Ignoring Referral Programs Could Cost You Big

If referrals convert at nearly 4x the rate of other channels, why are most companies treating a referral strategy as an afterthought?

I might have an answer.

Many marketing strategies look something like this:

• Paid & Social: Pay, Track, & Post.
• Organic: Write, Record, & Post.
• Referrals: Pray & Hope.

Marketing teams are pouring their budgets into the least efficient lead sources—like social media and PPC—while ignoring their highest-converting option: referrals.

If you are investing mega money into paid, social and seo, but don’t have a referral program then one of two things is at play. You feel like you don’t have happy customers OR you are missing out on a goldmine of organic growth. 

Before you bite my head off, I am not arguing against the use of social, email, or ppc. I'm arguing against the apparent EXCLUSION of referrals from most marketing strategies.

Key Takeaways

• Referral Program Statistics: What We’ve Learned from 290,000+ Conversations
• Referral Programs: Why They Work
• Referral Programs: How They Work
• The Excuses

First, let’s look at the data.

Referral Program Statistics: What We’ve Learned from 290,000+ Conversations

These are insights we’ve compiled after over 290,000 conversations with customers in the Home Services industry:

• Referral rates:
  • from total customer base in first 90 days of outreach: 2.4% (this tends to double over the next 3-6 months)
  • from your advocates: 37%
• It takes an average of about 2.6 messages to secure the first referral.
• 60% of referrals come from customers that were asked more than once.
• 40% of new referrals come from customers who have left at least one referral.
• New customers are 5x more likely to leave a referral compared to legacy customers.
• New customers are 2x less likely to be brand detractors compared to legacy customers.
• New customers have a 150% higher review rate compared to legacy customers.
• Our average star rating won for clients is 4.9, with over 2,000 reviews.

Every metric so far that we’ve mined from these personalized conversations is screaming that your customer base is a gold mine of the highest quality leads. These referral-driven, personalized conversations have other benefits too:

1. Advocate/detractor identification: by introducing the referral program first AND ongoing customer nurturing you will have the customers self indicate whether they are an advocate or a detractor. Knowing their sentiment will help inform future outreach.
2. High review scores (avg of 4.9/5 stars): If the request for a review is right after they say “I can’t think of anyone to refer you right now but I’ll let you know when I do” the conversion rate is high because of the psychology that they couldn’t give you a referral but they DO have 2 minutes to give in leaving a review. Sequence matters here.
3. Customer service opportunities: detractors can turn advocate as customer support related issues are identified and triaged.
4. User-generated content: content like video testimonials or unique customer stories pop up all the time. You can and should leverage these to social proof every touchpoint in the buyer journey (eg. your website, 3rd party listing sites, sales collateral, etc).

Those are bonuses, but we’re here to talk about referrals. Let’s compare the referrals gold mine to the ppc/social/email coal mine…

Popularity of Channels + Conversion Rates (Ahrefs & Adobe Experience Cloud Blog):

• Social: 62,000 searches, 1.95% conversion.
• PPC: 27,000 searches, 2.98% conversion.
• Email: 32,000 searches, 0.55% conversion.
• Referrals/Word of Mouth: 2,600 searches, 10.99% conversion.

Referrals boast a conversion rate of nearly 11%—roughly quadruple the average of other acquisition channels.

Yet, business professionals are searching social media marketing, ppc, and email marketing at a disproportionate rate in contrast with the success quality of the channel.

For example, the highest searched strategy is social media leads, which convert at a paltry 1.95%.

Again, why?

First off, the marketing roles within a company are trained to tap into the legacy platforms (google, social, etc) to drive demand. They are rarely trained in how to stand up and execute a word-of-mouth flywheel that leads to quality referrals and reviews.

I’m convinced that a customer marketing or word-of-mouth marketing role will become more and more common within orgs.

Referral Programs: Why They Work

Up to this point, we’ve shown you the numbers and the numbers don’t lie. But many companies seem to be ignoring these numbers that speak for themselves.

So, for the sake of rhetoric, let’s ignore the numbers completely and make way for a short rant:

Bad companies do not like their customers; they’re afraid of them.

Consider the different outlooks on the relationship between customer and company. You could see it as merely transactional, with no real benefit in ongoing interaction; most do.

You could see it as a chance to provide a beneficial service and help them on their way out the door, not going above and beyond, but not ruffling feathers either.

Or you could see customer-company relationships as… well, no different from normal relationships between strangers who become friends. You could choose to see it as humans connecting with humans.

Bad companies don’t care about connecting or providing or caring.

Bad companies won’t communicate with their customers, because they’d have to resolve issues and empathize, which does take time and money.

Bad companies NEVER get beyond the critical point of empathy. They don’t even see what’s on the other side of customer nurturing. 

They never mine the gold in the mountain.

They never reach the low-hanging fruit.

They never win brand advocates and they never get referrals.

Bad companies leave revenue on the table in the blind pursuit of revenue from new customers through legacy marketing channels.

The truth is: good companies speak with their customers, great companies get reviews, and the best companies get referrals and reviews.

***Rant has ended***

Businesses that don’t prioritize referrals are flat out leaving money on the table.

If you have happy customers, you have a built-in referral program waiting to be activated.

Here’s why it works:

• Higher Lead Quality: Referrals are pre-vetted by your advocates.
• Lower & Controllable CAC: You dictate the incentives, controlling the cost per acquisition.
• Better Retention: Referral leads are already primed for loyalty because they come from trusted sources.
• Flywheel of Positive Reputation: While you get referrals, you are also sifting detractors from advocates. After a short time, you’ll start building a pool of brand advocates. Those advocates usually leave 5-star reviews. Those reviews will attract new customers, which are immediately ingested into your new word-of-mouth program and the flywheel starts over with more referrals, more reviews, and more customers.

Referral Programs: How They Work

There are so many ways to optimize your referral program (i.e. messaging from the “assistant” of the rep the customer knows best or only asking for reviews after identifying advocates).

But just to get started we want to give you the basics of a solid referral program that also produces great reviews.

Here’s how it works:

1. Develop an attractive referral incentive.
2. Make it easy for customers and non-customers to participate.
3. Promote the program consistently through personalized 1:1 conversations.
4. Track and analyze program performance.
5. Continually refine and optimize.

Regularly test different incentives, streamline the referral process, diversify your promotion tactics, and incorporate customer feedback to ensure your program evolves alongside the changing needs of your business and clients.

You can either rely on a 3rd-party referral platform to do all these and more for you (Snoball) or you can do it internally.

It’s up to you.

The Excuses

Referral strategies are criminally underutilized.

Our conversations with companies and their reps suggest that referral programs never take off for two main reasons:

1. Owning the Program: Referrals as a responsibility exists somewhere between sales, marketing, and customer success. Because no single department owns the task, no one steps up. Additionally, depending on company size, referrals might not justify a new hire.
2. Volume: If you only have 5 customers, a referral program is harder to justify from a CAC standpoint. However, smaller customer base only makes the program easier to carry out, so the question I’d pose is: why the hell not? You need to lay the foundation at some point…why not get that flywheel in place from the get go.

Another reason I would suggest that companies don’t stand up referral programs is because there hasn’t been a “Google Ads” platform version for referrals, where you can make an account and start spending money for clicks.

Snoball is the closest thing you’ll get to a Google Ads-style platform for referrals — it’s a perfect mix between customer nurturing and ease of management.

But I’m not trying to sell you. Yet.

Let’s look at the possible reasons marketers are excluding referral campaigns from their marketing strategy.

Businesses give five common excuses for not investing in referrals:

1. "Word of mouth happens naturally": Correction, negative WOM happens naturally… positive word of mouth RARELY happens naturally. And most natural WOM is negative. Here are the facts:
   
   Considering that reviews are a close relative to referrals, 95% of consumers say a bad review convinced them to avoid a business.
   
   Our partners at Best Company confirm that 80% of organic reviews left on their site are negative.
   
   That’s not surprising, since research suggests that angry customers (detractors) are far more likely to leave reviews than customers who had positive experiences (advocates).
   
   Inversely, the average star rating of reviews generated for our clients at Snoball is 4.9 out of 5. That’s because we don’t ask for reviews unless we’re sure the customer is an advocate.
   
   You can and should actively manage referral programs. We're running 60+ campaigns, generating over 7,100 referrals.
   
   It’s not magic—it’s simply word-of-mouth by design vs by default.
   
   
2. "Low-quality leads are cheaper": Ya, CPCs are generally cheaper, but the Customer Acquisition Cost (CAC) is out of control with paid social and even Google Ads in many cases. You’re forced to play the arbitrage game of buying clicks and tracking how those back out…it’s a constant moving target and you run the risk of runaway CAC.
   
   On the other hand, you control the incentive with referrals, which gives you more control over CAC than you have with PPC or paid social. Easier on your cash flow as you can pay when you get paid.
   
   
3. "No time": It takes less time to set up a referral program with Snoball than constantly adjusting and tracking a PPC campaign.
   
   Once your referral program is set up, and once the system is in place, it’s a maintenance job just like the rest of your lead channels, except this one has 4x higher conversion rates.
   
   
4. "We need volume": Look at it this way: if you have 5 customers, then you have 5 potential webs/networks and connections that could be mined. Just start with a simple goal: win just 1 advocate from every 5 customers and you will see an exponential increase in RAVING customers.
   
   
5. "It’s too hard": It's really not that hard. With a simple framework, you can launch a referral program in days. You can implement the fancy tactics later on.

My parting plea is: stop chasing low-quality, high-cost leads while ignoring your referral program. Referrals deliver better customers, lower costs, and higher lifetime value.

If you want to supercharge your referral program, let's talk.

If you have questions about your own referral program, let’s talk.

If you don’t believe a word of what I’m saying, let’s talk.

I’m sure we can hash it out ;).