The Art of Referral Sales
A quick question: What is the main objective and function of your digital marketing team? You might say activities like designing a communication strategy, content generation, optimization, and such other things. However, the core purpose of all these activities is always one – lead generation.
The pursuit of attracting prospects and turning them into potential customers is a challenging job and this is where referral sales can come to the rescue. Although not a very novel concept, referrals in sales is an excellent method of generating leads through your existing customers.
In this article, we will explore the concept of referral sales, how it works, and strategies to improve it.
What Are Referral Sales?
Referral Sales is the strategy wherein your retained customers refer your brand to other companies. As noted in a report by Influitive, “Business-to-business companies with referrals have a 70% higher conversion rate, and they report a 69% faster close time on sales.” The reason behind the efficacy of this strategy is that it is a transfer of trust. A referrer gives his vote of confidence while referring to another brand, product or service, hence the trust and credibility factor is quite high in sales referrals.
What is the Difference Between a Referral Program and Referral Sales?
The intrinsic difference between both the strategies is that one is aimed at customers and the other at other brands and companies. In a referral program, customers refer your brand to their network of family and friends and are incentivized or rewarded for it, while in a referral sales strategy customers recommend your brand to other brands and are rewarded for it. Referrals in sales offer high ROI because leads are generated through customers who refer your brand to suitable brands, consequently creating the best possible matches.
Why Do Sales Referrals Work?
- Trust – One of the main reasons why a referral system works is because it is endorsed by a known person. A study by Neilsen states that, “84% of consumers say they either completely or somewhat trust recommendations from family, colleagues, and friends about products — making these recommendations the information source ranked highest for trustworthiness.” A recommendation coming from a person we know is bound to have a higher impact than a product advertised by a total stranger.
- Higher Conversion Rate – With the trust factor involved in the referral system, you are bound to experience a higher conversion rate. Customers refer brands and products to people and companies that, they think might be interested in, or might be relevant to. This act ensures a higher conversion rate as compared to other sales strategies.
- Higher Retention Rate – Among the many reasons for customer churn is the non-relevancy of the product or service and the second is impulse purchases. When a customer pairs a particular brand with another, there is logic and sound reasoning behind the pairing. When the transaction is mutually beneficial, there is a considerable improvement in customer retention rate.
- Targeted Marketing – Referral marketing systems are targeting marketing, so you needn’t worry about wasted resources. The referral system brings in only relevant customers that are interested in your products and services. This is also why the conversion rate for a referral system is much higher compared to other marketing strategies.
Strategies to Improve Referral Sales
- Design a suitable strategy – Designing a referral system is an art. There are several factors that you need to consider before asking your customers to recommend you. Analyze your audience demographic, study their purchase behavior, select a suitable reward or incentive, chalk out a plan to monitor data and analytics, and then bring it to the floor.
- Know whom to ask – If you already have a referral program in place but aren’t receiving anticipated returns, you need to rethink your strategy and audience. You cannot expect a once-in-a-blue-moon kind of buyer to refer you. You need to approach consistent buyers for the referral system to work. Loyal buyers already have more than just a transactional relationship with your brand. They can be the right ambassadors that passionately recommend your brand to others.
- Timing is everything – When it comes to implementing your strategy, you need to know exactly when to ask your customers for a referral. You cannot throw your referral plan on new or prospective customers. Your referral system must engage frequent buyers and mostly be communicated after the transaction is concluded for better results.
- Uncomplicate the process – Many customers may give up on your referral plan halfway simply because there were too many steps involved or you asked too many questions. The best way to reduce churn is to keep the process simple and uncomplicated. Make referring someone a simple process and you will immediately notice higher footfall.
- Minding your words and tonality – Remember, a referral is a request made by you to your customers. It may be beneficial to your customers in some way but you are the one leveraging maximum benefits here. Your pitch, tonality and selection of the right words really matter. With the right content, you may strike a chord with your customers and they might recommend you simply because you asked nicely. Also remember to keep the referrer engaged even after the process of lead generation, the customer may bring in more leads throughout his customer lifecycle.
Winning Referral Sales Examples
- Dropbox – One of the most famous and successful referral sales programs is by Dropbox. Dropbox’ referral program was simple – The customer that refers and one that joins through the referral, both received 500MB space for free. The referral program was highly successful and Dropbox witnessed a 60% increase in signups.
- Tesla – The brand had discontinued its referral program in 2019 but due to popular demand, is bringing it back. Tesla’s referral system offers $1000 in credit to customers that refer and $1000 to customers that purchase through the referral. Eventually, the money they both earn would be spent on the brand itself.
- Evernote – Evernote had a different referral plan wherein the referrer and the referee receive different rewards and benefits. The program was successful out of the 225 million users, 13% were referred by other users.
- iStock – iStock’s unique referral program enables customers to earn rewards of their choice. iStock gave its customers three options – commissions, credit and cash, the customers could pick a reward that they preferred and hence was successful in both customer acquisition and retention.
To leverage the power of referral sales, partner with an experienced loyalty partner such as Annex Cloud. The expert team at Annex Cloud can help you design, a referral program that resonates with your brand personality and helps you achieve your marketing and business goal. For a free consultation and demo, click here.