What is Referral Marketing? Benefits of Referral concept in Start-Ups!

Referral Marketing

Referral marketing is the method of promoting products or services to new customers through referrals, usual word of mouth. Such referrals often happen spontaneously but businesses can influence this through appropriate strategies. Not to be confused with multi-level marketing, which is also sometimes called Referral Marketing.


Why referrals?

Referral marketing programs offer a high volume of excellent, low cost leads from partners, customers and other referral sources. Where a Customer himself work as an advertiser.

What is Referral Marketing? Benefits of Referral concept in Start-Ups!

 Who are your potential referral sources?

A referral source can be anyone who interacts and has a relationship with your target buyer, including partners in your ecosystem, influencers of your target buyer and existing customers. The referral sources chart demonstrates some of the many different referral sources a company can utilize to drive revenue.

Within the referral channel, companies typically run multiple referral programs where each program is specialized for the needs of the referral source with appropriate messaging, content and incentives to motivate referrals.

These referral programs fall into three categories:

  • Direct to Individuals Program
  • To and Through Strategic Alliance Programs
  • To and Through Partner Network Programs

In a report, the data from companies running referral partner programs and customer referral marketing programs on the Amplifinity platform were analyzed.

Of the referrals made, 31% of partner referral leads and 13% of customer referral leads made a purchase.  When compared to industry conversion rates done by Salesforce’s Implicit, a referral channel delivers a much higher value compared to ad hoc referrals, marketing and partner leads. With sales involvement, the conversion rate of referral partner leads shot up to 41% while the conversion of customer referral leads increased to 30%.

On whether customer referral programs are worth the cost, the study says that it records “a positive value differential, both in the short term and long term, between customers acquired through a referral program and other customers. Importantly, this value differential is larger than the referral fee. Hence, referral programs can indeed pay off.”

There are two types of rewards provided by referral programs.

In one option, current customers are given an incentive. The referral rewards can be in different forms, such as cash, prizes, discounts, shopping vouchers, or redeemable points. For example, mobile phone operators give a referring customer a one-time reward and add long-term savings depending on his or her individual usage. The operators also offer a lower rate for interactions between customers than for interactions with noncustomers.

The second program is where the referrers benefit from existing customers by having increased visibility or recognition as a specialist or by gaining special treatment, especially if the customers become the partners of the company. 

The data showed clearly that referral programs that are enhanced with sales enablement drive more revenue compared to ones that aren’t.

Now let’s see the Advantages and DisAdvantages of Referal Marketing

1. Advantages

Referral-based clients are better coordinated. The alluded clients are likely communicating with individuals like themselves.

Existing clients know the motivation behind promoting and comprehend the requirement for potential customers. The referrers can quantify a solid match between the two and the very much coordinated clients can enable the organization to deliver more benefits at a lower cost.

The esteem and commitment of clients gained through referral battles are higher than those of non-alluded clients.

Referral programs are a decent strategy to characterize customer fulfilment. On the off chance that relatively couple of purchasers will go about as referrers, an organization’s consumer loyalty might be low.

Referral programs enable the organization to build up long-haul relations with clients. The organization can coordinate inspirations with purchaser desires and raise the viability of market programmes. Referral remunerate projects can likewise be viewed as a device for holding current customers.

2. DisAdvantages

The referral program might be manhandled by go-getters. They may prescribe unacceptable items to other individuals to obtain referral charges. The budgetary inspiration of the alluding clients may hurt the truthfulness of their recommendations.

To perceive referrers and follow buys by alluded buyers via web-based networking media, the referral programs depend vigorously on a database. The decisively focused on publicizing and regular postal mail battles dependent on the database enable the organization to order clients and increment the referral rate.


Jins Joseph

Jins founder of ITech-God, Wordpress & SEO Trainer, Knowledge digger in Blogging and Digital Marketing. Love to play chess and games of snooker.

3 thoughts on “What is Referral Marketing? Benefits of Referral concept in Start-Ups!

  • June 20, 2019 at 8:48 PM

    You give some thought-provoking arguments within this entry, but aren’t you overlooking something important?


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