Imagine doubling your customer base without increasing your advertising spend. That’s the power of referrals — low-cost, trust-driven and as effective as a paid campaign (sometimes, even more so).
For businesses, especially those on a budget, customer referrals are among the most valuable organic growth strategies around. Referral marketing taps into the most reliable form of promotion: one person recommending a product or service to another.
When people hear about a brand from someone they know, trust is built instantly. Unlike ads, client referrals carry real-world credibility. After all, whose opinion would you trust more: a faceless brand or someone who’s already experienced what you’re considering spending money on?
In this article, we’ll explain the three types of referrals every business should know: direct, incentivized and review-based. We’ll also discuss how strategies like networking referrals, affiliate referrals and organic brand advocacy can result in long-term, sustainable business growth.
Included in this blog:
• 3 Types of Marketing Referrals To Know for Maximum Growth
• Building a Balanced Referral Engine
• Use Referrals to Boost Your Bottom Line: Partner With Thrive Local
Growth Multipliers: Understanding the Three Types of Marketing Referrals (and How to Use Them)
Not all referrals work the same way, and contrary to common misconception, not all of them happen by chance.
To build a strong, reliable referral engine, it’s essential to understand the different ways people share and recommend brands.
Here are the three main types of referrals in marketing and actionable tips to use each one:
1. Direct Referrals
Also called word-of-mouth marketing or client referrals, direct referrals happen when a customer recommends your business to someone they know. Often, this type of endorsement happens unprompted. A friend could recommend a new restaurant over coffee, a coworker could suggest a software package in a Zoom meeting or your neighbor could suggest you hire the same landscaping company they use.
Word-of-mouth marketing is incredibly powerful and is often credited with driving the majority of purchase decisions.
What’s more, recent surveys have found that 36% of Internet users discovered new brands, products and services via word-of-mouth recommendations. What this tells us is that not only do direct referrals influence purchase decisions, they also impact brand discovery.
And, despite how direct referrals are often seen as an old-fashioned tactic, word-of-mouth marketing is actually effective even among digitally savvy consumers.
Why Direct Referrals Work
Word-of-mouth works because of psychological and social factors.
Trust
People trust their loved ones’ and peers’ recommendations because of a perceived lack of ulterior motives. We know that brands and marketers have something to gain when advertising their offerings. Meanwhile, your cousin, coworker or neighbor is likely driven by nothing but a desire to help you when they recommend a product or service to you.
Social Proof
When others speak positively about a brand, it signals quality and reliability. If people in your network are using a product or service and finding value, it validates your own interest in trying it.
Reduced Risk
Referrals help ease buyer hesitation. Hearing that someone you trust had a good experience with a brand reduces uncertainty and makes the purchase feel safer and more predictable.
Authenticity
Unscripted, unpaid recommendations tend to feel more genuine. They’re not polished marketing messages. Instead, they’re real stories, experiences and outcomes shared by real people.
Emotional Connection
Imagine you’re thinking about trying a new restaurant. You scroll through your social media feed and spot a post proclaiming:
“Enjoy delicious, fresh and handcrafted sushi.”
It sounds appealing enough. But later, a friend tells you:
“Have you been to the new Japanese restaurant downtown? Their sushi is amazing. It’s just as good as the sushi I had when I lived in Japan!”
Which one do you think would influence your decision more?
Direct referrals often come with a personal backstory. Whether it’s about a product that solved a specific problem or a service that exceeded expectations, an emotionally-driven story makes the recommendation more memorable and compelling.
For these reasons, a referral from a friend or colleague is far more persuasive than any billboard or social ad.
In a nutshell, direct referrals are especially effective and valuable because:
• They’re highly trusted. There’s no sales pitch — just honest opinions. People trust direct referrals because they come from personal relationships, where the motivation is to help, not to sell—making the recommendation feel genuine and unbiased.
• They convert better. Leads from referrals are already warm. This is because referred leads have some established level of trust in the product or service.
• They build loyalty. Customers who refer others tend to stick around. Plus, they’re likely to refer more people to a business. A study by Wharton found that referred customers deliver up to 25% more lifetime value than other customers AND their churn rate is approximately 18% lower.
Direct referrals are particularly impactful in service-based industries and high-ticket purchases, where trust plays a bigger role in the decision-making process.
How to Encourage Direct Referrals
If you want more people talking about your brand, it starts with how you treat them.
• Focus on Quality: Offer products that are well-designed, reliable and worth recommending. When customers feel confident in what they’ve purchased, they’re much more likely to share their experience with others.
• Deliver Standout Customer Service. Whether you sell products or offer solutions, if you exceed expectations, people remember. They also share their good thoughts about your business with others.
• Make referrals easy. Create simple email templates for reminders that gently nudge your happy customer to tell their friends.
• Leverage Social Media: While direct referrals are “old school,” the way you encourage them doesn’t have to be. Social media platforms are excellent for encouraging personal recommendations. Ask your customers to tag you in their posts and encourage them to share their experience. This helps boost your visibility across networks and gets your brand spoken about.
• Tap Into Networking. Referrals don’t always come from customers. Sometimes, they come from people in your professional circle. Think business owners you’ve met at events, local partners or even vendors. These networking referrals often happen through casual conversations or shared connections and can be incredibly valuable, especially for service-based businesses or local companies.
To encourage more networking referrals:
• Show up consistently in your industry or community.
• Be clear about what you offer and who you serve.
• Refer others when it makes sense. Networking referrals are often reciprocated.
• Create mutual referral partnerships. Pair up with complementary businesses to refer clients to each other. A web designer might refer clients to a copywriter, for example, and both benefit.
| Key Takeaway: A strong direct referral strategy isn’t built overnight. But over time, it compounds, bringing in high-value leads with practically zero ad spend. |
2. Incentivized Referrals (Including Affiliate Referrals)
As the name suggests, incentivized referrals involve rewards. Basically, you offer something in return for sending leads your way, like a discount, a gift card or a free month of service. This category also includes affiliate referrals, where partners receive a commission for every sale they help generate.
Unlike direct referrals, which happen organically, incentivized and affiliate referrals are driven by motivation. You’re giving people a great reason to recommend your business.
Many companies use incentivized referrals to grow their leads and boost their conversions. Some big-name brands that have referral programs are:
• Dropbox: Users get up to 16 GB of free space for referrals. Meanwhile, referred customers also get 500 MB of additional storage free.
• Airbnb: Airbnb users are rewarded with travel credits that can be used for future stays and Experience bookings for completed referrals.
• Wise: Once three referrals transfer £200 each, the referrer receives up to £75 as a thank-you bonus.
What About Affiliate Marketing?
Affiliate marketing is a more structured type of incentivized referral. Instead of casual recommendations, affiliates actively promote your products through their websites, email lists or social media using trackable links or discount codes. In return, they earn a commission for every sale they help generate.
Affiliate programs are performance-based, which means you only pay when results come in. That’s part of the appeal, especially for brands that want to scale outreach without blowing their ad budget. Affiliate programs work particularly well for eCommerce and digital products, where purchases can be tracked instantly.
Affiliate referrals work best when you have a clear product offering, a compelling commission structure and people in your network with relevant audiences. What’s more, with the right offer and onboarding, your affiliates can become long-term brand partners — not just one-time promoters.
Why This Works
1. They’re Scalable
Once your referral program is in place, it doesn’t need constant attention. That’s part of what makes it so valuable: your happy customers can keep referring others without requiring a lot of effort on your end.
Research shows that referral programs can help businesses build a consistent pipeline of warm leads, all driven by word-of-mouth momentum.
2. They’re Measurable
With referral codes, tracking links and affiliate dashboards, you can see who referred whom, how much they spent and what rewards were earned. These make it easy to track performance and return on investment (ROI) and know what’s working so you can adjust your rewards as needed.
The measurability of incentivized customer referrals helps businesses optimize their programs using hard data, instead of guessing what’s driving growth.
3. They Encourage Action
People may like your brand, but that doesn’t mean they’ll take the time to recommend it unless there’s a reason to. Incentives turn passive fans into active promoters.
How to Implement Incentivized Referrals
• Create a formal referral program. Start with a simple structure: offer something valuable to both the referrer and the referred customer. For example: “Share the love! For every friend who spends $10, you earn $5 in store credit.”
• Incorporate loyalty rewards. Tie your referral program to your loyalty rewards system so that every referral also counts toward future rewards. This not only incentivizes one-time sharing but also encourages long-term participation. Customers who earn loyalty rewards points or perks for referrals are more likely to keep spreading the word, especially when their efforts bring them closer to discounts, free products or exclusive access.
• Build tiers or bonuses. Reward top referrers with exclusive perks to keep them engaged.
• Equip your referrers. Give them branded assets, sample messages and content to make sharing easier and more consistent.
| Key Takeaway: Offering a reward gives customers that extra push to share your product with their network, and once they do, your brand gains instant trust and exposure. |
3. Review-Based Referrals
Review-based referrals happen when customers promote your business publicly through reviews, testimonials or content. For instance, a customer might give feedback on your company or offerings on your Google Business Profile, Yelp or other review platforms.
While not quite as impactful as direct referrals, review-based customer referrals are still compelling, have a broader reach and contribute significantly to your online reputation and search engine visibility.
Why Review-Based Referrals Work
1. They’re Social Proof
Most people read reviews before making a purchase. It’s one of the first things we do when we’re on the fence about a business. A 2022 study found that online reviews significantly influence buyer decisions by reducing uncertainty and building trust (Frontiers).
2. They Build Credibility Before Contact
When someone sees a real person vouching for your product or service, it creates instant credibility, even without having seen or used it. According to research published in ScienceDirect, peer-to-peer endorsements help establish trust even before someone interacts with your brand directly.
3. They Improve Visibility
Google factors in review quantity, quality and frequency when ranking local businesses. A regular influx of positive reviews can boost your rankings and attract more organic traffic without you having to spend more on ads.
4. They Drive Action
A great review can be the final push someone needs to click “buy.” Several studies, including one published in the International Journal of Research and Analytical Reviews (IJRAR), show buyers are more likely to follow through with a purchase when positive reviews reinforce their decision.
| Key Takeaway: Review-based client referrals are passive but powerful. As one of the most effective organic growth strategies you can use, they help you reach people who may have never heard of your brand but are looking for what you offer. |
How to Encourage Review-Based Referrals
1. Ask at the Right Time
Timing is everything. After a positive interaction, follow up with a request for a review. For online purchases, a short email or text can do the trick. Meanwhile, for face-to-face interactions, train your staff to request reviews after a successful transaction.
2. Make It Simple
The best way to encourage customers to leave meaningful, detailed reviews that influence others is to reduce friction.
“Make it easy and fast by sending SMS, email or using a QR code,” said Tim Clarke, Senior Reputation Manager at Thrive Local.
“Also, you can motivate the customer by asking for detailed feedback or prompting them by asking about service, quality, process, etc.”
Leaving a review already takes time and effort on the customer’s part. Instead of making them search for you online, provide them with direct links to your business’s listings on Google, Yelp and other relevant review sites.
3. Showcase Testimonials
Customer reviews are a form of user-generated content (UGC). Like other types of UGC, they’re great tools for building trust and making your brand appear more authentic and, thus, more appealing. They’re particularly impactful now that artificial intelligence (AI) generated content seems to have taken over the internet.
More than ever, consumers want real opinions from real people, especially when making a buying decision. Reviews provide that human voice and first-hand experience that AI can’t replicate. They reassure potential customers that your product or service delivers on what it promises.
A survey by The Drum has found that:
• 86% of respondents said they’re more likely to trust brands that publish UGC
• 82% said they’d be more inclined to purchase from a brand that uses UGC in its marketing
To make the most out of review-based referrals, reuse them. You can amplify their ability to persuade and convert potential customers by showcasing them in:
• Email marketing
• Organic social posts
• Social ads
• Landing pages
Doing so reinforces trust in your brand offerings and encourages even more customers to share their own experiences. This creates a steady stream of happy customers and valuable review-based referrals.
4. Ask for Other User-Generated Content
Written reviews are powerful, but sometimes, a picture speaks louder than words. This is especially true when your target customers prefer visual content, like photos or short videos, over long text.
Additionally, images and videos create even more authenticity by showing real people using and enjoying your product or service in everyday settings. This kind of UGC helps build emotional connection, trust and relatability, all of which can influence purchase decisions.
Encourage your customers to share images of your product in use, unboxing moments, before-and-after results and the like.
You can also ask them to tag you in posts and videos where they talk about your offerings. With your customers’ permission, you can repurpose visual UGC like you would written reviews: by posting them across your website, social media, ads and email marketing.
5. Respond to Your Reviews
Always reply to your reviews, both positive and negative. Engagement shows that you care about your customers’ experience, and it encourages others to leave feedback, too.
6. Send Feedback Surveys
A feedback survey is a structured way to ask your customers about their experience. It helps you gather insights on what’s working, what’s not and where you can improve. You can also use surveys to identify happy customers who might be willing to leave a public review, turning private feedback into social proof.
“Use a two-tiered approach where you start by asking for a review or survey response, then do referrals next,” Clarke said. “You could ask for reviews now and then contact everyone who responded positively with a referral request 30 to 90 days later to create a longer-term strategy.”
Building a Balanced Referral Engine
No single referral type works in isolation. To get the most out of referral marketing, you need a strategy that combines all three:
• Direct referrals bring in high-trust leads.
• Incentivized referrals drive volume and repeat engagement.
• Review-based referrals generate organic visibility and build trust.
By using these organic growth strategies, you benefit from a steady flow of new customers who arrive at your landing pages or online stores informed, motivated and often pre-sold.
Use Referrals to Boost Your Bottom Line: Partner With Thrive Local
Referral programs don’t have to be complicated, but they do need to be intentional. If you’re unsure where to start or how to scale, turn to Thrive Local.
Our team helps businesses develop and manage referral strategies that combine direct outreach, incentive-driven programs and review amplification. Whether you’re launching from scratch or refining an existing program, you can trust us to guide you as you leverage referrals and reviews for long-term, sustainable growth.
Want to grow your business through referrals? Contact Thrive Local today and turn your satisfied customers into your most powerful marketers.
