What is Referral Marketing?

Referral Marketing is a strategy that relies on recommendations and word of mouth of customers to provide new leads and opportunities. The success of the marketing strategy is tied to the success of your customer relationship.

Why is referral marketing effective?

First and foremost people trust the customers of a product or service over sales pitches. Let’s look at some statistics to drive that point home.

  • 92% of consumers trust referrals from people that they know
  • Referrals count for 65% of companies new deals
  • 55% of online shoppers tell friends and family when dissatisfied with a product or company

When you take these 3 statistics into account it makes it easier to see how a customer referring your business to a friend or someone they know matters. Customers are four times more likely to make a purchase when referred by a close friend or colleague.

How do I get referrals for my business?

The process of gaining referrals starts with gaining trust and providing great products and services. People are equally as likely to share a bad experience as they are a good experience.  This is where having strong customer support comes into play. You can identify an issue and get out in front of it before it truly becomes a problem. This increases your value to a customer because their concerns weren’t just heard but resolved.

  • 55% of consumers will recommend a company with excellent customer service
  • 66% of brand-related conversations are “mostly positive”
  • The average US citizen mentions different brand names 60 times per week.

When seeking referrals for your business it is equally as important to have an after-sales marketing strategy. There are far too many businesses that get the sale and only follow up with promotional marketing. If they follow up with the customer at all.

That periodic check-in to make sure that they’re still happy with the product or service makes a world of difference. It keeps you top of mind and lets those customers know that your interest in them didn’t stop the moment the transaction was processed.

Is Referral Marketing Legal?

Referral incentives are not illegal but referral selling is. There is a fine line that some people find themselves on the wrong side of when using their referral program. There are penalties for crossing that line. They can be as high as $1.1MM for a company and $220K for an individual.

The rule of thumb is to make sure that you’re not holding a reward hostage by forcing the person to make an additional purchase. It’s not just a bad look and frowned upon it’s a sure way to make sure that you won’t get any other referrals.

How effective are referrals?

People referred to a business for their products or services typically don’t just buy. They stay with the business as a customer. Referrals are effective in the short term as well as the long term.

  • Referred customers’ lifetime value is 16% higher than that of non-referred customers
  • Referred customers have a 37% higher customer retention rate
  • Referred customers have an 18% lower churn rate than customers acquired by other marketing

You have a better chance of gaining brand loyalty with referred customers because they know it’s not a fluke. They’re not the only person that they know that’s happy with the product or services.

Let’s take a look at the effectiveness of the referrals from one business to another (B2B)

  • B2B businesses see a 70% higher conversion rate with referrals
  • 84% of B2B decision-makers start the buying process with a referral
  • 86% of B2B companies experience growth by implementing a referral program

How are clients providing referrals to businesses?

Direct referrals with an introduction are one of the strongest methods of referral. That said there are several ways for a customer to provide a referral that can lead to a conversion and revenue. Social media platforms serve as a big opportunity to drive referrals to a business. They also allow it to be less of direct contact and can extend to friends of friends and beyond.

  • 43% of people are more likely to buy a product if their friends recommend it on social media
  • 55% of people share their new purchases on a social media network
  • 83% of US online shoppers say that their friends’ social media posts influence their purchase decisions
  • The most effective method of referral advertisement comes via copy/paste at 78.1%

Now let’s compare that against regular advertising statistics.

  • Consumers trust their friends’ recommendations 7 times more than conventional advertising
  • 33% of customers believe in online ads

That’s not to say that regular advertising isn’t effective. It simply has less of a trust factor attached to it as someone whose brain you can pick be in person or online about the customer experience.

How can I make it easier for clients to refer my business to other people?

The best way to help receive and allow customers to promote your business and provide referrals is through marketing materials. Whether that’s providing extra business cards or making your marketing promotions shareable online. The easier you make it for people to share the good news about your business. The more likely they are to do it.

  • The most effective methods for referral advertisement are copy/paste opportunities at 78,1% with email trailing at 17.3%.


There are at least 9 different forms of digital marketing that can be done to promote a business for brand awareness and conversions. One of the most if not the most is referrals. That look behind the curtain from a trusted or respected colleague, friend, or associate can make a difference for a business.

It starts with providing a great experience and support. Giving them a reason and building trust in comfortably sharing the information. Making sure that they’re not concerned with it coming back and biting them and leaving them with regret for the introduction. It’s like setting a friend up on a date. If it goes sideways you may not hear the end of it and your credibility is shot.

Hopefully, the combination of the explanation, insights, and stats to back them up helps you to see the importance of implementing a referral program for your business.

If you’re interested in finding out more about referrals and testimonials. Majority Media provides help securing reviews as a support service for businesses. You can find out more about our support services here.

For the DIY’ers that prefer to be more hands-on and do things themselves. The Entrepreneurs Newsletter is a great source of articles with helpful tips and insights that can help you get the job done.  You can find the newsletters and the option to subscribe here.

A great place to start would be with our free bonus resource providing more helpful insights.