Small Business

4 Benefits of Referral Programs: How They Connect Brands and New Users

referral program benefits

In an era of constant messaging and ads from multiple brands, referral programs are all about who you know. It’s a refreshing change from trying to squeeze more leads and buyers from an increasingly fatigued base of web users, and increasingly crowded social and search channels.

Referral programs are an inexpensive, effective type of marketing, and for B2B companies in particular, they can bring in highly qualified leads more easily and naturally than many other marketing programs. Those referring in new leads may have worked closely with that lead, bringing an understanding of why the product will be helpful.

Referral programs work best as a type of acquisition tactic. Well-run, established referral programs can help boost revenue and bring other benefits for advertising, e-commerce, and other types of companies.

4 Benefits of Referral Programs

1. Cost-Effectiveness

By any measure, marketing and sales costs only keep growing as channels and mediums proliferate. One survey found that customer acquisition costs (CAC) rose 222% between 2013 and 2022. In addition, advertising costs keep rising for businesses — especially vexing for small and medium-sized businesses — and tactics like bidding on popular keywords can make some ads unaffordable. The phasing out of third-party cookies also added a big challenge for advertisers, who have had to start from scratch with gathering first-party data to enable better targeting.

With all these challenges, a referral program can bring in highly qualified leads who are already familiar with your brand. It’s a more personal, less digital way to connect with clients, former colleagues, and others who can benefit from a brand, and it’s a much shorter sales cycle or funnel journey. When a lead starts out as a referral, it tends to lead toward a lower churn rate — 18% lower than from other marketing channels, according to Wharton School data. That saves money for the business, as does the lowered customer acquisition cost.

2. Better Outcomes

While brands save money implementing and using referral programs, they also see better outcomes across many typical marketing and sales metrics. Those hard numbers are in addition to improvements in trust, enthusiasm, and brand recognition.

Since referral programs depend on the referrer knowing and understanding the business challenges and goals of those they’re referring, there are typically upticks across several metrics categories. Positive outcomes for leads or customers through referral programs include:

  • Referred customers are more likely to stay with your company, with a 37% higher retention rate.
  • Those qualified, referred leads bring in more revenue — one study found that referred customers bring in at least 16% more in profits.
  • When referral marketing is implemented correctly, customer acquisition cost decreases by 13%, since those customers make faster decisions.
  • The customer lifetime value (CLV) of a referred customer is, on average, 16% higher than that of a non-referred customer.

3. A Brand Boost

Brand-building is an ongoing project, and for smaller businesses, it can be too pricey to run large-scale, splashy digital ads, or to compete on search and social channels. These companies can benefit from referral programs as another way to build name recognition and brand trust, in addition to the other metrics mentioned above.

Word-of-mouth marketing is powerful for lead generation — 85% of small businesses say that word-of-mouth referrals are the number one way that new prospects discover them. Another survey also found that word of mouth is a highly trusted tactic, with 90% of people trusting word-of-mouth marketing over other types of advertising.

4. Loyalty Increase

Capturing customer loyalty and turning new customers into return users is harder than ever, with competition high and consumer trust in marketing lower than in years past. Referral programs cut out much of the funnel to convert a referral into a user, and from there, into a repeat customer. Referred customers are more loyal, with higher lifetime values, and they tend to purchase more than customers acquired via other channels.

Referral programs can increase customer retention rates by up to 37%, so those customers are more valuable over time. For B2B referral programs, those referring in new leads likely understand the challenges and needs of the people they’re referring, and how the product can specifically help them. That connection can lead to yearslong subscriptions or product usage.

Refer and Earn $1,000 with Realize Advertisers Referral Program

Learn More

Key Takeaways

A well-run, established referral program can benefit both the company running it and the users who are referred in. Referral programs are an inexpensive, high-value marketing tactic that bring lots of benefits, including higher CLV, faster conversion rates, and increased brand trust and loyalty.

Frequently Asked Questions (FAQs)

How can I start a referral program?

Start with your goals and potential referral sources, then pick the incentives you can offer and decide how you’ll promote the program. Once the program is established and launched, make sure you’re tracking referrals, qualifying leads, and measuring the success of those users who came in as referrals. Make sure to offer training for sales and customer service teams so they can nurture and serve those leads, and then customers. To capture that brand excitement up front, businesses should initiate referrals as soon as they’ve converted a new customer, when they’re excited about the product.

What are the different types of referral programs?

There are a few types of referral programs to consider. There are those based on an incentive structure, such as ones that reward just the referrer, or the customer; those that reward both; and tiered programs that offer increasing rewards based on the number of referrals.

Other aspects of referral programs include how users can refer others, whether by email, social media, reviews, or more. Businesses can also explore approaches like contests and sweepstakes, brand ambassador programs, gift card or discount offers, exclusivity offers, and waiting lists, where a user can move up by referring others.

How do you measure the success of a B2B referral program?

Many typical marketing metrics work well for referral programs. Focus on the ones that typically do well with referrals or word-of-mouth tactics: conversion rate, lifetime value, repeat purchases or renewals, and cost per acquisition. For referral programs specifically, track referral rate, or the percentage of new customers acquired through referrals, to see how the program is performing over time.

Create your first campaign with Realize

Start Now