You want to buy a car, you ask your best friend for advice. You want to buy baby products, you ask your mom for suggestions. You want to invest in a real estate, you ask your family broker for an assessment of the area. All in all, they will recommend you something. And in many cases, it will be a brand or service. This all is referral marketing or traditionally ‘word-of-mouth’ marketing. It is when a person refers his acquaintance to a brand on account of better user experience with the brand’s products or services.
Referral marketing is everywhere, and it is considered one of the fastest ways to grow a brand. Apparently, it is one thing you simply can’t overlook while creating your startup’s referral strategy.
While researching for material to add to this article, I found this amazing quote by Maya Angelou that defines an interesting quote about referrals.
It’s all about the experiences!
Whatever we feel good about, we talk about it and share it with our friends and peers.
Read on to learn why you need a referral program for your startup, why it must be part of your marketing plan and what is the best way to execute it.
The Need for a Startup Referral Program in 2019
First, read the following magnificent short excerpt by Seth Godin:
“Yes, we know that referrals are the very best way to grow your business. And we know that asking for a referral is both scary but apparently the most effective technique.”
Let’s look at some statistics:
- 74% of consumers consider friend recommendations a key influencer in purchasing decision.
- 92% of consumers trust referrals from people they know
- People are 4 times more likely to buy when referred by a friend
- 81% of U.S. online consumers’ purchase decisions are influenced by their friends’ social media posts versus
- 78% who are influenced by the posts of the brands they follow on social media
- 28% of millennials say they won’t try a product if their friends don’t approve of it
- Referred customers have 18% lower churn than customers acquired by other means
Numbers don’t lie. What will you prefer? A display advertisement of a product on a website, or a friend tweeting about a product? In a world filled with to-the-face advertisements, making an impact is impossible, especially when ignoring these ads has become second nature for most users.
That’s where referral programs come to aid.
Whenever startups consult with me, I give them real-life examples. Like, when I buy a pair of shoes, I expect three simple factors: comfort, elegance, and style. If a brand ticks these three boxes, I love to recommend it to my friends who are looking to buy shoes.
Almost every time, the referral works smoothly and the chain of referral starts connecting one with the other.
Brian Solis said it right:
“Now’s the time for an investment in something more than price, performance, or value. The future of business is about creating experiences, products, programs, and processes that evoke splendor and rekindle meaningful and sincere interaction and growth. At the center of this evolution—or (r)evolution—is the experience. And, the experience is everything now.”
I believe marketing provides a chance of sharing experiences.
As shared experiences are the future of business, I always try telling startups that a comprehensive referral marketing program is the best way to grow the business exponentially. I believe that “referrals” are the finest marketing tactics to gain maximum exposure to a right audience that actually wants to use a product or service.
Here are some reasons to get a referral program for your business.
Startup referral programs add a new growth channel to your business. This doubles the revenue and provide your startup an early traction that it very much needs to sustain a level of growth. The best way to start a referral program is to research what the competitors are already doing and then implement that or something similar.
Lower Cost Per Lead
According to Social Media Today, 54% marketers say referral marketing has a lower cost-per lead. Unlike paid channels that charge a dozen dollars for a single lead, in referral marketing, you only pay a commission when the lead has actually converted. This increases the ROI and helps your startup get more exposure.
Higher Lead Quality
Another reason referral marketing is better than any other form of marketing is that it generates higher quality of leads. Almost 78% of B2B marketers hold this point of view.
Startup Referral Program Examples
The following example can be a great source of motivation. These stories can inspire us to take risks and see for ourselves how wrong or right we can be. I have selected the best ones in the startup industry. These truly show how referral marketing can help you both in short-term customer acquisition and long-term branding.
Dropbox provides one of the finest examples of smart referral marketing campaigns.
They offered their users with 500 megabytes (MBs) of free space for every successful referral they make. Who wouldn’t want to have some extra space in the cloud? This tactic worked well for the company and they saw the number of sign-ups grow by 60% and it stayed that way for months. Till today, a good chunk of sign-ups—approximately 35%—comes through the referral channel.
Don’t you think that’s huge? Yes, it is. This shows referral traffic helps you in building a strong foundation for your startup’s recognition. In Dropbox’s case, a strong start has resulted in a position where they are now synonymous with cloud storage.
Trevolta is an upcoming startup that aims to help people travel to their favorite destinations through crowd-funding. I found their referral marketing program extremely interesting. I remember that the first thing they did that they used Facebook Ads in a smart way to build a list of people interested in traveling the world.
Who doesn’t want to see the world on someone else’s money, right? I opted in right away and shared the same message with my friends who have similar interests.
Do you know why I shared it with my friends instantly? A visual below shows how they influenced me into getting an early access by sending invites to my friends. And, they made it easy to do that.
How? See the picture below.
The Web Summit, formerly Dublin Web Summit, is a technology-industry conference held in Dublin, Ireland since 2010. In 2013, over 10,000 people attended the Web Summit where a vast majority was from outside of Ireland. Speakers included Elon Musk, Shane Smith, Tony Hawk, Drew Houston, and Niklas Zennström.
For the year 2014’s event, they started their invitation campaign right after the 2013 event. Paddy Cosgrave created a new web experience to invite more people.
They started with advertising popular talks of Web Summit 2013 and these stories usually appeared in Facebook newsfeeds. They chose Elon Musk and Gary Vaynerchuk for this purpose. On a blog post, they provide a call-to-action (CTA) where a visitor can register for the conference with a perk.
And, then comes a referral marketing program to reach a more relevant audience via email.
Through this smart referral program, Web Summit is increasing its base by giving applicants a fast-track route to the event. This will not only sell tickets for the summit, but it will also create a pool of email addresses. These email addresses can be used for next year’s event (or any future Web Summit-related activities).
Smart, isn’t it?
Another important example of referral marketing for startups, that I would like to quote here, is of Uber. Uber came into the market as the first ride sharing app. But since growth is a problem with any startup, Uber was also struggling with it. That’s when it started the free ride concept. It started giving credit of $5 for any referral the person brought.
The idea was epic. It led to massive growth for Uber within days. Later, Lyft & Careem also copied the same referral marketing idea to grow their businesses further.
If observed closely, the model isn’t a new one. In fact, Dropbox, Facebook, and other companies have already grown most of their business through referral marketing. However, the thing that makes Uber’s model unique is because it is the first IoT startup to get massive growth. Previously, experts were sceptical whether the internet models could work in real world environment, but this was proved true by Uber.
Another startup that grew through referral marketing is Evernote. Evernote is a note taking app that started for Apple smartphones. But due to its simple UI, it was later launched on Android as well. Evernote offers a complete set of features for notes including photos, videos, lists, buttons and much more. But it had to market all these features to let the world know about the software. So, it started the referral marketing program.
For every person you refer to the Evernote app, you get five points. You can redeem these points in the form of premium Evernote service and many other rewards.
Lessons To Learn From Best Startup Referral Programs
Here are some key takeaways that we get from the best Startup Referral program success stories.
- Perform comprehensive market research before stepping into a market. Create a detailed buyer persona. Know where they hang out online. Know what users like or dislike. Know what content they love to consume. This process will help you determine the success of your referral marketing campaign.
- Start building email lists right away. Don’t wait for the final launch! Allow participation by showing people your product and what kind of change it can bring in their lives.
- Utilize paid marketing channels for the first conversion. Google Adwords, Facebook Ads, media buying on relevant blogs, etc., will let you attract the right people who are genuinely interested in using your product or service. However, you need to work smart about it. Startups usually are cash starved. While putting ad campaigns, use highly customized metrics and lists.
- After the first conversion comes the second one. Give your customers a perk, a discount, or an incentive in order to reward them for making referrals. People love discounts and value added add-ons.
- Engage with people (and your early adopters) via social media. Let them connect to you on all the social media websites. Recognize them publicly on all social media. People love recognition and appreciation. This will motivate them to share your message in their networks.
- Solve problems of your buyer persona by using content marketing. Use CTAs for conversions at every appropriate step that you deem necessary. Motivate them to refer a friend by an incentive.
- Run contests and sweepstakes. People love to participate in contests to prove themselves. I loved Gary Vaynerchuk’s sweepstakes contest he ran while promoting his latest book Jab Jab Jab Right Hook. You can look at some great examples from this post of Social Media Examiner.
- Keep connected with the users on email. Paddy Cosgrave emails me almost monthly and asks for feedback on different things related to Web Summit 2014. How can they improve it? What should they add? This will help you understand how much a person can connect with you and your service, product, or event.
- Internet-based referral marketing systems can also work on IoT startups because they follow the digital model closely and people are connected through their digital personas.
OK, that was me only! Why not hear some advice from people who are helping many businesses through their smart referral marketing tool known as Ambassador.
When I asked Jeff Epstein on Twitter:
@invinciblesaad (1) choose incentives that motivate your ambassadors (2) keep them engaged (3) make is easy for them to promote you!
— Jeff Epstein (@jeff_epstein) January 6, 2014
Similarly, Ambassador’s Minister of Marketing, Mr. Jordan Skole, sent me a comprehensive opinion as well:
- Find the product market fit first. An easy way to tell if you are there is by including the Net Promoter Score question in a transactional email. Referral marketing differs from affiliate marketing because ambassadors are motivated primarily by a love for the product. Ambassadors are actual users of your product and get real value from it. They love sharing this value with their friends.
- Choose the right incentive structure. Spend a lot of time thinking about your user personas. What motivates them to share? Is it a “first finder” (early adopter) mentality? A lot of Ambassadors are motivated by generosity and by being able to provide value to their network. Consider things like a dual incentive structure where the ambassador is able to gift a discount to their friends.
- Don’t forget about your other marketing channels! Be sure to promote your referral marketing program and provide marketing resources to help your ambassadors promote. Calculate the customer acquisition costs (CAC) of your other channels as well. You can use this CAC to set the budget for the incentive structure for your referral marketing program. Since you only pay on a conversion, your referral program is guaranteed to have a lower CAC than your other channels. We’ve found that CLTV of referred customers is generally much higher as well.
It would be unfair not to share an interesting answer by Tiago Albuquerque on a Quora discussion I started for the research about referral marketing programs.
Summing it all up!
For startups, it’s extremely essential to not only grow but grow fast. Consequently, a solid referral marketing program is what they need in order to control the CAC.
What are some benefits of a referral marketing program for startups?
- If a satisfied customer tells a close friend about a certain business, then their trust is immediately transferred to the business, irrespective of if he has heard about it or not.
Referred customers are typically less price sensitive. Most referrals can be sold at full price because they’ve been presold on your client’s trust and credibility.
Referral marketing allows you to filter out your real customers. It provides you high-quality data which you can use to make your product better.
Referrals help in reducing your investment in sales activities.
Referral marketing establishes a bond of trust with your customers. This creates a snowball effect where positive influence grows with every referral.
In the end, it would be great if you, my great friends, share your best advice in the comments section below and convert this post into a source of motivation for startups that are considering the referral route. In this discussion, everyone’s invited!
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Muhammad Saad Khan is a Director of Product Marketing at Cloudways (by DigitalOcean), a Growth Hacker extraordinaire, and a force to be reckoned with on the table tennis court. He's spent a decade building innovative customer-led growth strategies that helped Cloudways grow from 0 to 89,000 customers & is a regular at WordCamp events worldwide.