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In business, one thing revenue leaders learn pretty quickly is that customers have the most powerful voice. Their opinions, reviews and recommendations hold immense sway and influence the buying decisions of others.

Now, the million-dollar question: how can you harness this influential voice and use it to win more customers? 

With customer referrals.

To learn more about customer referrals and how to build a successful customer referral program in 2024, we conversed with , Partner Development Manager at ɫ��ֱ��.

What are customer referrals and why are they important?

A customer referral is basically a satisfied customer recommending your product or service to someone they know, like a friend, family member or colleague. This recommendation can happen organically or through a structured customer referral program you establish.

The key thing is that a customer referral leverages the power of word-of-mouth (WOM) marketing. People are much more likely to trust the recommendations of someone they know and respect, compared to traditional advertising or affiliate marketing, where they might be more skeptical of the brand and not have a personal relationship with the person doing the referring. That’s why customer referrals are one of the best ways to acquire new, loyal customers. 

For instance, for Unbounce, 25 per cent of their new trial starts come directly from partner referrals. Amazing, right? Another B2B SaaS company, Gorgias, credits 50 per cent of its total revenue to its partner program. Close also acquired 18 per cent of customers through partnerships.

According to Eldridge, other reasons why companies need to take customer referrals more seriously compared to more traditional marketing methods is because “it’s a lower cost per acquisition to drive new customers through referrals.” He shares, “It’s also easier to reach a global audience with referrals or resellers than hiring a direct sales team in a different country.” 

To get existing customers to refer your products, your product or service needs to be good. It has to solve your user’s problems well and provide a great customer experience. That way, when you ask them to refer your product (which you shouldn’t feel shy/awkward about), they’ll only be too happy to do so. 

Aside from this informal method, you should also create a formal referral marketing program. It’s more structured, with defined rules and benefits. Here, you’ll give customers referral links or codes to share with their potential clients to track referrals accurately. So when someone buys using their referral link or code, they get a commission, depending on what you’ve stated in your program.

See more: The path to SaaS channel readiness through reseller partners.

What you should know about building a successful referral program

Before building a customer referral program, you must “Get your house in order,” as Eldridge says. This means ensuring everyone is on the same page, assigning staff to run the program, determining your KPIs (revenue, lead, conversion rates, cost per click, etc.), and deciding on a go-to-market strategy. Once you’ve settled on that, there are three things to remember: the program’s transparency, ease of use and enticing incentives to offer. Let’s look at each one of these components in detail.

Transparency

Don’t leave your potential partners confused about anything. Clearly outline your program's terms and conditions, eligibility criteria, commissions and how you’ll track referrals. This transparency builds trust and encourages more active participation in the referral program.

Ease of use

Ensure your program is easy to understand and participate in to keep referrers engaged. Nobody likes a program that’s difficult to navigate. Use simple referral links and codes that customers can share with a single click. Also, consider using a PRM like ɫ��ֱ�� to streamline the referral process for both you and your partners. 

You might also like: How to successfully set up a referral program by business maturity level.

Enticing incentives

People join referral programs for the commissions, so you have to offer incentives to attract them. This could be anything from cash and discounts to free products or exclusive experiences. Tailor your commissions to what truly motivates and excites your customers. In Eldridge’s words, “Getting your incentive package in order is important…the good vendors are open to spending and they are open to being flexible with how they reward their partners, agencies, consultants or affiliates.”

How to design and optimize a successful referral program 

Here are some tips on designing a program that resonates with customers and other prospective partners and motivates them to become referral partners.

• Know your audience: What motivates your customers? Conduct surveys and have conversations with current customers to understand what kind of commissions would truly excite them.
• Personalize the experience: Instead of generic, impersonal commissions, try a tiered system where commissions increase with the number of successful referrals. That way, you’re personalizing the experience for each partner based on their referral efforts. 
• Segment your audience: If you have different customer segments, ensure your program is dynamic. This means to structure your program (commissions, messaging, enablement materials) to appeal to each group’s needs and preferences. For example, Riipen has four different partner personas and they created enablement materials for all four partner groups to speak to their different customer segments. This helped them provide better support to their partners, increasing the rate of referred customers.
• Make it shareable: Integrate social media sharing options into your program. Make it easy for your customers to share your referral program with others on their preferred social media channels. The more effortless it is for them to spread the word, the more likely they are to participate and become earning partners.

Common mistakes businesses make when implementing customer referral programs

Here are some common mistakes SaaS businesses make with their referral programs and how to avoid them:

1. Not doing the prep work. The first mistake, according to Eldridge, is “They don’t understand their house first. They get so excited at the prospect of starting a referral program that they don’t get their house in order. Make sure you come to the table well-prepared.”
2. They have a confusing program with unclear guidelines. This makes it hard for potential partners to understand how the program works and what they stand to gain.
3. Their referral commissions are not attractive. Current customers and other potential partners may not feel motivated enough to participate in your referral program if you offer meager commissions. Ensure your referral incentive is attractive and aligned with what appeals to them. Consider the value your product or service offers and offer commissions that hold weight with your target audience. But what if you can’t afford lavish referral incentives? Elridge’s advice is to “set your expectations of the type of partner you’re going to bring in. Instead of going after the biggest agencies or consultants, go after boutique agencies or smaller niche consultants that can start driving business for you.”
4. They don’t measure or analyze their referral program. You can't improve what you don't measure. So, set up a system (you can use ɫ��ֱ��) to track key metrics like referral numbers, conversion rates and customer acquisition costs. Analyze this data regularly to identify areas for improvement and optimize your program for better results.
5. They don’t market their referral program. For best results, market your referral program on different marketing channels so more people can discover and join. Net in current customers who can become advocates and referrers, as well as partners who already have influence with your ideal customer profile.
6. They don’t give their partners sufficient enablement materials. By overlooking enablement, a business will affect a partner’s ability to succeed. Eldridge says, “The education materials needed to be provided for referral partners in those referral relationships are extremely important. Don’t overcomplicate it, but understand what would be required for someone who’s not part of your company to be educated enough to be able to talk to their audience.”
7. They set unrealistic expectations. Building a successful referral program takes time and effort, so don't expect overnight results. Stay consistent in executing your referral marketing strategy and keep improving on it. You’ll see an increase in referred customers over time.

Related: How to get a 360° view of partner tracking and attribution.

Customer referrals are the here and now

These days, companies have dedicated departments and roles to foster and maintain partner referral programs. That’s because it works in helping companies get new customers. Just take a look at our case studies page for proof.

To scale and grow your partner program, incorporate technology like ɫ��ֱ�� for referral management. It automates many of the manual processes and helps you manage partners effectively. As a bonus, ɫ��ֱ�� also has the largest B2B partnerships network in the world, with partners who want to work with you.

Go deeper: The anatomy of a high-performing referral program.