“What do you recommend?”
You’ve likely encountered friends or family asking you for product recommendations, or you’ve checked online reviews to get suggestions from other consumers. These referrals are a powerful tool for business growth. Through word of mouth from existing customers, you can gain more business or your brand can build up a strong reputation over the years.
At a glance, the purpose of a referral program seems very simple. You leverage recommendations from existing customers to get more customers. However, it’s also effective in speeding up your customer acquisition while improving your customer retention rates. Aside from being 18% more loyal, referred customers spend up to 13.2% more.
With a well-thought-out referral program in place, you can get valuable, high-quality leads and promote your brand to a wider audience.
What Is a Referral Program?
A referral program is a type of marketing strategy that incentivizes your existing customers’ successful referrals or recommendations. For example, customer A refers to customer B to purchase a streaming subscription plan. For the successful referral, customer A will get a discount or a free subscription for a month.
One of the most successful examples of effective referral programs is that of Dropbox. When you refer Dropbox to your friends, you can get 500 MB (up to 16 GB) to 1 GB (up to 32 GB) of free extra storage for each successful referral, depending on the plan that your friends subscribe to.
Another example of a brand that has successfully executed a referral program is Fiverr. The Fiverr Referral Program lets existing users refer friends, rewarding successful referrals with up to $100.
HelloFresh’s referral program is also an example of giving two-sided incentives to referring and referred customers. HelloFresh will give existing customers an unlimited code that they can share with friends and family. For every successful referral, the referred customer gets a £20 discount (approx. $24–$25 at the time of writing), and the referring customer gets the same amount in credits. HelloFresh also sometimes gives its customers the option to send freebies, which are codes that cover the cost of the first HelloFresh box in a subscription.
Referral programs are effective because they provide your customers with a way to promote the products they love or are already using. They encourage your customers to recommend your brand while allowing them to enjoy incentives. Furthermore, referral programs offer a more direct way of promoting your brand, instead of you having to wait for random referrals.
While a referral program is indeed promising, not all businesses are suited for it. You need to have established your brand’s social capital first. This means that your brand needs to have something that customers would be willing and even excited to share with their families and friends.
Additionally, referral programs can be complex and so is managing them. To successfully execute a referral program, you must have the right tools and processes that will allow you to monitor, assess, and improve your program. Furthermore, keep in mind that referral incentives can be prone to abuse. This means that not all referring and referred customers can give you the most value. Some may just promote your brand long enough for them to get their reward and then leave. Thus, you need to be able to determine the value that your existing and referred customers bring in.
How Do Referral Programs Work?
Referral programs operate similarly to affiliate marketing programs. Like in affiliate programs, referral programs reward referring customers with incentives for every successful referral. When they sign up for a referral program, your existing customers will get a shareable code or link, which also doubles as a tracking tool. Once someone makes a purchase or signs up for a subscription, for example, then the referring customer can receive incentives.
Note that there are also referral programs that offer two-sided incentives, instead of just one-sided rewards, which only benefit the referring customer. With two-sided incentives, both the referring customer and the referred customer receive rewards.
The great thing about referrals is that they target an audience with similar interests or pain points to your existing customers. This means that they’re also likely to be on the lookout for similar solutions. Plus, referrals can create a chain. If one satisfied customer refers your product to two friends and these friends are happy with your product, then they’re likely to recommend it to their friends and family.
Customer reviews, for example, are a form of referral and have immense potential to influence a consumer’s purchasing decision.
Given that more than 50% of shoppers tend to read several product reviews before making a purchase, these inputs from existing users or customers can play a role in your brand’s growth.
Aside from offering incentives, there are several other ways to get referrals from your customers,. For instance, having a customer loyalty program can make customers feel that you value and appreciate them. This can encourage customers to become brand advocates and refer your brand to their circle.
One of the most effective ways to ensure that you will get quality referrals is to consistently deliver exceptional experiences. When you want your customers to talk about your product or service, you need to exceed their expectations. Additionally, you can use surveys to get an idea of what your customers are expecting from you and learn how you can further meet their needs. Doing so can help you become a standout brand that customers will want to talk about.
Why Are Referrals Crucial for Business Growth?
92% of consumers are more likely to trust referrals from people they know. In the US, 49% of shoppers discover new brands through recommendations made by their family or friends.
91% of customers are willing to give referrals, but only a small percentage actually give out referrals. By developing a referral program, you can encourage your existing customers to be more proactive in promoting your brand while showing your appreciation for the referrals at the same time.
Proactive Business Promotion
An effective referral program lets you proactively promote your business instead of solely relying on customers for promotion. This is because you’re asking your existing customers to recommend your brand, giving you the opportunity to generate warm leads who are more likely to engage with your brand or services. Furthermore, by incentivizing their referrals, you’re also actively engaging your brand advocates.
A referral program can also help you build stronger relationships with your customers. Through referral programs, customers can play an active role in contributing to your brand’s success.
Moreover, a referral program gives you the opportunity to drive repeat purchases. For example, you offer cash-based incentives, such as discounts or cash back rewards, for successful referrals. These rewards can be used by customers to save on their next purchase. With this model, you’re making it easier for existing customers to have better purchasing experiences while encouraging them to refer new customers.
With a good referral program in place, you can target new customers, build a strong relationship with existing customers, and get a steady stream of qualified leads.
Developing a Referral Marketing Program
Referral programs are relatively easy to set up, especially if you’re using a referral software. With that in mind, here are some tips on how you can start building a referral program for your business.
Get Insights from Your Customers
Before launching a referral program, you need to find out who your loyal and satisfied customers are. What are their interests or pain points? What are they looking for in a solution? What makes them keep coming back to your brand?
You also need to identify your target customers. For example, your ideal customer is a parent looking for educational books for their toddler. Aside from giving them high-quality products and customer service, your customers like the fact that you’re working with an organization that supports early childhood development.
By knowing who your ideal customers are, you can use that information to create a bespoke program that caters to their needs while narrowing your program’s focus.
Offer a Referral-Worthy Product or Service
One of the most crucial aspects of building an effective referral program is to have an exceptional product or service that customers will want to talk about.
Keep in mind that when someone makes a recommendation, they’re essentially putting their reputation on the line. Aside from their reputation, they’re also potentially risking their relationships if they were to recommend a sub-par product. So having exceptional products or services makes it easier for your customers to refer your brand.
Determine Your Program Goals
Identify what you want to achieve with your referral program. Do you want to get more leads, better conversion rates, or increased sales? Are you looking to expand your brand’s reach, or do you want to nurture customer loyalty?
Having clear, realistic, and measurable goals allows you to effectively measure the performance of your program later on.
Identify Referral Sources
Create a list of satisfied customers who can be a potential source of referrals. These can either be existing or past customers, leads, and merchants. Find out how you can best get in touch with them and craft an outreach plan.
Choose the Right Rewards
Choosing the best rewards for your program can be tricky. You have to understand what your customers are looking for when it comes to rewards. You also need to determine who will receive these incentives. Do you want to give rewards solely to referrers, or do you want to reward both the referrer and the referred customer? Giving them the right referral incentives can help you build a more effective referral program.
To determine whether or not a reward is the right fit for your audience, you will need to conduct tests. Set clear program terms and enlist the help of a lawyer to ensure that everything is in accordance with the law. You can also consider the type of rewards that your customers will want to receive and whether they want to get monetary or non-monetary incentives. Furthermore, you need to pay attention to your customers’ buying process. For example, if you’re a home improvement brand, you may want to offer rewards like discounts or store credits, which your customers can use for their next purchase.
Your incentives shouldn’t just be seen as rewards—they need to offer value to the referring or referred customers. For example, you can offer cash back rewards, discounts, or even plan upgrades for successful referrals. Moreover, you need to determine your reward structure. A standard structure is the most straightforward, where you reward referrers outright for every successful referral. Alternatively, you can implement a tiered structure or a multi-step structure.
Spread the Word
One of the simplest ways to spread the word about your referral program is to ask your customers to recommend your brand, products, or services. However, before doing so, you need to make sure that you can offer products, services, or experiences that go above and beyond their expectations.
When asking your customers to refer your business, you also have to consider the timing. Make sure that you ask during key moments or when they’re happy or satisfied with what you’re offering, such as when a customer makes a repeat purchase or upgrades their subscription plan.
Aside from asking your satisfied customers to refer you to their friends and family, you can share more information about your referral program through various channels, such as a newsletter, landing pages, website footer, or opt-ins. Note that you need to do some research to find the best way to grow your referral list. You also need to conduct tests to see how each channel performs.
Track Your Program
The best way to learn whether your referral program is effective is to track its performance. This means monitoring all referrals, including their sources and the outcomes. Some KPIs you need to consider include how many customers become referrers, conversion rates, and response rates. Doing so will allow you to see which areas or features are performing well and which ones need to be improved.
Look Into Affiliate Marketing
You may also want to look into affiliate marketing.
While it’s not a referral program per se, it’s one of the effective ways to boost your referrals. With affiliate marketing, you’re working with affiliates, influencers, or brand ambassadors to promote your brand, products, or services to their audience.
This allows you to expand your reach and access a new audience. Affiliate marketing programs can also make customer acquisition faster, given that you won’t necessarily have to start from scratch to build an audience or give your brand more exposure.
With affiliate marketing, brands partner with publishers (affiliates) who will promote their goods or services. The affiliates will have a unique link that visitors can use to make a purchase or complete a set of actions. For every successful purchase or transaction, the affiliate earns a commission.
If you’re planning on building an affiliate marketing program, consider using an affiliate management solution like Refersion to streamline your program, establish new partnerships, find and recruit affiliates, and automate repetitive tasks.
Refersion also has affiliate tracking features, which allow you to monitor the performance of your affiliates, and tools to help you manage and grow your program.
Wrapping Up
We all know how powerful word of mouth can be, but without a referral program, brands won’t be able to leverage the power and reach of referrals. This is because referral programs make it easier for customers, who already use or love your brand or products, to spread the word about your business. Furthermore, with a referral program, you can better track your progress, allowing you to determine which areas you need to work on or which channels are more effective in getting you qualified leads.
When done properly, a referral program can help you build and nurture customer trust, loyalty, and lifetime value, drive better engagement, foster stronger relationships with your customers, and give you access to a more targeted audience.
Please select FAQs to displayFAQ
How do companies handle the management of referral fraud, ensuring that the referrals are genuine and not gamed by participants?
Companies manage referral fraud by implementing stringent verification processes, tracking metrics to identify suspicious activities, and using software tools that can detect and prevent fraudulent behavior, ensuring the integrity of the referral program.
What role does technology play in automating and scaling referral programs, especially for large enterprises or fast-growing startups?
Technology plays a crucial role in automating and scaling referral programs through the use of software platforms that streamline the process, track performance, and manage communications, making it more efficient for companies of all sizes to run these programs.
Can referral programs be integrated with other marketing strategies?
Referral programs can be integrated with other marketing strategies by aligning them with the overall marketing goals, using multi-channel promotion, and analyzing data to understand how referrals influence other marketing activities, thereby enhancing the overall effectiveness of the marketing strategy.
