Merriam-Webster defines word of mouth as "oral communication," especially spoken publicity (Merriam-Webster). In business, it is a client or partner who tells someone about you when that person needs what you sell. The prospect who calls you already knows your name and trusts the person who gave it.
This guide is for service businesses that grow through referrals: real estate agents, mortgage brokers, financial advisors, accountants, lawyers, consultants and contractors.
In short: Ask for a referral when the client sees the result of your work, and give them a simple way to send you a contact. Then track every referral until the deal closes or falls through, and keep the person who sent it informed at each stage.
What word of mouth marketing is
Word of mouth is any recommendation passed from one person to another, in conversation, by message or online. Word of mouth marketing is the work a business does to start and steer those conversations. McKinsey describes three forms (McKinsey Quarterly, 2010):
- Experiential: a client talks about their own experience with you. McKinsey calls it the most common and powerful form, typically 50 to 80 percent of word of mouth activity in a product category.
- Consequential: people who see your marketing pass the message on.
- Intentional: the business sets out to create buzz, for example with a celebrity endorsement.
For a service business, the experiential form matters most. Clients mostly talk about an experience that differed from what they expected, so deliver that experience, then make it easy to pass on.
Word of mouth, referrals and referral partnerships
All three start with someone who talks about you. They differ in what you do before and after that conversation.
| Criterion | Spontaneous word of mouth | Organized referrals | Paid referral partnership |
|---|---|---|---|
| Who talks about you | A client or friend, when the occasion arises | A client or partner you asked | A referral partner bound by a written agreement |
| Your role | Do good work and wait | Ask, make it easy, thank, follow up | Set the fee, track every lead, pay |
| What the referrer gets | Nothing | A thank-you, sometimes a gift | The fee set in the agreement |
| What you measure | Almost nothing | Referrals received and deals closed | Revenue and fees per partner |
In a paid referral partnership, the partner introduces a client, you close the sale, then you pay the fee set in their agreement. Our guides to what a referral partner is and to the referral agreement cover the role and the contract.
Why word of mouth works
Your prospects trust people they know
In a Nielsen survey of more than 40,000 consumers worldwide, run in September 2021, 88% of respondents trusted recommendations from people they know more than any other channel (Nielsen, Trust in Advertising 2021).
It weighs most on first and expensive purchases
According to McKinsey, word of mouth is the primary factor behind 20 to 50 percent of all purchasing decisions, and its influence is greatest for a first purchase or a relatively expensive one. A high-impact recommendation, such as a relevant message from a trusted friend, is up to 50 times more likely to trigger a purchase than a low-impact one (McKinsey Quarterly, 2010). Hiring a lawyer or taking out a mortgage often meets both conditions.
Referred clients are worth more and stay longer
Researchers tracked about 10,000 customers of a leading German bank for almost three years. Referred customers had a higher retention rate, and their average value was at least 16% higher than that of non-referred customers with similar demographics and time of acquisition (Schmitt, Skiera and Van den Bulte, Journal of Marketing, 2011).
A 2018 study, partly by the same authors, adds a condition: referred customers churned less only as long as the person who referred them stayed a customer (Van den Bulte, Bayer, Skiera and Schmitt, Journal of Marketing Research, 2018). If you lose a referrer, you may lose the clients they sent you.
Word of mouth marketing examples
These cases come from filings with the US Securities and Exchange Commission and from peer-reviewed field studies.
Dropbox: referrals built into the product
In its annual report for 2025, Dropbox says it acquires users at relatively low cost through word-of-mouth referrals, in-product referrals and content sharing, and that more than 90% of its revenue comes from self-serve channels (Dropbox, Form 10-K for 2025). Your equivalent is a deliverable your clients forward: a report, a shared file, a booking link.
Tesla: word of mouth without traditional advertising
In its annual report for 2022, Tesla named media coverage and word of mouth as the primary drivers of its sales leads, and said they had helped it sell without traditional advertising (Tesla, Form 10-K for 2022).
Airbnb: word of mouth recruits partners too
Airbnb's 2020 IPO filing says it attracts new individual hosts predominantly through organic channels such as word of mouth and its brand recognition (Airbnb, Form S-1, November 2020). The same applies when you look for subcontractors or referral partners.
A cellular operator: referring makes clients more loyal
In a field experiment at a global cellular telecommunications provider, the defection rate of customers who made a referral fell from 19% to 7% within a year, and their average monthly revenue grew by 11.4% compared with a matched control group. The effect was strongest for newer customers (Garnefeld, Eggert, Helm and Tax, Journal of Marketing, 2013).
A telecom company and a financial services firm: big buyers and big referrers differ
Researchers scored each customer on the value of their purchases and on the value of their referrals. Referral incentives for big spenders and purchase incentives for strong referrers moved a significant share of customers into the group that does both, and both firms earned returns on their marketing investment greater than 12-fold (Kumar, Petersen and Leone, Harvard Business Review, 2007).
A word of mouth marketing strategy in 7 steps
The steps apply to any trade that sells on trust. Adapt the examples to yours.
1. Ask at the right moment
Ask when the client sees the result of your work. At that moment, they have a story to tell.
- Real estate agent: at closing, when the client gets the keys.
- Mortgage broker: the day the lender approves the loan.
- Financial advisor: at the annual review.
- Accountant: when you deliver the year-end accounts or file the tax return.
- Contractor: at the final walkthrough.
As the cellular operator study shows, asking also strengthens the loyalty of the client who refers you, especially a recent one.
2. Phrase the ask
Say who you work for and what the person can do, and leave the client free to say no. They should pass on someone's details only with that person's agreement.
Two asks to adapt
- A mortgage broker, after loan approval: "Your loan is approved, congratulations. Many of my clients come to me through referrals. If someone you know is getting ready to buy, give them my number, or send me their details if they agree. I'll call them the same day."
- A contractor, to a real estate agent: "Your buyers often have work to plan after they move in. If one of them needs a contractor, give them my number. I'll call them back quickly and tell you how it went."
Avoid "feel free to mention me to anyone": your client won't know who to think of. Our guide on how to ask for referrals has more scripts and email templates.
3. Make referring easy and stay visible
Reduce the referral to one action, such as forwarding your link or filling in a short form. Give your referrers a sentence that describes your ideal client, so they know who to think of: "she handles mortgages for buyers moving from abroad."
Stay visible between asks, with a link in your email signature or a QR code on your end-of-job documents. In a study of more than 300 products, those cued more by the environment or more publicly visible got more word of mouth, right away and over time (Berger and Schwartz, Journal of Marketing Research, 2011). Most of your referrers' contacts won't need you for a while: LinkedIn's B2B Institute reports that 95% of potential buyers are not ready to buy today (LinkedIn B2B Institute, 95-5 rule). Your referrers must remember you on the day one of them is.
4. Thank every referral
Thank the referrer as soon as the contact arrives, whether or not it leads to a sale, and say when you will give news. At the end, tell them the outcome, even when the deal falls through, so they know you took care of their contact.
5. Reward referrals where the law allows it
Rewards increase the likelihood that a client refers you. In four experiments, they worked best for referrals to weak ties and for weaker brands. For strong ties and stronger brands, giving part of the reward to the person referred worked better (Ryu and Feick, Journal of Marketing, 2007).
A shared discount can suit a client who sends you a friend. A partner who sends you clients every month needs a fee in a written agreement: role, amount or percentage, trigger and term. Start from our referral agreement template and set the amount with our guide to referral fee rates by industry. Check the rules of your trade first:
- United States: RESPA Section 8 bans fees for referring real estate settlement services on federally related mortgage loans, with exceptions such as referral arrangements between real estate agents and brokers (12 U.S.C. 2607).
- United Kingdom: introducing clients for consumer credit, mortgages or investments can be a regulated activity. Our guide to introducer fees in the UK covers the FCA rules.
- Public praise: when a referrer you pay recommends you in public, the FTC's Endorsement Guides require clear disclosure of that connection if the audience would not expect it (16 CFR 255.5). In the UK, the CAP Code requires marketing communications to be obviously identifiable as such (CAP Code, section 2).
6. Track every referral
Log each referral the day it arrives, with the name of the referrer and of the person referred. Move it through stages to a closed or lost deal, and update the referrer at each stage. A spreadsheet works for a few referrals a month. With several partners and fees to pay, a tracking tool keeps you from missing a follow-up or a payment.
7. Measure what word of mouth brings in
Each quarter, record the referrals you received, the deals they closed and the revenue from those deals.
| Metric | Calculation | Hypothetical example for a mortgage broker |
|---|---|---|
| Conversion rate | Deals closed ÷ referrals received | 4 deals from 12 referrals: one in three |
| Value of a referral | Revenue ÷ referrals received | $6,000 ÷ 12 = $500 |
In this hypothetical example, each referral brings the broker $500 of revenue on average. Compare it with what a client from advertising costs you to decide what you can pay referral partners. Run the calculation for each referrer: what a client buys and what their referrals are worth are two separate values (Kumar, Petersen and Leone, 2007).
Grow your professional referral network
Professionals who meet your future clients before you do can refer you too: the attorney or conveyancing solicitor for a real estate agent, the real estate agent for a contractor, the accountant for a financial advisor.
Ask beyond your closest friends and most loyal clients. In a field test for a product with low initial awareness, the word of mouth that drove sales came from less loyal customers and passed between acquaintances (Godes and Mayzlin, Marketing Science, 2009). Our guide to building an effective referral network covers choosing partners. Referaly Finder, our directory of verified professionals, suggests partners in trades that complement yours.
Business referral groups
Referral groups bring local business owners together to pass each other referrals. BNI, founded by Ivan Misner in 1985, describes itself as the world's largest networking organization (BNI, About). Our guide to BNI membership cost covers its fees, the time it takes and the alternatives.
How Referaly helps you organize referrals
Referaly is a referral management app for professionals in every sector, in English, French and Spanish. It handles the admin side of the method:
- The agreement: you set the fee once, and each partner accepts it online.
- The referral: partners send you leads from the iOS or Android app, or from a web form with nothing to install.
- Tracking: each referral moves through stages, and the partner is notified as it progresses.
- The fee: Referaly calculates the amount set in the agreement and lets you pay it from the app.
- Measurement: the web dashboard shows the revenue each partner brings in.
You can start on the free plan, with no card required.
Frequently asked questions
What is word of mouth marketing?
Word of mouth is a recommendation passed from one person to another. Word of mouth marketing is what a business does to start those recommendations and turn them into clients: asking for referrals, making referring easy, rewarding referrers and tracking each referral to a sale.
What is an example of word of mouth marketing?
Dropbox states in its annual report that it acquires users at relatively low cost through word-of-mouth referrals, in-product referrals and content sharing. A mortgage broker who asks each client for a referral the day the loan is approved does the same on a small scale.
What is the difference between word of mouth and referrals?
Spontaneous word of mouth happens without you asking. An organized referral is one you ask for and then follow to a sale. When the person who refers you receives a fee set in a written agreement, it becomes a referral partnership.
How do you get more word of mouth referrals?
Ask when the client sees the result of your work, and say who you work for. Give them a simple way to send you a contact, then follow each referral to a sale and keep the referrer informed.
Can you pay someone for a referral?
Often yes, with a written referral agreement that sets the fee and what triggers it. Check the rules of your trade first. In the US, RESPA Section 8 restricts referral fees for real estate settlement services, and in the UK, introducing clients for consumer credit, mortgages or investments can be a regulated activity.
How do you measure word of mouth?
Each quarter, record referrals received, deals closed and the revenue they brought. Divide deals closed by referrals received for your conversion rate, and revenue by referrals received for the value of a referral. Run both for each referrer.
This page gives general information. Rules on referral fees and endorsements vary by country, state and profession, so check them with a lawyer or your regulator before you pay a referrer.
Sources
- Merriam-Webster, definition of "word of mouth", accessed October 15, 2026.
- Jacques Bughin, Jonathan Doogan and Ole Jørgen Vetvik, A new way to measure word-of-mouth marketing, McKinsey Quarterly, April 2010, accessed October 15, 2026.
- Nielsen, Beyond martech: building trust with consumers and engaging where sentiment is high, November 2021 (Trust in Advertising Study 2021), accessed October 15, 2026.
- Philipp Schmitt, Bernd Skiera and Christophe Van den Bulte, Referral Programs and Customer Value, Journal of Marketing, 2011.
- Christophe Van den Bulte, Emanuel Bayer, Bernd Skiera and Philipp Schmitt, How Customer Referral Programs Turn Social Capital into Economic Capital, Journal of Marketing Research, 2018.
- Dropbox, Inc., Annual Report on Form 10-K for the fiscal year 2025, accessed October 15, 2026.
- Tesla, Inc., Annual Report on Form 10-K for the fiscal year 2022, accessed October 15, 2026.
- Airbnb, Inc., Registration Statement on Form S-1, November 16, 2020, accessed October 15, 2026.
- Ina Garnefeld, Andreas Eggert, Sabrina V. Helm and Stephen S. Tax, Growing Existing Customers' Revenue Streams through Customer Referral Programs, Journal of Marketing, 2013.
- V. Kumar, J. Andrew Petersen and Robert P. Leone, How Valuable Is Word of Mouth?, Harvard Business Review, October 2007, accessed October 15, 2026.
- Jonah Berger and Eric M. Schwartz, What Drives Immediate and Ongoing Word of Mouth?, Journal of Marketing Research, 2011.
- LinkedIn B2B Institute, 95-5 Rule, accessed October 15, 2026.
- Gangseog Ryu and Lawrence Feick, A Penny for Your Thoughts: Referral Reward Programs and Referral Likelihood, Journal of Marketing, 2007.
- 12 U.S.C. 2607, Prohibition against kickbacks and unearned fees, accessed October 15, 2026.
- 16 CFR 255.5, Disclosure of material connections (FTC Endorsement Guides), accessed October 15, 2026.
- CAP Code, section 2: Recognition of marketing communications, accessed October 15, 2026.
- David Godes and Dina Mayzlin, Firm-Created Word-of-Mouth Communication: Evidence from a Field Test, Marketing Science, 2009.
- BNI, About Us, accessed October 15, 2026.