“People influence people. A trusted referral influences people more than the best broadcast message. A trusted referral is the Holy Grail of advertising.” – Mark Zuckerberg Founder and CEO, Facebook.

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Word-of-mouth recommendations from family, friends and colleagues, have always been part of the fabric of our society. Who you know has often trumped what you know. Receiving a recommendation from someone you know is one of the most powerful forms of advertising. Why? Trust.

Building trust is what practitioners in the Public Relations industry aim to do with their media releases, networking and lobbying. They believe that people are more likely to believe in and trust an article they read about a company more than an ad from that same company. A third party coming from a place ‘of authority’ has more believability.

A 2016 Nielsen study found that 84 percent of global respondents trust word of mouth recommendations from friends and family, making it the most highly trusted among digital and traditional methods of receiving recommendations.

The Internet has exploded the word-of-mouth concept

One of the earliest referral systems on the web was the free email system, Hotmail which started in July 1996. By the end of that month Hotmail had more than 20,000 subscribers. In January 1997 they passed one million subscribers. This was thanks to a little link included in the email signature of every email: “Get your free email at Hotmail” . By clicking the link, you’d be taken to Hotmail’s home page to set up your own free, globally accessible email address.

Web 2.0, with its social connectivity, has taken this concept to a new level. Media noise is replaced by human recommendations and that creates a new economy around the power of the Referral. Through posting on social networks, blogs, and community sites, people share their recommendations and why others should trust their experiences.

This new word-of-mouth is being called the Referral or Recommendation economy. Consumers are now tuning out traditional advertising and relying instead on their peers’ recommendations, according to Deloitte.

People are also getting paid, either in product, experience, discounts or cash, for their recommendations; much like you’d pay a commission salesperson or affiliate marketer.

Today big brands like Amazon, Airbnb, Dropbox, Uber, and Google use referral marketing to drive massive user growth.

Uber gives referred users $20 in free Uber rides, and their referrer gets $10 in credits for referring them. This incentive structure taps into a customer’s desire to help others and get rewarded for it.

Dropbox, the cloud file hosting service, experienced incredible growth thanks to its referral program. It rewards users with additional storage space for recommending their friends. When a friend signs up they get an extra 500MB of space, or 1GB of space if a Pro user.

Banking is built on relationships and banks tap into referral marketing, because when it comes to money, people tend to rely on friends and family as trusted sources for their recommendations. You’ve probably received a few friend-get-friend promotions in the past.

“65% of new business comes from referrals” New York Times

Now businesses are referring their favourite suppliers to others in return for a small amount of commission. This practice was previously seen as a little bit seedy, but the concept has matured and is a natural development of the personal recommendations that businesses make every day anyway.

Everyday businesses, especially SMEs, would benefit greatly from including a referral marketing strategy in their marketing activities. That’s because the ultimate goal of the referral economy is to drive a steady stream of high-quality leads to increase revenue.

Some great reasons to start a referral program

  • References are cheap
  • Referrals can help build your business
  • Referral marketing can go viral to freely expand reach
  • Referral marketing is online and offline
  • Referral marketing is easy to track
  • Referral marketing builds trust.

A referral marketing strategy doesn’t need to be complicated. All you need is a quality product that your customers love, a way for them to continue to engage with you (so they can keep referring you), and a way to track, manage, and reward their referrals.

To see consistent bottom-line results, make sure you weave referral marketing into everything you are and how you operate.

Steps to setting up your own sales referral scheme

Start by putting yourself in your customer’s shoes. Would you recommend your company’s products or services to someone else? When would you do it? How? What incentives would you offer to motivate increased referral activity? By answering these questions you’ll be on your way to creating your own referral marketing strategy.

Developing a referral system in-house can be really costly in terms of time and investment. Luckily, there is no shortage of referral marketing software on the web. Google is your friend.

Many businesses are using referral marketing to profit from the referral economy. If you’re not, why not?