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Not everything you read on the internet is true… We’ve all heard that warning. And with the rise of AI writing platforms, this advice couldn’t be more necessary right now.
Referral marketing is a powerful tool for businesses to acquire new customers and build brand loyalty. However, there are many myths and misconceptions surrounding referral marketing that can lead businesses down the wrong path. It’s difficult to separate the good from the bad.
Fortunately, with the help of cutting-edge AI technology, such as Lex, Jasper AI, and ChatGPT, we set out to uncover and debunk 9 of the most pervasive myths about referral marketing.
These AI tools allowed us to sift through vast amounts of data and pull relevant information from already published work to help us understand the most common misconceptions about referral marketing.
Whether you are a business owner looking to start a referral program or someone interested in learning more about referral marketing, keep reading to find out which myths are true and which ones you can safely ignore.
10 referral marketing myths you should know
By debunking these myths, we aim to provide readers with accurate and up-to-date information on referral marketing. We hope that this article will help businesses avoid the pitfalls of bad advice and implement successful referral marketing strategies that drive growth and success.
Myth #1: Referral marketing only works for businesses with a large customer base
Fact: Referral marketing is effective for businesses of all sizes. According to Signpost, 82% of small businesses claim referrals are their main source of new business.
Sure, businesses with a larger customer base may generate more referrals than small businesses (more customers = more chances to refer). But small-to-medium-sized brands can still drive acquisition by leveraging referral campaigns.
Even if you already have organic word-of-mouth, referral marketing can drive that part of your business even further—especially if you include a referral incentive. The inclusion of a reward can motivate over 50% of shoppers to recommend new customers.
It’s crucial to assess whether your customer base is actively engaged and loyal enough to promote your products to their friends. Failure to do so could result in investing resources into a marketing channel that is not yet prepared to yield significant returns.
Myth #2: Referral marketing is easy and requires no effort
There’s a common misconception that referral marketing is an acquisition engine that can run without any fuel. While it is a channel with the gift that keeps giving, referral marketing requires ongoing strategy and distribution.
Referral marketing isn’t going to be a magic bullet that solves all of your problems, and it absolutely won’t get used by your customers if you don’t do a good job of promoting it.
For example, you may want to test different referral offers to see what your customers are most interested in. You also need to find which channels to promote your program on and when to share it (email, social media, landing pages, SMS, etc).
How often are you promoting your referral program right now? Here are a few low-hanging fruit ways to get it in front of more customers:
- Add an announcement bar on your website
- Share it on the order confirmation page or email
- Create a referral widget on your website
- Add a referral reminder in your post-purchase email flow
- Add a postcard in the customer’s package that highlights your program
- Create seasonal bonus points campaigns for referrals
- Make it easy for your customers to share referral incentives
Here’s a great example from Bombas Socks. Their referral landing page lets customers share their friend’s email addresses. The customer can even decide if they want to follow up with their friend in three days.
Myth #3: Referral marketing is not a scalable marketing strategy
Of course, referral marketing is scalable! There’s a reason why referred customers have a lifetime value that is 16% higher than non-referred customers—and can consequently boost your profit margin by 25%.
If you create a referral program that generates a high volume of referrals, this number will only compound over time as you grow your customer base and increase the chances of a referral.
Implementing a referral program in your marketing strategy can help you save costs on some of your paid channels. An example of this is from the UK book subscription brand, A Box of Stories, which witnessed a surge in organic customer acquisition by launching a referral program.
In just four months, they gained 5,000 new customers and earned a remarkable ROI of 3,000%. As a result of these impressive outcomes, the company reduced its Paid:Organic ratio to 40:60, which led to an increased proportion of organic acquisitions.
Myth #4: Referral marketing only works for businesses in certain industries
Referral marketing can be effective for any business—any size and in any industry. Not to sound like a broken record, but the success of your program depends on how you promote it and if you deliver incentives your customers are interested in.
From consumable products to health, fashion, electronics, and home goods brands have referral programs. Even the most niche businesses can see success. Take Evolve Skateboards, for example. Referrals contribute to 5% of all the brand’s transactions, driving over $1 million in referral sales.
How? Three key methods:
- Creating an irresistible offer (that fits the brand and customers)
- Promoting the program across various channels
- Making it easy for customers to share the program
These tips are three referral marketing foundations that every brand should have.
Myth #5: Activating a referral campaign multiplies your current customer count and sales within the first 30 days
This is a myth our team hears from start-up retailers that don’t have a strong customer base yet. When you’re a newer business, you’re likely still looking for product-market fit and may not have established a strong customer base yet. And if you only have a small number of customers who are aware of your program, you may struggle to generate sales during the initial stages of the campaign.
Remember, the more individuals who discuss and promote the program, the greater the likelihood of attracting additional sign-ups. So it will also hurt your budget to pay for a subscription with a referral program if you don't have enough sales yet.
What should you do?
We recommend establishing a sufficient customer base before activating a referral program. Doing so can prevent investing resources into a program that may not yield significant returns in the early stages of your business.
Alternatively, if you already have a large following on social media platforms, you can leverage these accounts to promote the referral campaign. You should regularly post about the campaign on these platforms to inform customers and encourage them to share the program with their network. Many retailers have successfully boosted their referral programs through social media promotion, and it can be an effective way to drive growth and increase sales.
Myth #6: It's too difficult to track referrals
There are several ways to track referrals, including using unique links, promo codes, and tracking pixels. These methods make it easy to see how well your referral marketing campaign performing.
Here are four common ways we recommend:
- Use referral tracking software: Many referral marketing platforms come with built-in tracking capabilities that allow businesses to monitor the performance of their referral program. These platforms provide insights into the number of referrals generated, conversion rates, and revenue generated from the referrals. To make it easy, start with a template. Download our referral tracking template for free here.
- Set up unique referral codes: Brands can assign unique referral codes to each customer who participates in the referral program. This enables businesses to track who referred whom and how many referrals each customer generated.
- Monitor website traffic: Businesses can use web analytics tools to track the traffic generated from the referral program. By monitoring the number of visits and conversions from the referral program, brands can assess its effectiveness. Use UTM parameters to understand these metrics better in Google Analytics.
- Analyze customer feedback: Brands can gather feedback from customers who participate in the referral program to understand their experience and identify areas for improvement.
Myth #7: You need a large budget to be successful
Many of the most successful referral programs are low-cost or even free to implement. In fact, 54% of marketers say that referral programs have a lower cost-per-lead than other channels like digital ads for example.
If you're a smaller brand looking to get started with referral marketing, ReferralCandy offers lower-cost tiers that make it accessible to businesses of all sizes. You can start for as little as $47 per month (with a free trial), making it a budget-friendly option for businesses looking to grow through word-of-mouth marketing.
Myth #8: Referral marketing is a one-time thing
Just because a customer shares their referral code with a friend once doesn’t mean they won’t do it again. If they can keep earning discounts, why wouldn’t they? That’s why you should be continuously following up with your loyal customers and reminding them about your program.
Our merchants typically use referral drip campaigns to educate customers about their referral program while also personalizing upsell and cross-sell recommendations.
Additionally, some merchants have implemented different referral programs for specific segments of their audience, such as top referrers. These VIP customers who have already demonstrated a love for the brand can be awarded even more enticing rewards and a separate referral campaign to further incentivize and nurture their advocacy.
P.S. The segmentation feature will be rolling out in full this year on ReferralCandy so do keep a close eye on us!
Myth #9: Referral marketing is only good for acquisition
New customer acquisition is important, but a higher repeat purchase rate increases your customer lifetime value and revenue long-term as well. Customers who are referred to a brand have been shown to have a 37% higher retention rate compared to other customers.
Referral marketing can drive retention in many ways. For one, when customers refer their friends and family to a brand, they are essentially vouching for the brand and reinforcing their own positive experience. This can lead to increased loyalty and retention among both the referrer and the new customer.
Additionally, referral programs often offer rewards or incentives for both the referrer and the new customer, which can help to keep them engaged and incentivized to continue engaging with the brand.
By using referral marketing to create a community of brand advocates, businesses can foster a sense of belonging and loyalty among their customers, ultimately driving retention and reducing customer churn.
Ready to debunk these myths yourself?
There’s a lot of misinformation about referral programs out in the internet wild. We hope by sharing the truth about referral marketing you can build the right foundations for long-term success with a referral program.
If you're ready to take your business to the next level with referral marketing, we encourage you to try ReferralCandy. With its user-friendly interface and powerful features, ReferralCandy makes it easy for businesses to launch and manage successful referral programs. And with a free trial available, there's no reason not to give it a try today
If you're still hungry for more inspiration and ideas on how to succeed with referral marketing, be sure to check out these referral program examples. Whether you're a seasoned pro or just getting started, there's always more to learn about this powerful marketing strategy.