How to Start a Referral Program

Learn about what a customer referral program is, and how to set one up with step-by-step instructions. Includes frequently asked questions.

Updated on March 31st, 2020

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A referral program encourages existing customers to recommend their brand to family and friends, thereby attracting new customers. Referral programs require almost no financial investment and rely on word of mouth to drive sales.

Why You Need a Referral Program:

You may think of happy customers as your automatic advocates, but there's no certainty that they will recommend your product or service to their family and friends. Instead of relying on chance, offering a referral program will give your customers an incentive to promote your brand via word of mouth.

Stats show that referred customers are four times more likely to make a purchase and have a 16% higher Lifetime Value (LTV) than non-referred customers. Moreover, around 83% of consumers trust recommendations from people they know, outperforming other forms of marketing like brand sponsorships, editorial content, and branded websites, according to Nielsen.

There are many ways to reward your customers for sending referrals your way, but the key is to offer them (and new customers) something that would benefit them and make sense for your company.

How to Set Up a Referral Program:

1. Set goals.

Before setting up a referral program, you need to think about why it would be good for your business (besides increasing customers). Do you hope to drive growth and revenue, increase customer loyalty, generate more leads, build trust — or all of the above? Defining your goals will help you to measure how effective your campaign is later, and what you can do to improve it.

2. Define your message.

Your referral program should be easy for customers to understand and clearly define what they should do. If your message isn't clear, customers will likely ignore it and move on to something else. You should also provide them with a range of options to share your message, like a referral link that redirects to your site or social sharing buttons on an email or newsletter.

Your referral message should:

  • Tell customers who you are.
  • Describe what's on offer.
  • Provide a Call to Action.

3. Choose your incentives.

Incentives can be monetary or non-monetary depending on the industry you're in. For example, many software companies offer clients credit toward their subscription plans or free storage space for referring new customers. Whatever you choose, make sure that the incentive fits your brand image and benefits both existing and new customers.

Types of incentives:

  • Cash.
  • Store credit.
  • Discounts on a product/service.
  • Coupons.
  • Gift cards.
  • Loyalty points.
  • Samples or free gifts.
  • Access to premium content.
  • Access to special events.
  • Free subscriptions for a limited period.

4. Set up analytics.

Before launching your referral program, it's important to set up analytics to monitor the effectiveness of your campaign. Knowing how different channels perform will give you an idea of what works and what doesn't, and allow you to implement changes to your program as you go along. Consider investing in referral program software to help you manage your program effectively.

Incorporating referral links:

Referral links are special URLs assigned to customers who sign up for your referral program. Customers are encouraged to share these links with friends via email or social media in order to claim the incentive or discount you're offering. Each referral link has a unique code specific to each person e.g. https://yourbusiness.com/samsmith25.

Once the link is shared and clicked, new leads are directed to a landing page where they can sign up for the referral program. This activity is tracked and drawn into insights generated by your analytics software, allowing you to measure the progress of your referral program. Referral links can be generated by your analytics or referral software with one click.

5. Promote your referral program.

Once you have refined all the details, be sure to promote your referral program across as many channels as you can.

  • Share your program on social media, send out emails or newsletters, and set up a landing page on your website where customers can learn more about it.

  • Educate employees about your program so that they can explain to customers how to participate.

  • Finally, thank customers for their referrals by sending them an email or text message, or responding to their positive reviews online. This will encourage them to continue promoting your brand on and offline.

Top Referral Programs:

  1. Dropbox allows customers to earn between 500 MB - 16 MB extra storage space for getting friends to try out the platform.

  2. Airbnb offers members travel credits for every friend who joins Airbnb and completes a qualifying reservation.

  3. Google pays referrers between $15 - $30 for every friend that signs up for GSuite.

  4. FreeAgent accounting software offers customers 10% off subscription plans for every friend that subscribes.

  5. Evernote offers points to customers for inviting friends to join. Evernote points can be used for monthly or annual subscriptions to Evernote Premium.

FAQs:

What are the best referral programs?

There are tons of great referral programs out there. Some of the best programs usually give away something for free, offer a discount, credits, or pay customers cash.

How does a referral program work?

A referral program is designed to get existing customers to attract new customers to your brand through word of mouth. Customers that sign up for a referral program are incentivized to perform a specific action to alert friends and family about a brand.

If the potential customer acts on their friend's recommendation by making a purchase (or signing up for a service), both parties will receive an incentive.

What is a referral discount?

A referral discount is offered by a company to entice a potentially new customer to make a purchase or sign up for a service. The discount is referred to them by a friend who also receives an incentive after the sale is made.

How do you do a referral?

  • Implement a customer referral program.
  • Ask your customers directly for a referral either in-person or via email after they've made a purchase. This is when they're most pleased with your services and are more likely to spread the word about your brand.
  • Ask happy customers to like your Facebook page and leave a review, or to review your business on Yelp.

What is a good referral rate?

This varies by industry, but research shows that average referral rates range between 2% - 15%. It's also worth calculating the Lifetime Value of your customers.

What should be included in a referral?

Your referral message should tell customers who you are, what the incentive is, and clearly outline what they should do (Call to Action).