17 minutes to read

There are many arguments against using referral marketing services. Some are correct and justified, while others are more myth and due to a lack of understanding of how deep the referral marketing rabbit hole can go.

We all know businesses use software and external services to help them in areas where it’s too much work to do it all themselves, or they need an expert.  Which is exactly why many people opt to use referral marketing services.  It’s perfectly reasonable for businesses to want to handle everything in-house, but it’s also a lot more work. However, in some cases, it does make sense for the business.  As we’ll explain in the article, there are many things to consider when building a referral program. There are also some things you should expect with your first referral program. The best bit of information we can give right away is that the most effective referral platforms make it easy to get your program launched and working in tandem with your business.

Here are the most common arguments against using referral marketing services:


I can run a program with off the shelf tools

My development team should build it

Our business model is dependent on referrals

Referral marketing doesn’t seem too hard

It doesn’t make financial sense

Legally, we can’t run an incentive-based program

I don’t have any time to commit to making it work

There aren’t incentives that make sense for my customers

I’m not sure if I’m going to get the results

 

1) I can run a successful program without referral marketing services

All I need is a contact form for happy customers to put down their friend’s names and contact information.  They just fill it out and I have great leads.  There are like 1000 different form services out there that I could use for this.  Why are you making this so complex?

I can also track it all in google analytics and a spreadsheet for all my stats and reports.  Promotion and engagement can be done with my email marketing and drip email campaigns.

No coding necessary with an online referral system

Keeping track of user information is important, but it’s a small portion of the overall process. You have to think about tracking referral links, rewards, reward automation, payout structures, and keeping your customers in the loop during the entire process. Oh, and you also have to look at how to automate your referral program into your other automation strategies.

Gathering referrals is more than just a form

Tracking all the forms on your own can be a mess. You need a process for tracking users, which referrals convert, and so forth.

There are a lot of components involved in an effective referral workflow, and it’s very easy to miss some key parts.  When using a contact form, a business needs the customer’s trust that they won’t abuse the new information received.   

Customers may not want to give up their friend’s info because they worry a business will just harass or cold call them.  It’s much better to enable the customer to send personal messages to friends and let the friend decide to “opt in” or not.

You also have to consider what happens after the form is complete, as that is where the magic happens.

Measuring results with an online referral system is easy

Tracking, there is lots of it

Tracking the process from start to finish is important so you can measure results. So not only will you need a way to keep track of filled-out forms, it’s critical for you to connect a referral to the referrer.  After that, you need to consider how to track rewards. As in, who gets what and when. 

Displaying statistics and tracking referrers is a crucial component of any referral program. Running a successful referral program means optimizing the entire process and learning how to improve it as needed. Since software tracks this information, you are able to learn which steps are working and which ones are not working. Without this ability, it could be challenging to determine where the program is failing, therefore making it difficult to determine how to drive customer acquisition.

If you can’t track it, did it happen?

Notifications and engagement

Best practices suggest you set up confirmation emails and thank you emails.  Notifications and confirmations increase the trust and engagement of your referral program.  The most effective programs keep everyone in the know. Allowing customers to view their stats can have gamifying effects. When customers are able to see what is going on, they are usually more inclined to participate.

For example, if a customer is a member of a tiered program they will be able to follow along with the step their referrals are in. Or, perhaps a program is set up so that a customer is rewarded after a specific number of referrals. If this is the case, a member will be able to track how many referrals they need in order to earn a reward. All of this information can be viewed from their very own user dashboard.

Another way to keep members in the loop is to use segmented messaging. By offering this, participating customers receive emails based on specific actions. For instance, when a referral has been added.

This is helpful when a customer shares their referral link via social media – they are not really sure when a referral conversion happens but it saves you from having to field a call when they ask if their friend contacted you. Providing notifications along the way can help influence future shares as it reminds the customer that they are in your referral program.

2) My development team should build it

OK.  I get that it’s more than just a contact form and a spreadsheet.  My dev team can create unique referral codes.  I see them on Uber and AirBnB. How hard can it be to track all that data?  All I’ll need are a few reports.   My dev team are rockstars. They can build this in a week.

There is a lot more to building a referral program than just creating and sharing links on social media. I’m sure your team is awesome but do they want to build all this along with everything else they are building that is core to your business?

Ask them what they think of this list:

The Basics
  • A referral platform can provide you with consistent messagingUnique Codes Tracking Codes – A code needs to be created for each person referring so you can correctly attribute the referral to the right person.
  • Tracking Online and Offline – Use of cookies and codes that match up with the referrer, since all purchases aren’t made right away.
  • Easy Sharing – You want to make it easy to share on various social media sites and email accounts.
  • Default Messaging – It would be cool to default the messaging that the referrer sends to their friends because people are lazy and won’t want to write their own messages.
  • Referrer Portal – People call in all the time wondering what the status is.  Can they login somewhere and check?
  • Mobile Friendly – Oh yeah, make it mobile friendly and easily accessible.
  • Reporting – I’d love to be able to track what is working and who my top advocates are.
  • Admin Interface – I should be able to make changes to all of the above without bothering the development team.
Nice to have
  • Notifications – Even better! It would be great if the referrers could know when a friend signs up, or when they’ve earned a reward.  It would really help their engagement and trust in the program.
  • Marketing Friendly – Will it be easy for me to have them get their referral code from my other marketing tools?  Like automated emails?
  • Program Changes – We may want to A/B test some rewards and creative reward options.  Like, for every 5 referrals you get a bonus. Or what about percentages?
  • Multiple Programs – We have some partners who want to get in on these incentives but they will have a different program structure, so I need to keep them separate.
Wishlist
  • Integrations With Other Services – We love tying external services together with things like Zapier or IFTTT.
  • Reward Fulfillment – Oh, yeah!  Gift cards and PayPal payments.  Can we do that automatically?  That would save me hours per month.
  • Fraud Protection – Oh, yeah! And fraud protection. Let’s make sure we protect against fraud and people aren’t referring themselves.
  • CRM integration – Please tie this all into the CRM or the sales team is going to kill me.
Building your own

Sure, you might be able to build your own referral program. While some businesses choose to go that route, even if it works out fine, it often comes with a high price tag. It also involves many months of development.

A referral system means you don't have to do it all

If your team can take the time to set everything up, go for it. However, many teams do not have that extra time on their hands, so building a program can be cumbersome.  By utilizing a plug-and-play referral system, businesses are able to get a quality program that is designed to fit their needs.

The benefit of a platform is to enable businesses to provide certain capabilities to their customers that would otherwise be too difficult to do on their own. This then allows businesses to focus on their business responsibilities and focus on what they do best.

Businesses that have the resources can definitely benefit from an in-house build, as any issue that arises can be handled internally. But, it can be a time-consuming hassle to build an entire infrastructure from scratch.

Consider how to get sharing to happen

Ask and you shall receive! Well, that’s not always the case. If your program isn’t easy to share, it probably won’t get shared. So if you ask a customer to share, and it ends up being a difficult task for them, you’re out of luck. Providing customers with an easy way to share their links is essential. A referral platform provides unique links for all users

For Social Media: You need to make your program as easy to use as possible. We all know social media sites drive major traffic. So make sure it’s easy for your customers to share their link and for referrals to do the necessary steps.

Allows shared links via social media to display by way of open graph tags. The thumbnail associated with the shared link will appear just as you had planned.

For Email: The customer’s user dashboard should allow for easy sharing by email. Meaning, the customer should have the option to choose their email provider and automatically be able to sign-in to start sharing. This also means providing customers with an easy to use email form where they simply add their contact’s email and send.

For Mobile: This doesn’t necessarily mean having a mobile app in the app store.  Though that might be a great idea, it really just means having a mobile-friendly site. More likely than not, users will be accessing your program via their mobile phones.

Supporting your efforts

Don’t forget about support!  Remind your team that they will have to support you as well when things go wrong.  You’re bound to want to make changes to the program and tweak them as they go.  It may be hard enough for you to carve out some of their initial development time. Try getting them to support it.

3) Our business model is dependent on referrals so this needs to be built into the core product and experience

A referral management system can be built into your process

Our users are doing all sorts of activity in our app and business that using an external referral marketing service doesn’t make sense.  We want them to do activities that help referrals and loyalty so they can gain points to use.  There are so many things we will need that will be deeply integrated into our business and user experience.

Also, our branding and marketing are so vital and unique that it is very difficult for other marketing tools to replicate us to a T.

The deeper the integration with your core product, the better the experience.  Especially if you are dealing with a sort of internal currency or points that are used in your ecosystem.   Although many referral marketing services have extensive APIs, when you need something tightly integrated, it makes a lot of sense to roll your own.

If you are trying to blend referrals with a loyalty program and engagement, then it doesn’t make sense to use a referral marketing service.  Loyalty programs and referral programs are not the same. Referral programs reward the customer for bringing in new customers, whereas loyalty programs reward customers for frequent purchases. They definitely go hand-in-hand but are typically run separately.

4) I already do all sorts of marketing, referral marketing doesn’t seem too hard

I’m a marketer and referral marketing is just more marketing.  I get the customer journey, stages of the funnel, brand awareness…   I write all the copy for the business and I’ve dealt with complex marketing strategies with multiple personas and paths to generate a lead.  Referral marketing should be easy!
referral management is a lot different than typical marketing

Referral marketing is all about intentionally influencing the process of word of mouth. Whether it be with or without an incentive, referral marketing provides an easy process to allow for that word of mouth to happen. There are many nuances, multiple funnels, multiple user profiles, multiple touch points per profile and a workflow involved with sales.

Why you need an expert

Let’s face it, even the best marketers need tools and expert advice. There are about a million things a marketer has to do throughout the day. With the right tools at hand and a subject matter expert on-call, they can get their jobs done more efficiently.

Businesses who use referral marketing services are getting more than just an automated software platform. They are also gaining the historical knowledge of successful programs. Having a provider who specializes in referral marketing means that they more than likely have a knowledge of successful programs. The provider might even have some tips or advice on what is working with those other companies, as well.

Aligning branding and marketing 

It’s nice to have a program that can be altered and updated on an as-needed basis. Businesses often tweak their referral program a few times throughout their initial launch and will continue to edit and update it over time. Even if your IT department agrees to help you out, they’d probably rather you have the ability to continually change the design on your own.

It’s ideal when the person managing the referral program is able to easily edit the program on their own. Without this option, their IT department would be coding the program by hand. Generally speaking, software allows the referral program manager to make changes without a fuss, therefore alleviating that added effort from IT. Since many platforms have a user-friendly interface, the program manager can make updates quickly and seamlessly.

5) It doesn’t make financial sense/cents to pay for incentives and for the referral system themselves

referral software doesn't have to break the bank

I’m a small business and my product is something that people won’t like sharing publicly.  I’m concerned about spending money on software.  The product I sell has pretty thin margins, so it’s difficult to give additional incentives or discounts without eating away at my margin.

The numbers don’t work out for everyone, but you have to consider your true customer acquisition cost.  Remember how easy those referral sales are?  That may be a factor. If you’re worried about the costs of incentives, remember plenty of out of the box referral incentives you could try. Referral incentives don’t have to break the bank.

We don’t have the volume to justify the cost  

The numbers may not be sufficient and that’s fine, but very small programs can be successful with minimal effort. Some opt to use their own system of spreadsheets and custom forms because of this. It enables a business to build a program without having unnecessary add-ons.

My user acquisition cost vs LTV is thin enough as it is

Once you factor in referral incentives and the cost of outsourcing, your margin is gone.

Asking for referrals can increase the volume of referrals coming in. And, as it turns out, referred customers are really good customers. The best part is “referred customers are more profitable.” The same study suggests that referred customers are also more loyal and the lifetime value is 16% higher than average customers.

Creating points of engagement, like a referral program, can increase a customer’s lifetime value. You become embedded in their mind, therefore increasing LTV.

6) Legally, we can’t run an incentive-based referral program

My license and/or governing body is very specific in regards to rules on incentive-based referral programs.  It’s just not allowed.

Another one that is really hard to argue with.  There are cases it can work without incentives, but those are far from the norm.  Donations and giving back to the community through dollar matching or percentages of proceeds often work, but you probably don’t need a referral marketing service for that.

7) I don’t have any time to commit to making it work

There are so many things to do so my attention is all over the place.  I probably don’t have the time to commit to this.online referral system means more time

A referral program takes time and investment. You may need to make a few tweaks to get it going. If you’re not committed to testing your program and taking the time to make it work, then you’re right,  a program may not work for you. That said, software can make testing and tracking results a lot easier than doing so manually. Even still, a certain level of commitment is required.

On the other hand, a great service provider can help ease this.  That’s partly why referral marketing services exist, but you still need to be able to help connect the dots between your business and the referral program.  A successful referral program caters to your business.  It’s personalized and aligns with the business.  Only you can truly know if it’s fairly reflecting the business or not.

8) There aren’t incentives that make sense for my customers

My customers just aren’t going to share my business no matter what.

Reality: Depends

You know your customers and business.   Often times the incentives are immaterial, the same way prompting customers to share easily can yield some results. There are many types of businesses that just don’t work well for a referral program, although you would be surprised.   Some businesses we thought wouldn’t do well with referrals, have done surprisingly well.  We would have bet against STD screen services or traffic and divorce attorneys, but apparently, those do well with referral programs.

Referral programs aren’t magic, but they can be a very good compliment to a business. When they are paired with a good business and marketing strategy, to begin with, they can really help a business take off.

9) I’m not sure if I’m going to get the results

I have a strong hunch referral marketing can work for me but I’m really not sure.

This is actually one of the stronger arguments for outsourcing.  Your investment is low, and you can figure out if a referral program will work for your business without spending too much time on it. Outsourcing means you can launch a referral program with very little work involved on your end. You get an out-of-the-box experience, and also the chance to customize the program to your liking. You don’t have to worry about the ongoing needs for updating, debugging and keeping the software moving forward.

Typically, launching a program with the help of referral marketing platform means your program can be set up and ready to go within just a few hours or a few days. Even highly advanced programs can be set up in a relatively short time period.

And, if the results aren’t there, you’ll know, and you can just kill the program.

So should you use a referral marketing service?

Referral marketing services aren’t for everyone.  As we listed, there are some arguments that are perfectly valid and true, and some that are false, and many that are in-between and require a little more consideration, depending on your business. Ultimately the choice is yours, but if you find yourself in the market, you can check out a great list of referral marketing services we keep track of.

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Posted by Megan Mosley

Megan Mosley is a writer for Referral Rock. You can find her poking around online or tweeting about marketing, small businesses, SEO, or even sharing funny memes. She is addicted to coffee and uses it as a fuel to keep her going through the day.