how to use a variable in sed command

if a word and a file name are taken from user..now the word entered is to be replaced in the file specified by the user with another word..how to do that?
for e.g
if word entered is stored in $wrd and
filename is in $file
i tried to replace the word stored in $wrd by "hello" using the command:
sed 's/$wrd/hello/g' 0<$file
but it doesn't make changes

please suggest the answer...

use double quotes to enclose search pattern.

Code:

$ sed "s/$word/ORANGE/g" 1.txt

hey thank you for the solution...