.
1. Send targeted, personalized emails
Targeted emails are more relevant to the recipient, increasing the likelihood of taking an action. By tailoring your message to their interests and needs, you can make your referral program more appealing and encourage them to share it with their network.
2. Set up a great rewards program
A strong rewards program can turn customers into brand advocates, driving referrals and conversions when aligned with your goals and audience.
Ask yourself: Who are your top customers? What rewards would motivate them to refer others? Should both parties be rewarded? Offering the right incentives—like tiered rewards, e-gift cards, or branded swag—can boost participation and reduce hesitation. Starting small and scaling up with bigger rewards helps keep engagement high.
3. Offer double-sided incentives
Double-sided rewards create a win-win situation for both parties. The referrer receives a reward for their referral, and the referred person receives a reward for trying out your product or service. This can help to build positive relationships with both parties and increase loyalty to your business.
An example of double-sided rewards is Dropbox’s referral program. The company offers both the referrer and the referred person 500 MB of extra storage space on every successful referral.
This creates a win-win situation, as the referrer receives additional storage space for their referral while the referred person receives additional storage space for trying out Dropbox's service.
4. Time your referral campaign properly
Even if you have a terrific marketing plan and the greatest minds executing it, things can still go wrong if your timing is terrible. That’s why finding the precise moments to pitch your referral program in the user journey is important.
Timing your referral program can also help you to test and optimize the program over time. By launching the program at different times and tracking participation and referral rates, you can identify the most effective timing for the program and make adjustments as needed.
Alternatively, try pitching referrals to customers when they make regular purchases or engage positively with your brand (subscribing to your newsletter, sharing your products on social platforms, etc.)
5. Make the participation process seamless
Will you like a web page that hangs or gets stuck when claiming your rewards? Or a web page that’s fast, seamless, and keeps you away from manual, mundane processes to claim your referral rewards? The answer is obvious, right?
On the other hand, your referral program shouldn’t add on the pile of tasks your team already has on a day-to-day basis. Imagine, checking and approving the reward winners one by one? That’s why it's essential to keep the entire process easy and intuitive.
6. Leverage templates to design your referral landing page
When a user clicks on the referral link, he/she is redirected to a referral landing page that outlines everything about the program. A landing page lets users go into more details like terms & conditions, rewards being offered, the benefits, and so on.
Hence, keeping it distinctive and attractive is crucial. The page must aim to persuade the visitors in signing up for your referral program, helping them become referrers or brand advocates.
7. Promote the program on social media
Promoting your referral program on social media is a great way to reach a wider audience and increase participation in the program. Create social media posts that highlight the key benefits of your referral program.
Use eye-catching visuals and engaging captions to grab your followers' attention and encourage them to participate. Also, use relevant hashtags in your social media posts to increase visibility.
8. Use chatbots to get the word out
Chatbots can send automated reminders or invitations to keep your customers aware of your referral program while encouraging them to refer their friends.
Chatbots can easily discuss the benefits of your referral program that brand advocates can receive. Unlike referral emails and website ads, bots keep things simple. Their conversational nature enables them to market in an effortless, non-intrusive manner.
How to create a referral marketing program?
Now that you know the importance of referrals and what a powerful tool referral marketing programs are, how can you create a successful one yourself? Here’s the simple three-step process to create a rewards-driven referral program.
1. Identify your happy and satisfied customers
This can be done in a number of ways, but the most effective method is by creating customer surveys. The Net Promoter Score survey is the best way to find the Promoters in your existing customers - people who are highly likely to recommend you to their friends and family.
But you can also use other survey methodologies such as Customer Satisfaction Surveys to find your best advocates.
2. Cultivate and invest in your advocates
Once you’ve selected those promoters and advocates from your existing customers, it’s time to put in the work to truly delight them. It’s about more than just ensuring you’re meeting their expectations - you need to exceed them at every step of the customer experience.
Delight them whenever you can. And do all of this before you ask them for anything so they have a completely positive view - stepping straight into a give-to-get scenario will turn them off because it feels too immediately transactional.
3. Encourage them to recommend your business
Now we get to the ask - it’s time to request that customers join your referral marketing program. You can make this request while offering a variety of rewards, either as a thank you for joining, a reward for a referral, or a combination.
The rewards you offer when you ask customers to refer you can vary depending on the specifics of your program. But there are plenty of software options out there on the market that make this process simple and streamlined, like Plum.
Referral rewards program best practices
There’s no one-size-fits-all approach to referral rewards depending on your customers, what motivates them, and your industry. Still, following best practices can help your program succeed and support business growth.
1. Make sharing simple
Your referral program could have the most incredible awards ever available to your advocates and still fail for one simple reason - the way you ask customers to share their referrals is too complicated.
Even your most dedicated advocates have lots of other things to do in their lives. They’re not going to spend an hour - or even 20 minutes - just figuring out how to send a referral to a friend. They’ll give up and move on to something else.
2. Add a customer loyalty program
One great way to reward customers is to make them feel valued and appreciated for being loyal to your company. A customer loyalty program is the perfect way to do this. Customers who feel recognized and appreciated are more likely to recommend and refer friends and family to your business.
Sephora is a good example of a retailer that rewards their best customers well. With every purchase, their Beauty Insiders can earn points and redeem them for different levels of rewards, from small gifts to full-size beauty products to exceptional brand experiences.
3. Think like a customer
Referral marketing programs are so effective for growing businesses that it’s easy to just focus on how they will benefit from creating a referral system. But that’s the opposite of what referral incentives are really all about - you need to think first about what your loyal customers and advocates actually want and respond to.
You shouldn’t guess or assume that you already know. Instead, try conducting customer surveys to see what they value most and testing your program options as you launch.
4. Use referral rewards software
Managing a referral rewards program through your own marketing team is very time-consuming. Finding the right partner or the perfect referral rewards software to help you deliver those referral rewards the right way is a good investment of your marketing dollars to make your program as effective as possible.
Look for one that integrates effortlessly with your existing referral tools to make your rewards system simple. And don’t forget to select a system that lets you reward brand advocates for more than simply purchases, but for referrals and shout-outs on social media channels as well.
Tips to build a successful referral marketing program
Here are some tips to make your referral marketing program work like a well-oiled engine:
- Offer a valuable incentive: The reward you offer must be valuable enough to motivate your customers to refer their friends. Make sure to give something that your customers actually want and can use.
- Make it easy to participate: The referral process should be easy and straightforward. Your customers should be able to refer their friends with just a few clicks or taps.
- Personalize your invitations: Personalized invitations can be more effective in motivating customers to refer their friends. Segment customers based on demography while giving a glimpse of what they will get as a reward if they referred someone.
- Use multiple channels to promote your program: Promote your referral program through various channels, such as email, social media, and your website. This can increase the visibility of your program, helping your brand reach a wider audience.
- Provide real-time feedback: Keep your customers informed about the status of their referrals. Let them know when their friends have signed up or made a purchase. This can increase their engagement and motivation to participate in the program.
- Measure and optimize: Monitor the performance of your referral program and track metrics such as referral rate, conversion rate, and customer lifetime value. Use this data to optimize your program and make improvements.
- Time your referral requests strategically: Timing is important in referral marketing. Make sure you request referrals at the right time.
Final thoughts
Referral marketing isn’t just a growth tactic—it’s a trust-driven strategy that turns your happiest customers into your most powerful advocates. Referred customers are not only more loyal but also more valuable in the long run, all while reducing your acquisition costs compared to traditional marketing efforts.
But to make referrals truly work, you need more than just a good strategy—you need great execution. That means a product worth sharing, standout customer service, and a reward system that motivates people to spread the word.
If you’re looking for a simple, powerful way to set up your referral rewards program software, look no further than Plum. It offers everything you need to turn your customers into your brand ambassadors with the right rewards.
Want to learn more?
Book your demo today.