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The Value of Referral Marketing: Need-to-Know Statistics and Trends

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For local businesses, referrals can go a long way. 

 

Referral marketing is a powerful form of word of mouth marketing you can use to boost your conversion rates and attract more loyal customers.

 

If you have a group of regular and happy customers, asking them to spread the good word about your business to their friends and family can improve your business’s customer acquisition. 

 

Why is that, exactly? 

 

Customers trust recommendations they receive from sources they know. No matter how many different strategies your business uses as part of its digital marketing efforts, there’s nothing quite like a glowing referral!

 

To better understand the value of building a referral marketing program, here are some powerful statistics at a glance: 

 

  • 92% of consumers trust referrals from people they know.
  • Customers referred by other customers have a 37% higher retention rate.
  • 65% of new business opportunities come from referrals and recommendations.
  • 82% of small businesses claim referrals as their main source of new business.
  • 91% of people in the US would share exclusive offers and good deals with friends and family.
  • 83% of consumers say they are willing to refer your business after a positive experience.
  • Referred customers’ lifetime value is 16% higher than non-referred customers.
  • Consumers are four times more likely to purchase or engage a business when referred by a friend.
  • Referred customers can increase your profit margin by 25%.
  • Referred customers convert at a rate that’s 30% higher than leads generated from other marketing channels.
  • 27% of sales reps claim they get more than 50% of new clients through referrals.
  • More than 50% of people are likely to give a referral if offered an incentive, social media recognition, or access to a loyalty program.
  • A referral program with an incentive/reward can incite more than 50% of people to refer new customers to your business.
  • 69% of consumers are more likely to try a brand/business if they give rewards.
  • 64% of consumers believe a referral program’s rewards will impact how much they spend.
  • 90% of top-performing marketers are incorporating social media into their advertising strategies.
  • 78% of businesses that use social media to market and gain referrals are performing better than their peers.
  • 81% of purchasing decisions in the US are influenced by friends’ and family members’ social media posts.
  • 67% of consumers say they’re more likely to purchase a product or engage a business if a family member or friend shared it on social media.
  • 71% of consumers are more likely to make a purchase or engage a business based on social media referrals.
  • 97% of people read online reviews of small and local businesses.
  • 79% of consumers trust online reviews as much as a personal recommendation or referral from a friend or family member.
  • 94% of consumers report that positive reviews make them more likely to contact and use a business.
  • 70% of consumers give more credibility to online reviews and peer recommendations and images than professionally-written content and ads.
  • Four out of five consumers will change their minds about a business and their purchase decisions based on negative reviews.

Keep reading to find out how you can use this information to drive a higher conversion rate! 

The Power of Referral Marketing

In the hands of a well-equipped marketer, referral marketing is a powerful marketing strategy that can be used to transform businesses. Building a customer referral program can drive a significant impact on your home service business. Don’t take our word at face value! Here are the statistics from various respondents to prove it: 

 

    • 92% of consumers trust referrals from people they know: There’s a difference between reading reviews on social networks versus hearing one directly from a family member or friend. For most customers, a referral from a trusted source acts as a guarantee for the quality of your services.

       

    • Customers referred by other customers have a 37% higher retention rate: Suppose you’re in the plumbing business and you just installed a water heater at a very happy customer’s house. If they bring you a referral customer, they are more likely to stay with you than a new customer who found you organically. Why? Because they already trust your business, even before receiving the service.

       

    • 65% of new business opportunities come from referrals and recommendations: Referral marketing can grow your business if implemented strategically. It’s one of the best ways to expand your reach, especially if you’re a home service business based in a neighborhood with a tight-knit community.

       

    • 82% of small businesses claim referrals as their main source of new business: Many local businesses without massive marketing budgets rely on referrals for new leads and sales. Existing customers essentially act as brand advocates and influencers, helping attract more like-minded customers to your business.

       

    • 91% of people in the US would share exclusive offers and good deals with friends and family: For home service businesses, most customers come from the local community or geographical location. Thus, enticing offers are usually shared and passed on with close friends and family living nearby, who are more likely to want your services.

       

    • 83% of consumers say they are willing to refer your business after a positive experience: If customers are happy with your services, they’re more likely to go the extra mile and write a positive review or share the joy!

       

  • Referred customers’ lifetime value is 16% higher than non-referred customers: From the get-go, a referred customer is more likely to stay with your business or pay a premium for your services. This is even more the case with home service businesses. It’s rare to hear about customers switching their electrician, especially if they’ve grown comfortable from the start of their relationship with your business. 

Sales, Sales, Sales

The effects of referral marketing will undoubtedly trickle down to your sales funnel. Here’s the proof: 

 

  • Consumers are four times more likely to purchase or engage a business when referred by a friend: Think about it. Would you rather hire a contractor you’ve never heard of and only known through Google searches or someone who’s already worked with a close friend and has done a great job?

     

  • Referred customers can increase your profit margin by 25%: For home service businesses, frequent customer purchases are rare, unlike retail services. One project with a customer can account for a larger share of the profit margin. Gaining customers through referrals, who are more ready to trust your business, can boost that margin even more.

     

  • Referred customers convert at a rate that’s 30% higher than leads generated from other marketing channels: Trust is the key. Your customers want to trust you. Unlike other marketing channels where you gradually have to build that trust, with referral marketing, you have their faith from day one.

     

  • 27% of sales reps claim they get more than 50% of new clients through referrals: Customers that see your business come with a stamp of approval are more likely to actually do business with you, ultimately converting them into loyal customers. 

Incentives and Rewards

Incentives and rewards are critical components of a referral marketing program. Whether you have a new product or service you want to give out in exchange for a referral, or you’re just looking to grow your customer base, offering incentives can impact the success of your referral marketing.

 

Here’s why incentives are so important: 

 

  • More than 50% of people are likely to give a referral if offered an incentive, social media recognition, or access to a loyalty program: Your customers want to feel valued. They want your business to recognize their efforts. By offering them a gift or reward, they’ll be more inclined to spread positive word of mouth.
  • A referral program with an incentive/reward can incite more than 50% of people to refer new customers to your business: The better and more attractive the incentive, the more successful your referral marketing program! Research what your customers are looking for in terms of rewards, then build them into your referral programs!
  • 69% of consumers are more likely to try a brand/business if they give rewards: In a customer’s eyes, a business with the resources to provide rewards and keep their existing customers happy is more likely to also be able to satisfy new customers.
  • 64% of consumers believe a referral program’s rewards will impact how much they spend: The more attractive the program’s rewards are, the more likely a customer will be to spend on your business and its services. If they feel they’re being given VIP treatment and excellent rewards, they just might reward your business right back in the form of higher sales!

 

Social Media Referral Marketing Statistics

With the growing millennial population, you cannot discount the effectiveness of social media. Here’s why you should incorporate it into your referral marketing: 

 

  • 90% of top-performing marketers are incorporating social media into their advertising strategies: Social media has grown immensely over the last decade and has become a go-to platform for information and promotion for both B2B marketers and B2C marketers.
  • 81% of purchasing decisions in the US are influenced by friends’ and family members’ social media posts: A homeowner that sees a review or social media post from a friend about a local electrician is more likely to engage with them. The decision to then use that electrician is also influenced by what the friend or family member has said.
  • 67% of consumers say they’re more likely to purchase a product or engage a business if a family member or friend shared it on social media: Online reviews act as social proof and can be a powerful way to boost your business’s exposure. When someone posts about your services or products on social media, their friends and family will want in!
  • 71% of consumers are more likely to make a purchase or engage a business based on social media referrals: Your business is made more accessible via the internet. Finding information has never been easier, and most consumers take the referrals they see online at face value, making them a lot more powerful. 

Online Reviews and Customer Trust

Trust, trust, trust. It’s the secret ingredient to any business’s successful relationship with a customer. 

 

Here’s why it’s so important to establish that trust online: 

 

  • 97% of consumers read online reviews of small and local businesses: This has become a go-to practice for many customers. Verifying a business’s authenticity, especially in smaller and local businesses, is important for most customers before they ever decide to engage.
  • 79% of consumers trust online reviews as much as a personal recommendation or referral from a friend or family member: If a customer hears a good review from a friend but then goes online to see five bad reviews about your business, their faith will be shaken. It’s not enough to build up your offline marketing; your business’s online reputation should also be stellar!
  • 94% of consumers report that positive reviews make them more likely to contact and use a business: The higher the number of positive and problem-free reviews, the more a potential customer will trust you and want to frequent your business.


  • 70% of consumers give more credibility to online reviews and peer recommendations and images than professionally-written content and ads: Ads come from a business and can be crafted according to a specific strategy. But online reviews act as advertising directly from a customer who’s an external part of your business. Hence, they’re more likely to be unbiased and trusted.
  • Four out of five consumers will change their minds about a business and their purchase decisions based on negative reviews: For home service businesses, having a negative review can be disastrous, especially if your customers are all based locally. The solution? Build as many positive reviews as you can and manage a strong online reputation

Stay Ahead of the Trend with Signpost

Now that you’ve become familiar with all the important referral marketing statistics, what’s holding you back from creating your own referral marketing program?

Absolutely nothing! 

Signpost can help take your digital marketing to the next level through smart automation and by helping manage your online reviews

Together, we can build a referral marketing program that will help your business grow sooner than you expect!

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