50 Significant Referral Marketing Statistics: 2024 Data Analysis & Market Share

Unlike traditional word-of-mouth where consumers voluntarily share information about a brand or a product, referral marketing is created, prompted, and managed by companies with the intention of generating high-quality leads and retaining loyal customers by giving them rewards. Furthermore, referral marketing utilizes marketing software solutions that help ensure the smooth execution of referral programs.

In this article, we compiled some of the latest referral marketing statistics that show its value to how it works, its impact on both businesses and consumers, and more.

General Referral Marketing Statistics

There is a general consensus that says referral marketing is the most influential form of advertising. This is because consumers sharing experiences about a product or a brand have significant influences on other people, especially those they know personally. For the longest time, businesses have leveraged the power of word-of-mouth by turning it into one of the most effective marketing channels, especially when it comes to drawing new customers and establishing brand loyalty. And in this section, we share with you some of the general referral marketing statistics that demonstrate how valuable referral marketing is to the brands that utilize it.

• Every day, around 2.4 billion conversations that take place in the US are brand-related. (Miller)
• Consumers find word-of-mouth to be 2 to 10 more reliable than paid advertisements. (Boston Consulting Group)
• 69% of customers who had a positive experience with a company would recommend the brand to other people. (Groove, 2020)
• Leads from referrals have a 30% higher conversion rate than the leads generated from other marketing channels. (Ross)
• In terms of lifetime value, referral leads are also ahead by 16% compared to others. (Ross)
• Referred customers are 4 times more likely to refer your brand to others. (Ross)
• Referred customers have a 37% higher retention rate compared to other customers gained through other marketing channels. (Ross)
• 29% of satisfied customers refer products and services to others. (Chua, 2021)
• 92% of consumers trust the referral or recommendations of people they know personally. (Chua, 2021)
• In the US, 49% of shoppers get introduced to brands or products/services by their family members and friends. (Miller, n.d.)
• For every 1 happy customer, you also get 9 referrals. (Ong, 2020)
• 29% of B2B tech buyers claim that friends are their reliable sources of information. (Sullivan-Hasson, 2020)
• 82% of B2B sales leaders believe that referrals generate the best leads. (Williams)
• Word-of-mouth can increase the effectiveness of marketing efforts by 54%. (Jankowski)
• An average of 20,000 new email addresses per month can be generated from customer referral programs. (Miller)
• 70.5% of e-commerce website referral traffic in the US is generated from smartphones. (Sabanoglu, 2020; Droesch, 2019)

Market Statistics of Referral Marketing

While other industries’ market value suffered under the economic onslaught of the COVID-19 crisis, the referral marketing market found growth opportunities. According to Fortune Business Insights, the referral marketing software especially has shown significant growth potential in the midst of an ongoing pandemic. Based on the same report, the main driver behind this growth opportunity is the growing preference of businesses for cloud-based referral and affiliate marketing solutions, which are not only more convenient but also more cost-efficient.

• During the first wave of lockdowns, referrals grew by 425%. (King, 2021)
• The referral marketing software market is projected to reach $713.3 million in 2027. (Fortune Business Insights, 2021)
• Before COVID-19, only 3% of decision-makers from global e-commerce companies agreed that referral is a marketing channel that can provide the best ROI. (Guttman, 2020)
• However, during the COVID-19 outbreak, 49% of B2B tech vendors agree that customer referrals have been their most effective marketing tactic. (Sullivan, 2020; Statista, 2020)
• 86% of businesses with structured referral programs have experienced revenue growth within a two-year period. (Williams)
• Only 22% of companies use referral tools or solutions to scale their programs. (Williams)

Social Media Referral Marketing Statistics

One of the most popular and successful referral marketing examples is PayPal’s user base growth strategy that happened in the early 2000s. To grow its user base, PayPal invested $60 million on referral incentives, which they promoted via blogs, email marketing platforms, and online chats or IMs. At a time when social media was not yet a thing, PayPal managed to achieve 7% to 10% growth in their user base. Between March and the summer of 2000, PayPal gained more than six million members thanks to its referral program initiative.

Since then, the channels where referral marketing campaigns can be promoted have expanded. Now that referral marketing has gone digital, let us take a look at how referrals are shared online, as well as the main drivers behind these referral programs.

• 42.6% of social media referral share in the first quarter of 2020 happened on Facebook. (Insider Intelligence l eMarketer, 2020)
• 85% of brand followers on Facebook are likely to recommend the brands to others. (Syncapse)
• Furthermore, 33% of Facebook users have been convinced to purchase a product posted by a friend. (Miller)
• 55% of consumers share their purchases on social media platforms. (Miller)
• On Pinterest, 59% of its users have bought products or items that have been shared on the site. (Miller)
• On Instagram, 75% of the users who get inspired by a post will either purchase a product or share the information with a friend. (G, 2021)
• 79% of Facebook users will like a brand or product page to get discounts and other incentives. (George)
• Facebook (3.9%) and Twitter (0,7%) are two of the most effective platforms to promote referral programs after copy/paste and email. (Mention Me)
• 33% of Facebook users have purchased a product they found on the platform. (Miller)
• When referred via social media, 71% of consumers are more likely to make a purchase. (Get the Referral)

Referral Marketing Statistics Across Generations

Different generations have their own traits in terms of how their tendency to influence others people in giving a new product or brand a try. Among the factors to consider when targeting a specific demographic are the population size and buying power. In 2020, millennials became the largest generation in America.

Defined as the generation made up of 23- to 38-year-olds in 2019, millennials became the generation that brands wanted to win over with referrals. Gen Z, however, is catching up not only in their number but also in their spending power. And in this section, let us take a look at how referral marketing works in various age groups.

• 82% of Gen Zers rely on their family’s and friends’ advice when it comes to products. (Georgiev, 2021)
• 68% of Gen Zers are willing to recommend a product they use regularly to a friend. (Ruff, 2019)
• Meanwhile, 41% of Gen Zers will refer a friend just to qualify for a reward. (Ruff, 2019)
• As for millennials, 91% may buy a product if it has been recommended by a friend. (Annex Cloud)
• Furthermore, 28% of millennials will not try a product disliked by their friends. (Mallon)
• The conversion rate of referrals among millennials is nearly the same as the Gen X age group. (Annex Cloud)
• Word-of-mouth influences 48% of millennials more than television advertisements. (Media Venue)
• Gen X accounts for 56% of referrals followed by millennials and then Baby Boomers. (Annex Cloud)
• Gen X also has the highest referral conversion rate across three generations. (Annex Cloud)

Referral Rewards Statistics

Referral programs usually work in a way that benefits the customers who refer other people. While there are no set rules in terms of how the incentive should be distributed between the promoter and the referred friend, it has been a common practice to follow a “one-size-fits-all” program. On the other hand, there are businesses that implement tiered referral programs. Tiered programs offer different rewards depending on various categories such as prospect value, etc. Between these two types of referrals, tiered programs have been found to present better ROI and program engagement opportunities. Despite this, tiers remain underutilized by businesses.

According to SaaSquatch’s 2020 marketing referral report, 90% of referral programs are two-sided initiatives. The two sides here, however, do not factor in the brand or company itself, but the promoter or the existing customer and the friend or new customer they referred. Below are some of the relevant statistics gathered from the same report.

• 86% of referral programs do not use a tiered reward structure–only 13% do.
• 50% of referral programs reward promoters with dollars of credit.
• $10 dollars is the most common value of a dollar credit referral.
• As for discount referral rewards, the most common reward value is 20% discount–this applies across all industries.
• 35% of businesses that offer gift cards as referral rewards also offer a varied selection of vendors where the gift cards can be used.
• 72% of referral programs offer the same amount of reward value to both the promoter and the person they referred.
• Nearly 85% of referral programs reward the referred friend immediately after receiving an invite the promoted. However, 15% of referral programs only reward the referred friend once they make a purchase or once the conversion is considered a success.
• 90% of referral programs define a successful conversion when the referred friend makes a purchase.
• According to 84% of B2B decision-makers, the B2B buying process starts with a referral.
• Approximately 50% of customers will refer their friends or family members if there is a direct referral incentive. (Borowski)

Key Metrics of Referral Marketing Programs

Measuring the success of a referral marketing program is essential for understanding its effectiveness and making necessary adjustments. Here are the key metrics to focus on:

• Referral Conversion Rate: This metric tracks the percentage of referred customers who make a purchase. A high conversion rate indicates that the referral program attracts highly qualified leads. To calculate this, divide the number of successful referrals by the total number of referrals, then multiply by 100.
• Customer Acquisition Cost (CAC) from Referrals: CAC refers to acquiring a new customer, including marketing and advertising expenses. For referral programs, this is calculated by dividing the total cost of your referral campaign by the number of new customers acquired. A low CAC for referred customers is a sign of an effective program.
• Customer Lifetime Value (CLV) of Referrals: CLV measures the total revenue a customer will generate during their relationship with your business. Tracking the CLV of referred customers versus non-referred customers helps gauge the long-term value of referral leads. Referred customers typically have a higher CLV due to increased loyalty.
• Referral Program Participation Rate: This metric measures the percentage of existing customers participating in the referral program. A higher participation rate suggests that your existing customers are engaged and enthusiastic about sharing your brand with others. To calculate, divide the participants by the total number of customers.
• Referral Source Quality: It’s important to assess where your best referrals are coming from. Whether it’s social media, email, or other channels, identifying the highest-performing sources helps optimize marketing efforts and allocate resources more effectively.
• Cost per Referral (CPR): CPR is the cost incurred for each new referral brought into your program. A lower CPR means your referral program is more cost-effective and generates high returns on investment (ROI).

Referral Marketing Is Helping Business Sectors Thrive Amid the COVID-19 Outbreak

A year after COVID-19 threw the world off its regular course, many industries are still struggling to fall back into their normal operations. However, there are businesses that have gradually adapted to how the new normal works. For example, businesses involved in gifting, fitness and health, beauty, food and drink, and home and gardening have experienced a surge not only in order volumes but also in the number of new customers with the help of referral marketing programs.

Thus far, referral marketing remains invaluable to businesses, especially those that operate on digital platforms whether partially or fully. Referral marketing, however, is just part of the bigger picture of marketing. And if you would like to learn more about how to map your marketing strategies for 2021, you may check out our current marketing trends and predictions post.

Key Insights

• Referral marketing is a highly effective strategy where companies incentivize customers to refer new clients.
• Leads from referrals have a 30% higher conversion rate and a 16% higher lifetime value compared to other leads.
• Referral programs generate significant brand-related conversations, with around 2.4 billion happening daily in the US.
• Social media is a powerful tool for referral marketing, with Facebook leading at 42.6% of social media referrals.
• Referral marketing saw a significant boost during the COVID-19 pandemic, with referrals growing by 425% during lockdowns.
• Millennials and Gen Z are highly influenced by referrals, with 91% of millennials likely to buy products recommended by friends.
• The most common referral rewards include dollar credits and discounts, with 86% of programs not using a tiered reward structure.
• Businesses with structured referral programs have seen significant revenue growth, with 86% experiencing growth within two years.

FAQ

1. What is referral marketing? Referral marketing is a strategy where companies incentivize their existing customers to refer new clients. This is typically done through rewards or incentives, which can include discounts, credits, or other benefits.
2. Why is referral marketing considered effective? Referral marketing is effective because it leverages the trust and credibility of personal recommendations. Statistics show that referred leads have higher conversion rates and lifetime value. Additionally, consumers trust referrals from people they know more than traditional advertising.
3. How did the COVID-19 pandemic impact referral marketing? The COVID-19 pandemic significantly boosted referral marketing as businesses adapted to new consumer behaviors. During the first wave of lockdowns, referrals grew by 425%, highlighting the increased reliance on digital and referral-based marketing strategies.
4. What are some common rewards used in referral programs? Common rewards in referral programs include dollar credits, percentage discounts, gift cards, and subscription time. These rewards are designed to incentivize both the promoter and the referred friend, encouraging participation in the referral program.
5. How do different generations respond to referral marketing? Different generations respond uniquely to referral marketing. For instance, 91% of millennials are likely to buy products recommended by friends, while 82% of Gen Zers rely on their family’s and friends’ advice for product decisions. Gen X has the highest referral conversion rate among all generations.
6. What role does social media play in referral marketing? Social media plays a crucial role in referral marketing by providing a platform for sharing recommendations and experiences. Facebook, in particular, is a dominant channel, with 42.6% of social media referral shares occurring on the platform. Social media helps amplify the reach and impact of referral marketing campaigns.

References

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By Nestor Gilbert

Nestor Gilbert is a senior B2B and SaaS analyst and a core contributor at FinancesOnline for over 5 years. With his experience in software development and extensive knowledge of SaaS management, he writes mostly about emerging B2B technologies and their impact on the current business landscape. However, he also provides in-depth reviews on a wide range of software solutions to help businesses find suitable options for them. Through his work, he aims to help companies develop a more tech-forward approach to their operations and overcome their SaaS-related challenges.