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17 Surprising Referral Marketing Statistics

Brandon Gains | Jan 11, 2017 440 views No Comments

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My friend sold swords on military bases for a living. Yes, people actually do that. By swords I mean gigantic blades of stainless steel that were used in films like Braveheart, Lord of the Rings, and Game of Thrones.

In front of the booth was a rack that held five blades, tips thrust down into the wooden container like The Sword in the Stone. You couldn’t help but notice their sales display.

The swords were, ahem, impressive.

But they were costly. And being a soldier isn’t the highest paying job around. While he sold many a sword, many of the troops that he would sell to on base didn’t trust him enough to spend $500 on a piece of steel after a 20 minute conversation. After all, he’d cold-approached them as they walked past their booth.



Of course, salesmen don’t close every sale. But the ones that got away always got a parting question:

“Do me a personal favor, will you? Ask your friends about the sword guys. See if you know anyone who’s heard of us…”

This was a money tactic. Because now the soldiers were soliciting referrals for us. Not only were they telling their buddies about the sword guys, but any social proof out there from previous sales was sure to come up in conversation.

By the end of each workweek on base, he would always pick up at least 10 sales from servicemen and women who had gone and talked to their friends. Their friends had convinced them to buy.

Why? Because their friends had already made a purchase with him and loved their swords. It was worth the money, they said. You can trust these guys.

Those extra 10 deals were his bonus money. He could always count on them to push him over quota. 

This is why referral marketing is so powerful…

People are 4 times more likely to buy when referred by a friend.

Nielsen

A referral program will do the same for you. It’s common business knowledge that referral customers act as valuable brand ambassadors, convert more, close faster, have a higher CLV than others. According to the Wharton School of Business:

The Lifetime Value for new referral customer is 16% higher than non-referrals.

With digital channels on the rise, word of mouth marketing strategies have become easier to adopt. After all, people repeatedly talk about their purchases amongst their peers. When consumers share information to help another in a win-win fashion, your brand can directly benefits through a referral program.

How so?

Expect improved customer engagement, higher conversions, lower churn rates, improved customer loyalty, and revenue increases from referral marketing. I’m about to go over 17 referral marketing statistics that will show you just how effective your referral program can be.

Let’s take a stab at it!

92% of respondents trusted referrals from people they knew.

Nielsen

There’s more and more noise in today’s marketplace, more information competing for our time and mindspace. We humans have longed turned to our closest network for solutions and as your brand creates more and more relationships, the result will be more (and more valuable) referrals.

But how quickly and frequently this happens is a matter of scale and reach. And within the massive online space, opinions shared on social media and via social media influencers are now crucial areas brands must consider.

Referral programs accelerate the frequency that your brand gets shared, discussed, and purchased from.

Social media drove 31% of overall traffic to sites.

Shareaholic

Yes, consumers are taking cues from social networks and turning to their newly trusted platforms for guidance. What can your brands do to capitalize on this? Ask yourself who is motivated to refer you new business and create rewards that are compelling to those influential customers.

If you educate consumers about referral programs and display for them the value of sharing your product or service with their friends you’ll increase the amount of referral conversions your brand sees.

The best companies taking advantage of referral marketing such as Evernote or Dropbox, have referral programs embedded into their websites as well, so content that goes out to users across all platforms brings potential referral marketing gains.

83% of consumers are willing to refer after a positive experience—yet only 29% actually do.

Texas Tech University

But referral programs don’t run themselves. And referred customers don’t show up without asking for them.

Of course, not all programs are created equal and best practices don’t come standard. Just like all swords don’t stay sharp without sharpening. Picking the right tool for the job and adapting it to your organization is how you can scale up a referral campaign strategy.

According to Heinz Marketing:

When marketing manages the program, companies were 3x more likely to achieve revenue goals.

Yet only 10% of companies have tasked marketing with managing the referral program.

Why?

Referrals are best cultivated from customers by the marketing team, they work directly with the brand touchpoints and can think through the level of campaign strategy needed to scalably bring in new customers.

Sit down and craft valuable cash, non-cash incentives, or experiential rewards that will facilitate referrals and appeal to incoming customers.

Catering to the sense of consumer altruism is key, and so are reciprocal rewards. The best incentives reward both loyal customers and new customers equally, but all offers should remain true to your brand and valuable to your customer segment.

Offering a reward increases referral likelihood, but the size of the reward does not matter.

American Marketing Association

Non-cash incentives are 24% more effective at boosting performance than cash incentives.

The University of Chicago

You can’t expect your brand to be on customers’ minds – leave it to your marketing team to drive awareness and secure conversions. Only the marketing squad has the wide-angle outlook for opportunities to engage your most loyal customers and drive referrals.

Put your copywriters to work creating actionable and enticing messaging copy to facilitate shares. Have the social media team create a workable strategy for driving your program across key platforms.

And be sure to equip consumers with the means to actually share your program with their network. Because like swords don’t sell themselves, people can be quite lazy and need encouragement at every stage of the referral loop. 

Heinz Marketing conducted an in-depth survey of 600 companies. Here’s what they found about how the businesses look at referral programs.

84% of B2B decision makers start the buying process with a referral.

With limited time and higher stakes than the general consumer, business leaders have to be sure that they’re making the right decision. And many of these top-level business people already know that referrals are worth their weight in company gold.

87% of frontlines sales reps, 82% of sales leaders, and 78% of marketers surveyed agree that referrals are the best leads your business can get.

Yes, consensus is clear here: referrals are a direct route to revenues. The sales team benefits form less time selling, the sales department closes more deals, marketing gets more conversions, more engaged and repeat buyers – and everyone benefits from a higher CLV. Referrals are the best bang for the buck.

Companies with formalized referral programs experience 86% more revenue growth over the past two years when compared to the rest.

And yet…

Only 30% of companies surveyed have a formalized referral program.

What explains the breakdown?

Could be naiveté, but it’s likely confusion at how to effectively execute a referral program. Whether it’s incentives to offer customers, how to scale referral invites, or how to develop a referral structure – most brands are not putting their best foot forward out of simple ignorance. And they’re losing out on heaps of money.

When referral tools are used, companies are 3x more likely to accelerate referral generation and conversion.

Yet only 22% have a tool in place to effectively scale their programs.

With the right tools, your organization can implement a structured process for monitoring, tracking and rewarding your customers. And over time, campaign analytics can show you key areas of the referral funnel that need improvement. 

Every referring customers makes an average of 2.68 invites.

Referral SaaSquatch Data Science

Following a survey and report of mid-level B2C businesses in 2016, the Referral SaaSquatch Data Science team dug up some insightful statistics about consumer behaviors with referral programs. You can view the complete infographic here.

As the data shows, each engaged customer reaches almost three other friends with a referral offer. By utilizing referral program best practices like an enticing reward offer and a streamlined onboarding flow, you can expect those referred customers to convert at surprising rates.

14% of customers who visit a referral page take an action.

Referral SaaSquatch Data Science

Looking at these stats from another angle, we see that previously engaged users are highly likely to convert. What does this tell us? That consistently reaching existing users is essential because it primes them for referral efforts.

We see a massive gap between referred visitors and who convert and sign up as opposed to previous users, so driving sales via loyal customers is an obvious route to success. Reaching existing users not only retains customers for higher CLV, but increases their quality as a future brand ambassador.

We saw that referral deals were more likely to convert when a customer used copy/paste or email to make the referral. Copy/paste is familiar and easy for users, as is email. Though social media is accessible, users preferred to stay to use 1:1 communication methods to share with their friends.

How did these channels convert?

Again, we see that the one-click ease of copy/paste and email shares we far more effective than social platforms. Referral invites are better received when in the context of a personal conversation, and these numbers testify that users convert far more when it’s made easy for them.

It should come as no surprise that referral programs work, how effective they are should be today’s takeaway. Just like John Snow or Eragon would never go to battle without a blade, you should never try to do business without the help of referrals.

Word of mouth is simply too effective a tool to sit and rust while your brand is out there in the trenches. 

But as these 17 referral marketing statistics have shown, your brand will see some serious revenue increases from actively encouraging referrals. Not only does a referral create a new customer, but it reinforces brand loyalty and helps retain existing customers.

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Republished with author's permission from original post.


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