Anna Sergeeva tunes out online ads–but listens closely when a friend recommends a product. She’s not alone: 66% of consumers trust suggestions from people they care about, while only 18% trust the information a brand puts out on a social network, according to a new study by Forrester Research. So it makes sense that Sergeeva, head of marketing for San Francisco startup Nomad (which sells charging devices that can fit on a keychain), invests in getting customers to tout her company’s products to their friends. “Sharing is the new face of marketing,” she says, “especially for small businesses.”
Word of mouth has always been crucial. But as social media proliferates, customers have even more reach and power. They’re trusted, inexpensive, and they boost the chances that a product message will be heard by people with an interest in buying. “You’re getting in front of the right people,” says Forrester social media analyst Kim Celestre.
A slew of software providers now promise to help small companies turn loyal customers into brand advocates. Services like Refer-a-Buddy sell simple software widgets for a website for about $20. Friendbuy has customizable tools for $99 a month that let companies run refer-a-friend programs and what’s known as A/B tests to compare the performance of different offers. On the other end of the spectrum, a service called Curebit will help with creative messaging and handle the analytics and tracking of a campaign for upwards of $10,000 a month.
“The options can be overwhelming,” says Sergeeva. Earlier this year, she started searching for referral software after seeing customers post photos of the company’s nifty compact charging cords on Twitter and Instagram. She wanted to encourage more sharing. After some research, Sergeeva settled on San Francisco-based Extole, which for $3,000 a month creates referral campaigns and measures their results. Extole says it launched 30 new client accounts in the past three months and claims it is six times as effective as online ads in converting a website visitor into an actual buyer. “We have customers that are getting 40% of new acquisitions through referrals,” says CEO Matt Roche. “It’s the new marketing channel, and it works.”
Nomad now uses Extole to reward customers with $10 for every order (which typically includes more than one $29 product) that comes from a referral, and Extole’s staff tweaks and manages those campaigns. Sergeeva attributes 10% of Nomad’s 10,000 monthly shipments to such referrals. She says participants do far more than attract additional sales: “They’re building your brand’s story.”
This story is from the July 21, 2014 issue of Fortune.