Referral programs have become invaluable investments for businesses in various industries. Unlike your typical advertisements and marketing campaigns, they offer a breath of fresh air, as referrals come from your most loyal customers.
In fact, 92% of consumers trust recommendations from their friends and family more than any other form of marketing. Other studies show referrals are up to four times more likely to result in a purchase.
So, if you’re ready to harness this powerful form of word-of-mouth marketing, let’s dive into how you can launch a successful referral program.
What is a referral program?
A referral program is a structured marketing strategy that encourages existing customers to recommend new ones to businesses they support in exchange for rewards.
It leverages referral marketing (primarily word-of-mouth) from loyal shoppers who introduce their family, friends, and other members of their social circles to a brand. By incentivizing these recommendations, a referral program drives customer acquisition, as well as brand loyalty.
Why launch a referral program?
More tangibly, there are multiple reasons why referral programs are an asset in marketing.
Utilizes customer trust
In referral marketing, product recommendations typically come from friends and family — all of whom are existing customers that potential ones trust. Since your referrers are already credible in the eyes of their referees, their chances of engaging with your brand are higher. Those loyal customers and referrers lend their credibility to the business in vouching for it.
Increased customer acquisition
Compared to other forms of marketing, most consumers place the greatest trust in recommendations from family and friends. This strongly indicates that, with a referral, you’ve already earned their trust from the get-go.
Referrals thus draw high-quality leads, most of whom are more likely to convert into paying customers. In fact, they convert 30% better than those generated through other marketing channels.
Cost savings
Marketers help businesses enjoy as much return on investment (ROI) as possible, and 54% of them say referral marketing’s cost per lead is lower than other channels.
The reason it’s so cost-effective is because referral programs utilize the loyal customers you already possess to promote your business, effectively eliminating the need for expensive advertising campaigns.
But, to determine whether a referral program will fit your budget, you first need to gain an overall picture of your customer acquisition costs.
Higher customer lifetime value (CLV)
Referred customers earn 37% higher retention rates, indicating they’re more likely to become long-term brand advocates. Further, compared to non-referred consumers, those introduced to your business via recommendations typically have 16%–25% higher CLVs.
Amplified brand awareness
Referral programs excel at generating buzz and word-of-mouth discussions among existing and potential customers, which organically expands your brand’s reach.
If implemented effectively, they can also provide your business plenty of growth opportunities, with referrals responsible for 65% of new business.
How does a referral program work?
To give you a better understanding of how referral programs work, here’s a quick breakdown of what a participant’s journey typically looks like:
- Through your promotional efforts, an existing customer becomes aware of your referral program and its incentives.
- Then, once the rewards successfully entice them, the customer participates by referring their family, friends, or acquaintances to your brand.
- Next, when the referred individuals discover that making a purchase or completing your desired action is incentivized, they’ll go ahead and complete it. If their experience was steller, it’s possible they’ll refer others as well!
- Finally, both your existing customer and their referee receive and enjoy the reward or incentive for their successful referral and purchase.
Types of referral programs
Despite the similar experiences overall for participants, be aware there are different types of referral programs you can launch depending on your business model and what you sell.
Advocacy programs
For starters, advocacy programs turn customers into spokespersons for your brand. It foregos the traditional advertising approach, focusing instead on efforts that encourage satisfied consumers to share their brand experiences with their peers.
This type of program is all about continuously incentivizing advocates to promote your business to their network and attract successful referrals.
Affiliate programs
This type capitalizes on affiliate marketing, which shares a similar purpose with referral marketing: acquiring new customers and increasing sales.
The key difference, however, is that an affiliate program doesn’t require loyal customers or an existing relationship between the affiliate and their referees. But it does allow individuals or businesses — your affiliates — to earn a commission for each sale they generate, depending on your reward parameters.
Loyalty programs
Lastly, loyalty programs are designed to encourage customers to keep shopping with you or using your brand’s services, but they can intersect with referrals as well.
Besides rewarding loyal customers for making repeat purchases and achieving certain milestones, for example, you can also incentivize them for referring new customers through loyalty points.
How to create your referral program
Now that you have a good overview of what referral programs entail, I’ll explain the basic steps for building your own.
1) Define your goals
The first and most important step is identifying your objectives. What do you want to achieve through your referral program? Before you begin constructing it, ask yourself:
- Do I want to increase sales in general, or sell more of a specific product?
- Am I simply looking to grow my customer base?
- Do I want to attract leads and newsletter sign-ups or more social media followers?
You could even aim for concrete metrics like boosting revenue or conversion rates by X percent after Y amount of time. Once you’ve established your objectives, you can build your referral program around them.
2) Know your customers
Existing happy customers are your greatest advocates, as well as your most reliable referral sources. To create an effective referral program that maximizes these loyal consumers, you’ll need to learn more about them first.
You can get in touch with them through multiple ways, such as surveys and interviews. Your main task is to find out:
- Why they chose you over your competitors
- How they found you
- How they shop
- Where they prefer to communicate online
- What incentives would be most attractive to them
This information will prepare you for your next steps, both building your referral program as well as launching and marketing it.
3) Identify incentives
After you’ve spoken to your current customers and identified the rewards they’re interested in, choose ones that’ll entice them to recommend your brand. Typical incentives you could offer include:
- Points or store credit
- Freebies, giveaways, or contest entries
- Discounts, vouchers, or coupons
- Product or service upgrades
However, your selection will depend on the category of rewards you pursue, namely:
- One-sided: This involves rewarding only an individual, either the referrer or referee.
- Two-sided: This is the more popular and attractive choice, since it entails rewarding all involved parties, resulting in a win for both your existing and new customers.
Double-check your budget at this stage; you don’t want to run your referral program at a loss. It’s also a chance to move excess or slow-moving stock by offering them as incentives.
4) Set program rules
Next, establish clear guidelines for your program. This helps avoid confusion among its participants. Make sure your eligibility criteria, referral channels, and incentive conditions are clear and firmly enforced. For instance:
- Will there be reward tiers for referrers who continuously bring in referees?
- How can participants redeem their incentives?
- Will their discounts, vouchers, or points have expiration dates?
Clarify every detail and be transparent. Your main goal is to minimize (or completely eliminate) any possible friction in your program.
5) Create a landing page
A landing page provides a more seamless journey for your referrers and their referees. It serves as a platform where they can participate, redeem their rewards, and learn more about your program.
Additionally, your existing customers’ referrals may be someone’s first encounter with your brand, so the program’s landing page is your chance to make a strong first impression. To capitalize on that opportunity, make sure you:
- Craft clear and creative messaging
- Employ a design and feel that matches your branding
- Be transparent about your referral program’s mechanics
- Cut down the participation steps to as few as possible
6) Incorporate referral tracking
At this point, your foundation’s almost complete. The last element you need is the ability to manage and monitor your program effectively.
You’ll need tools that accurately track and attribute successful referrals (I’ll cover various options later on). Of significant importance is your chosen software, which must:
- Enable trackable referral links for both senders and receivers
- Monitor metrics like sales and conversions
- Ease the program creation process
- Automate some workflows
- Let you manage incentives
You can also supplement your chosen software with a tool like Google Analytics to increase its robustness. Besides conversions, this tool tracks more in-depth metrics and engagement indicators like session duration and bounce rate.
A/B testing is an invaluable asset as well. It lets you experiment with your landing page’s various elements to identify what does and doesn’t work for your program’s participants.
7) Promote your program
With all your program’s components in place, it’s time to spread the word about it. Make sure to take advantage of various marketing and acquisition channels to maximize your reach and program awareness:
- Email marketing is ideal for existing customers and newsletter subscribers.
- Social media marketing encompasses various platforms. Find which ones your existing and potential customers use the most, then promote there.
- SMS marketing is a more direct and personal channel for reaching loyal consumers.
- Search engine optimization (SEO) helps your referral program’s pages rank higher on search engine results pages (SERPs).
- Partnership marketing lets you tap into other brands’ audiences. Just be sure your joint efforts align and are cohesive.
12 Exceptional referral program tools
You’re now ready to create your own program. To supplement your efforts, here are some useful tools that receive positive marks from users.
1) Referral Factory
Referral Factory provides a comprehensive selection of user-friendly tools that ease program creation and management.
Top features:
- Referral templates
- Drag-and-drop builder
- Rewards management
- Promotional tools
- Tracking and analytics
- Automations and integrations
Price: $95 to $1400/month
2) ReferralCandy
ReferralCandy is a broadly compatible platform that simplifies customer acquisition through referral marketing.
Top features:
- Simple, automatic, and custom integrations
- Built-in insights
- Connect marketing, analytics, and retargeting apps
- Automations and mobile optimization
- Flexible customization
Price: $59/month to custom pricing
3) Friendbuy
Friendbuy lets you launch and optimize secure referral programs easily.
Top features:
- Program templates
- Centralized dashboard
- Fraud prevention
- Reward automation
- Analytics and reporting
- A/B testing
Price: $249/month to custom pricing
4) Referral Rock
ReferralRock is a versatile portal for building, promoting, and tracking referral programs.
Top features:
- Program creation and customization
- Referral tracking
- Workflow integrations
- Reward structures
- Automations
- Promotional tools
Price: $200/month to custom pricing
5) InviteReferrals
InviteReferrals streamlines referral program creation, promotion, and management across platforms.
Top features:
- Multi-platform support
- Comprehensive analytics and tracking
- Campaign customization
- Referral and social sharing options
- Multi-event rewards
Price: $99/month to custom pricing
6) Mention Me
Mention Me lets existing customers reap rewards by having referees simply mention referrers’ names.
Top features:
- Name Share®
- A/B testing
- Flexible rewards
- Automations
- Tracking and analytics
Price: Pricing information upon request
7) Extole
Extole offers comprehensive referral marketing solutions for larger enterprises.
Top features:
- Customizable, pre-built programs
- Marketing integrations
- Content and messaging orchestration
- Incentive management
- Data reporting
- Personalization capabilities
Price: Pricing information upon request
8) Genius Referrals
Genius Referrals is a feature-rich platform for constructing, promoting, and monitoring referral programs. It possesses affiliate marketing capabilities as well.
Top features:
- Customizable rewards
- Easy social sharing
- Intuitive dashboards
- Tracking and analytics
- Payout automations
Price: $89 to $840/month
9) Ambassador
Ambassador offers an all-in-one suite for omnichannel referral marketing.
Top features:
- Identify, track, enroll, and reward customers and brand ambassadors
- Regional segmentation
- Multi-language and currency support
- Branded portals and personalized landing pages
- Shareable and trackable links
- Reporting and A/B testing
Price: $250/month to custom pricing
10) SaaSquatch
SaaSquatch enables larger businesses to deliver on-brand and engaging referral experiences.
Top features:
- Customizable referral experiences
- Two-sided incentives
- Customer journey engagement
- Automations
- Trackable codes and links
- Gamification capabilities
Price: $1,750/month to custom pricing
11) Talkable
Talkable offers a solution for creating, customizing, managing, and optimizing secure referral programs.
Top features:
- Customizable program and landing pages
- Customer segmentation
- A/B testing
- Fraud prevention and data privacy
- Reporting
Price: Pricing information upon request
12) ReferralMagic
ReferralMagic is a user-friendly referral marketing platform primarily designed for software as a service (SaaS) businesses.
Top features:
- Easy integrations
- Highly customizable campaigns
- Real-time reporting and analytics
- Reward management
- Referral widgets
Price: $245/month, $2,205/year, or a $9,700 one-time licensing fee
9 Lucrative referral program ideas
To cap it off, here are some ideas (with examples) to help inspire the creation of your referral program.
Exclusive discounts
Exclusive discounts and offers are a staple reward for referral program participants, since they can immediately enjoy a sweet deal for their purchase.
D’Artagnan, a producer of humanely raised meats, offers this straightforward incentive: Referees receive $30 off their first order amounting to a minimum of $99. Once they buy, the referrer is given a $30 discount for their next $99-or-more purchase as well.
Loyalty points
Redeemable points provide existing customers the flexibility to choose their reward for continued loyalty. For instance, they can exchange their incentive for discounts, free products, or other perks.
That’s exactly what Printful, an on-demand printing and fulfillment company, does. They provide existing customers $5 in points for every successful referral, and referees a $5 discount for their first order.
Early access
Providing consumers early access to new products or services is an exciting incentive because it capitalizes on the fear of missing out (FOMO), especially if your upcoming offering has limited availability.
It could involve a first pick during sales or an advanced preview of the latest seasonal collection. The investment platform Robinhood took early access to another level, maximizing referrals before their launch.
Their pre-launch landing page immediately hit the mark, communicating Robinhood’s primary benefit, stock trading without commission fees.
It strongly compelled interested users to opt in but, more effectively, the page urged those who signed up to spread the word, immediately offering priority access for successful referrals. This resulted in Robinhood attracting one million users pre-launch.
Freebies and giveaways
Giveaways take advantage of the zero price effect, which explains people’s irrational longing for freebies. This tactic could involve a gift card for each successful referral, or a free sample included in the next purchase; the “free” aspect is what makes these incentives so popular.
Here again, Robinhood is a shining example, as their current referral reward ties extremely well into the brand and encourages people to use the platform more.
Robinhood’s program lets both the referrer and referee enjoy gift stock of leading companies in America for each successful invite — referrers can even earn up to $1,500 in gift stocks per calendar year!
Contests
Contests are great for attracting referrals and generating buzz, particularly through social media. For example, to earn the chance to win an attractive prize, you can call on your followers to invite friends and family to buy from you or sign up for your special offer.
HolidayPirates, a European online travel company, employs this tactic to boost their app downloads.
First, the company promotes a contest via Instagram. To enter for a chance to win a £4,000 trip to Seychelles, participants must install the HolidayPirates app and sign up. Those who join can then double their odds of winning by inviting and tagging their friends.
Charitable donations
For customers who strongly value social responsibility, allow them to make a charitable contribution for every successful referral.
PANGAIA’s refer a friend program, for instance, offers a double incentive: The materials science company both gifts a $25 discount for purchases that exceed $200 dollars and plants a tree for every product the referrer and referee buys.
Free shipping perks
Consumers appreciate free shipping since it eliminates an expense associated with every online purchase.
Typically, this attractive incentive is provided to referees, and offered through brand affiliates or partners who are given special trackable codes. These individuals then share their unique codes with their audiences, who can enjoy free shipping on their purchases once redeemed.
For instance, partnering with Denver-based style blogger Lily Rose, Copper Cow Coffee promoted their Advent Calendar, containing different pour overs, for the holidays.
Then, to snag it for $69 and earn free shipping, customers had to search for Lily Rose’s code using the LIKEtoKNOW.it app throughout the season.
Other notable referral programs
The following brands, meanwhile, launched programs that helped propel their success.
Dropbox
The cloud storage company Dropbox crafted a simple referral program, which helped them grow by 3,900%: Whenever a referee creates a new account, both parties earn extra storage space for free.
Airbnb
Airbnb’s referral program provided travel credits to the referrer and referee, which they could apply to their bookings.
The program’s no longer open, but at one point, it did boost Airbnb’s bookings in some markets by more than 25%, and its 2.0 version produced 300% more bookings and sign-ups.
Wrapping up — Use a referral program to increase loyalty and add another acquisition channel
Launching a referral program can be a game-changer for your business. To implement a well-designed one that harnesses the influence of your existing customers and word-of-mouth marketing, remember to:
- Set clear goals
- Offer attractive incentives
- Promote your program effectively
- Utilize tools that simplify program construction
By leveraging the persuasive potential of referrals, you can unlock a new avenue for customer acquisition and loyalty, resulting in your business’s growth.