Referral programs are rightfully considered to be one of the most effective ways to promote a business as companies encourage employees to spread the word about a product or service. The main advantage of this system is that both parties benefit:
- The company saves funds on classic advertising and instead relies on “word of mouth” advertising with the help of an ever-growing number of new project partners;
- Project participants enjoy access to special conditions when purchasing a product and receive remuneration for each new participant, resulting in reliable passive income.
According to Christophe Van den Bulte, a professor of marketing at the University of Pennsylvania, both categories of clients – referring and attracted as part of the referral program – have high-quality characteristics and are almost always interested in the product. His findings are similar to many other studies on this subject.
Why do referral programs ensure success?
Referral marketing works, it’s a fact. If you still doubt it, here is some additional evidence;
- Word of mouth advertising is considered to be the most effective form available to businesses as the recommendation of a familiar person is awarded a much higher level of trust than “blind” purchases;
- Expanding the circle of users with the help of a referral system implies automatic targeting to representatives of the target audience;
- The ability to integrate a referral program into your social networks, website, forum or blog increases the chances of success as potential clients are more likely to trust the source;
- Passive income is an earning option most people dream of.
Some of the most famous companies in the world use different configurations of referral programs to promote their products. These include Google, DropBox, Uber, Evernote, ReadyTalk, Tesla and many others. The result of their work is self evident!
How do referral programs work?
The authoritative American marketing agency Heinz Marketing conducted interesting B2B market research in which 600 specialists from all over North America were interviewed, including representatives of sales, marketing, operations support and executive management departments. Here are the results:
- About 55% of those working under official referral programs rated their sales efforts as highly effective compared to 35% of those who do work under referral programs.
- More than 51% of companies with referral programs rated their effectiveness in maintaining sales channels as very effective compared to 32% of companies without referral programs.
- Companies with official referral programs claim that almost 40% of their leads come from referrals.
- 71% of respondents reported that referrals close at a faster rate than other leading sources.
- 86% reported revenue growth over the past two years (compared with 75% of companies without referral programs).
- Almost 45% of those who have official referral programs report that their conversion of referrals into closed deals has increased significantly (compared to 21% without official programs).
It also turned out that the most successful companies:
- Have their own official referral programs;
- Manage referral programs with the help of their marketing department;
- Use tools or software specifically for network marketing.
These results can be summarized by stating that referrals convert better, close faster and have a longer life than other types of leads.
When do referral programs work and when do they fail?
There is an explanation for each individual case: for success – a list of factors for a successful outcome, and for failure – mistakes made at the stage during either strategy development or implementation.
Here is a list of factors that lead to success:
- Referral marketing is developed with the idea input of partners and does not solely focus on earnings;
- Financial plans are practical and realistic;
- The work process (especially for new employees) is accompanied by constant education and analysis of working situations;
- The size of financial rewards corresponds to the expectations of employees, motivating them to improve their skills and earn more.
What mistakes are commonly made when creating a referral program:
- Unattainable financial components;
- Bonuses are too small for participants;
- A lack of a marketing strategy for promoting a referral program;
- Financially inaccessible entry.
It is also worth saying that the referral program may not work because the product is deficient. Unfortunately, this also happens, but the main issue thus lies with the idea and not in a referral program.
Let’s summarize all that has been said today. Referral programs really do work, and, with the correct approach to the concept, can be tremendously successful for both the company and its partners.
Have you already decided what to spend your referral reward on?