What Is Referral Marketing And Why It Is So Important

What is Referral Marketing?

Referral marketing is a system where you can get your customers to promote your website. You can ask them to do this through a page where they can easily submit the details of their family and friends. This is effective because it utilizes the close personal relationships of your customers. Instead of promoting your brand to a bunch of cold leads, you ask your customers to promote your business to the people who are closest to them. 

Benefits of Referral Marketing:

Referral marketing is popular because of its many benefits. Here are some of them.

It Can Help You Get More Traffic

One of the reasons why referral marketing is popular is its ability to spread the word about the brand from one person to another. When this happens, more and more people get to know about your website and consequently, your traffic grows. This happens because each person can recommend the brand to another. This means that your promotions don’t stop with one customer. It can spread not only to his inner circle but also to the people that his friends and family personally know. So if you are looking for a way to grow your website’s traffic, referral marketing just might be the answer that you are looking for. Its ability to spread a brand from one person to another allows your website to get more hits and clicks. 

It Can Increase You Customer Lifetime Value

More than getting new customers, you also want your website to have a higher customer lifetime value. This pertains to the likelihood that the customer will stay with your brand for a long time. For most customers, an online store is just something that fulfills their needs. But still, they go to it whenever they need something. You’ll want to be this store. You’ll want to be that go-to brand whenever your customers need a product or service. But this can only be done with a high customer lifetime value.

So how can you increase it? Well, LTV or lifetime value can increase with two things. First, there is customer experience. This is what the customer remembers when he transacts with your brand. You’ll want this to not only be memorable. You also want to stand out from the competition by going another mile. When you do this, the customer remembers you in all of his future transactions. The second factor is social proof. Sometimes, customers need to be reminded about how great your brand is. It is during these times that referral marketing will come in handy. With a referral system in place, you’ll have people who will naturally recommend you. This can then increase your social proof which positively affects lifetime value. 

It Can Help You Attract Influencers

Another form of marketing that you’ll want to adopt alongside referral marketing is influencer marketing. Not only will this allow you to leverage the traffic that influencers already have, but it can also give you a massive boost in credibility in your niche. If you plan to adopt this into your marketing scheme, you’ll want to look into the different types of influencers. First, there are celebrity influencers. These are the people that have millions of followers on social media. These people usually have tons of product endorsements and their rates are often not cheap. If you want to work with these influencers, you will need to give them an incredible offer. The offer doesn’t always have to be money. By studying them, you’ll get some ideas on what types of rewards they are interested in. From here, you can make your offer and wait for them to reply. On the other hand, there are micro-influencers. These are influencer that doesn’t have a lot of followers but still have a massive impact on their decision-making process. These influencers don’t ask for a lot. But they can still be quite effective. You can use referral marketing for these marketers. All you need to do is create a dedicated referral page for them and they are ready to go.

It Improves Your Social Proof

As mentioned, you can increase your social proof with referral marketing. This is because you get people to talk positively about you. As more people talk about you, your social proof increases. Social proof is now necessary for the success of an online business. People need to know that they can trust you and they are only able to do this if there is enough social proof. Social proof is also quite powerful in springing people into action. When they see that a process is effective, they will usually jump right in and follow. 

It Helps Your Website Convert Better

Referral marketing is great because it helps you to attract more people to your website. But it does more than giving your website more traffic. It can also help your site convert better. As mentioned, referral marketing can help you increase your social proof. When this happens, more people will get to know and trust your brand. It is this trust that helps your website to convert better. More people will see your website as credible and more people will buy from you. 

It Helps You to Get More Subscribers

Another factor that will increase with the launch of your referral system is your subscribers. This is because the gathering of leads is integrated into the referral marketing system. If you have observed some referral pages, you’ll find that they usually contain a place where the referrer can input the contact details of their referrals. The information gathered from these forms are immediately taken into the business’ database. You can then use this to reach out to more leads. 

It Lowers Cart Abandonment

Another thing that you’ll love about referral marketing is its ability to lower or stop shopping cart abandonment. Many eCommerce website owners struggle with this problem. It is because they have these customers who are ready to buy yet they leave their carts. Referral marketing can help you with this. With enough social proof and a follow-up system, you can eliminate shopping cart abandonment for good. This is what Best Drums Set Labs did and they found that it significantly lowered their shopping cart abandonment. 

Referral Marketing Actors:

You can understand referral marketing better if you know its actors. In this section, you’ll learn about the two types of actors in a referral program.


First, there is the referrer. This is the person that is tasked to promote the product or service to other people. His role is to increase the leads by recommending his family and friends to the referral marketing system. He is the main actor. Without him, no promotion can take place. 


Next, there is a referral. He is the person that signs up to the program as a result of the invitation of the referrer. He is also an action taker but it is more of a response than a stimulus. If a referrer provides the stimulus or the bait, the referral responds. The goal of any referral program is to attract as many referrals as possible. 

Referral Program Formats:

You’ll also understand referral systems better if you know the different formats. In this section, you’ll learn about the three most common formats of referral programs. 

Reward the Referrer

A typical referral program has this system in place. This is where the referrer is rewarded for his efforts in promoting the program. The focus of this format is the referrer because he is the main action taker. Its goal is to motivate the referrer to take action. 

Reward the Friend

On the other hand, there is also the ‘reward for the friend’ system. In this system, the referrer doesn’t get anything from promoting the business. But the friend does. This is a good format for products and services that are already too good that it is automatically recommended. When you adopt this, you no longer need to give a reward to the referrer to motivate them to promote you. They will automatically do it. From here, you can focus on rewarding the friend instead. 

Reward Both

If you want to eliminate the friction in both parties and you want to motivate them both, you may want to adopt the ‘reward both’ format. In this format, you don’t allow one actor to get more than the other. You reward both of them. This is the ideal format for referral programs for it motivates both parties. This may be quite costly but it is the most effective out of the three formats. 

Types of Rewards:

Now that you know the actors and the formats, it is time to get to know the different types of rewards that you can give away. Here are some of them. 

NOTE: These rewards are just some of the most common. You can still think outside of the box and think of other types of rewards that you can provide. 

Discount Code

The first type is the discount code. This is the most common. It is the most common type of reward for eCommerce referral programs. This is because the products are offered in retail and referrers can get a percentage discount for their efforts.

Free Item

You can also give away a free item as a reward. This is great for retail businesses that have extra products in their inventory. You can give these away as a free item that is available for a limited time or you can give these away permanently so that referrers can get a free trial version of your product. 


Next is cash. This is where you give away cash for every successful signup. This can be quite costly but it is effective especially if you are just starting to promote your products and services. This is the secret behind the success of PayPal. It can grow its userbase because it gave away cash in its referral program.

Free Trial

For software and other services, you can also give away a free trial. This is a good way to demonstrate your products and what you can do before prospects buy your items. 

Exclusive Item

For collectible niches, you may want to implement an exclusive item for your referral program. This means that the customer can only get access to the product if they promoted the brand to other people. This is also great for luxury items. You can release limited-edition versions that are exclusive to referrers.

Chance to Win an Item

You can also implement a contest with your referral system. With this system, you don’t have to instantly give the rewards out right away. You can also set the reward for a select few that managed to invite the most referrals. In this system, you don’t have to reward everyone. You only need to reward a select few that won the contest.

Milestone Rewards

You can also implement milestone rewards. This is where the rewards are only distributed when your referrer managed to meet your desired number of referrals. You can also implement this in stages. You can have an initial reward for one referral and unlock more rewards as they invite more people. This is a great system to continue motivating your customers to promote your brand to other people. 

Putting it All Together

Now that you have all the details of your referral system ready, it is time to construct it. You can do this with referral software. This helps you to easily launch a referral program in a few clicks. This is different from coding the program from scratch. With this software, you can easily launch the program with just the details. 

You must choose the software that is most compatible with your platform. For example, you may need to use a WooCommerce affiliate plugin to set up your website. You need to know the website platform that you are using and choose software based on that. 

As you can see, it is incredibly easy to set up a referral system. There is so much to learn yet it is really simple. This is essential for boosting your business right from the beginning. So you must learn and implement it as soon as possible.