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According to a survey by Ambassador, 82% of Americans seek out recommendations from family or friends before making a purchase. Referral sales—a marketing strategy designed to encourage existing customers to refer new customers— is a powerful way to increase your customer base.
Read on to find out everything you need to know about referral sales, how to generate them, and why a referral program could be your best bet.
What Are Referral Sales?
When an existing customer is happy with your products or services, they might recommend you to others, resulting in a sale. This is called a referral sale and describes sales generated from leads referred to your business by existing customers.
Referral sales and the success of a referral program rely on the power of personal recommendations and word-of-mouth to build trust and increase sales.
Incentives, rewards, tracking, promotion, and compliance are important parts of getting referral sales.
Why Are Referral Leads Important To Businesses?
Your existing customers can connect you with highly relevant prospective customers, which leads to a whole host of benefits. Referral leads have a significant impact on businesses, leading to:
- Higher customer lifetime value (LTV): Referred customers are often more loyal and continue to make repeat purchases.
- Lower customer acquisition cost (CAC): Because leads are often prequalified by the referring customer, referred prospects are more likely to convert.
- Higher average order value (AOV): Referral sales can lead to larger purchases or higher-priced products or services.
- Trust and credibility: Referrals are often more trusted and credible than traditional advertising or marketing messages.
- Customer loyalty: Involving your customers in the growth of your business and rewarding them for their efforts enhances customer loyalty.
Want even more referrals? Make giving referrals a rewardable action in your customer loyalty program. See our loyalty program software to see how else you can grow your business.
What Are The Best Ways To Generate Referral Leads?
The best way to generate referral leads is to get strategic about how your team supports the referral process. Here are a few ways your sales team can increase referral sales:
- Implement referral program software: Specialist technology like Friendbuy Referral Program software allows you to prompt customers to make referrals. Our software makes it easy to move quickly, customize the customer experience, and stop fraud.
- Leverage social media: Encourage customers to share their positive experiences on social media platforms.
- Provide exceptional service: The foundation of any successful referral program is exceptional customer service. Satisfied customers are more likely to recommend you to others.
- Email marketing: Send personalized referral invitations to your customers, making it easy for them to refer friends and family with a click.
Provide exceptional service every step of the customer journey so that when you do offer incentives for customer referrals, your happy customers are ready to give them.
What Types Of Businesses Need Referral Sales?
Referral sales are important to both Direct-to-Consumer (D2C) and Business-to-Business (B2B) companies. But they may have slightly different implications and referral strategies:
- Direct-to-consumer (D2C): D2C companies rely on referral sales for customer acquisition. These businesses rely on digital marketing, social media, and e-commerce platforms to reach consumers directly.
- Business to business (B2B): B2B companies rely on generating high-quality leads that are likely to convert into long-term clients. Referral leads also have shorter sales cycles.
Who Is Responsible For Generating Referral Sales
Generating referral sales is a collaborative company effort that involves multiple departments and roles within a business. While dynamics vary depending on the size and structure of your business, here’s a general overview:
- Marketing: Marketing is often responsible for creating, promoting, and tracking the performance of your referral program.
- Sales: The sales team may have a strong relationship with customers. This allows them to identify and reach out to potential Advocates.
- Customer support: Customer support teams play a pivotal role in making sure customers are happy. They may reach out to customers and resolve any issues hindering referrals.
The referral strategy extends far beyond the referral program software, itself, and begins with your marketing, support, and sales professionals.
Why Referral Sales Should Be Programmatic
Managing and organizing customer referrals made through a program will help you save time by automating every last detail of the referral process. Here are the key benefits to programmatic sales referrals:
- Scalability: As your business grows, a programmatic referral system scales to accommodate a larger customer base and increased referral activity.
- Reliability: A programmatic approach to referral sales ensures consistency in your referral efforts. It creates a systematic process for generating, tracking, and rewarding referrals, reducing the likelihood of missed opportunities.
- Annual recurring revenue (ARR): ARR is a reflection of recurring revenue. This is generally more stable and predictable than one-time sales. Programmatic referrals help sustain and grow this recurring revenue by continuously bringing in new customers.
- Consent and compliance: A programmatic approach ensures that referrals are obtained with proper consent and compliance with relevant regulations and privacy laws.
Don't let potential customers slip through the cracks because your team couldn't keep up with the new business. Contact Friendbuy to see if our referral program software is right for your business.
How To Create Referral Programs That Provide Ongoing Leads
It’s possible to create a referral program that produces ongoing leads for your business. Manual programs run by your sales reps or marketing teams are not scalable and absorb a lot of time and money. Instead, consider:
- Start with goals: Set objectives and goals for your referral program. For example, how many leads do you wish to generate per month?
- Define incentives: What rewards would motivate your customers to refer others? Incentives could include discounts, cash rewards, or gift cards. You’ll also need to decide on an incentive structure to suit your program.
- Promote your program: Use email, social media, your website, and in-app messages to promote your referral program.
- Pick the right software: Choose reliable, customizable software designed to prevent fraud and automate processes. Referral program provider, Friendbuy, also provides tracking, A/B testing, and seamless integrations.
Referral Sales Metrics To Track
Once your customer referral program is up and running, tracking it over time is vital. This will help you determine whether it's working, what could be better, and what’s going well. Here are a few referral program metrics you could track:
- Number of referrals: Track the total number of referrals generated through the program. This metric helps you understand the program's reach and effectiveness.
- Conversion rate: Calculate the percentage of referred leads or prospects who convert into paying customers. This metric indicates how well your referrals are turning into actual business.
- Referral channel performance: Analyze which channels (e.g., email, social media, word-of-mouth) are driving the most referrals. This information can guide your marketing efforts and resource allocation.
- Customer acquisition cost: Determine how much it costs to acquire a new customer through the referral program. Compare this to other customer acquisition channels to assess cost-effectiveness.
- Referral source: Identify who is bringing in the most customers. This could be individual customers, partners, or specific marketing campaigns. Recognize and reward your top referrers.
- Revenue from referrals: Calculate the total revenue generated from referred customers. This metric quantifies the financial impact of the referral program.
Friendbuy's referral program software makes it easy to track referred customers, revenue, and shares.
Generating referral sales from current customers could be a valuable next step for your business. A referral program will help you generate more revenue, loyalty, trust, and credibility among customers old and new.