How To Start A Referral Program: Expert Guide & Examples

Since you are exploring how to start a referral program, you are probably aware of its benefits and want to set up such a program for your business.

Well, this could be one of the best decisions you make for your company. This is because referral programs have proved effective in helping businesses attract new customers.

Referral programs have gained popularity in the last decade. The growth of social media, the rise of influencer marketing services, and a distrust of traditional advertising have helped referral marketing to spread.

To put this into perspective, 9 out of 10 users (89%) said they trust product recommendations from their family and friends.

Image via Marketing Charts 

A referral program harnesses the power of word-of-mouth marketing to generate warm leads for brands. Brands reward loyal customers for referring the brand to their connections.

Leveraging customer referrals and social proof in your customer acquisition strategies is essential for sustainable and organic business growth.

We have compiled this extensive guide to give you an in-depth understanding of referral marketing and how to start a referral program.

Let’s get started!

What Is A Referral Program?

As a business, you are always looking to attract new customers to your brand, and referral marketing is an effective way to do that.

A referral program is a word-of-mouth marketing strategy that rewards existing customers for recommending your brand to their family members, partners, friends, and colleagues.

In exchange for helping a company get new clients, the customer who referred the brand gets incentives such as free products, a discount, or store credit.

The beauty of referral programs is that they help brands easily identify their biggest advocates within the existing customer base and pinpoint where new customers are coming from.

Dropbox is one of the best referral program examples. The company has a successful referral program that can inspire you as you learn how to start a referral program.

Dropbox provides users with free storage space when they invite their friends to join. Once the new user creates an account, the referrer receives the reward. They receive 500MB of free storage space if the new account holder opts for the Basic plan and 1GB for the Plus plan.

Image via Dropbox

In a digital world where people are looking for more space to store their images, videos, graphics, and other important files, this strategy has worked wonders for Dropbox.

As you can see, learning how to start a referral program could be what you need to take your business to the next level.

And since the potential customer has a reliable source telling them that your brand is trustworthy, they are more likely to buy a similar product from you.

Let’s briefly discuss how to start a referral program. Here, we’ll discuss the processes involved in starting a referral program.

How Does A Referral Program Work?

Businesses create referral marketing programs by inviting their loyal customers to be their brand ambassadors. Through such programs, customers refer friends to their favorite brands, encouraging them to join the community.

A typical customer referral program has three steps, as shown in the image below.

• Registration: Loyal customers register for a customer referral program
• Invitation: Users invite friends and family via custom referral links
• Reward: Both get rewarded when the desired action is taken

Image via Affise

Registration

Generating leads through referrals involves creating and promoting your referral program. You can use a referral program software to generate leads and run the entire process seamlessly and automatically.

Customers who wish to participate in the program can register on the referral program page and generate unique referral links. The software will track these links and generate rewards for the referees.

Invitation

Once the existing customers generate referral links, they can share them with their connections via email, SMS, social media posts, or a personal messaging app.

Along with the link, the referral messaging should be compelling and highlight the benefits of joining the community. Remember, the benefits need to be attractive enough to convince these potential customers to enter the sales funnel.

Reward

One of the most compelling aspects of running a successful referral program is the mutual benefits it creates for everyone involved. Attract new customers while ensuring the referrer and the referred enjoy exclusive rewards.

When learning how to start a referral program, it is also critical to understand different reward models and choose the best one for your business. Choose an efficient referral program software to automate the entire process. It should handle everything from onboarding the referrers to tracking their links and rewarding them.

Benefits of Creating Customer Referral Programs

A well-crafted referral marketing strategy can provide a sustainable solution to major digital marketing challenges. Let’s take a look at some benefits you can enjoy.

Buyers Trust Referrals

People influence people! That saying is so true in the context of referral marketing. More than ads or sponsored content, people are open to recommendations from their family, friends, or even people in their extended network.

When you create a referral program, you can harness the power of such trust and turn it into a buying decision. In other words, when people receive a recommendation from a trusted source, they will make a purchase.

Referred Customers Have a Higher Value

Studies have shown that referred customers always have a higher lifetime value than those acquired from other marketing techniques. Isn’t that what every brand dreams of?

Thanks to the encouraging feedback from referrers, these new customers already have a positive impression of your brand before entering your sales funnel. The referrers would have shared positive feedback, increasing the likelihood that these customers will stay with you long-term lays the foundation.

Even in a negative experience, these customers might give you the benefit of the doubt and continue purchasing from you.

Enhance Brand Awareness

A company’s referral program transforms happy customers into brand advocates. It helps you expand your market reach to engage newer leads and build brand awareness on a massive scale.

Existing customers who promote your referral program highlight your products' unique features. This enhances your brand’s reputation and helps establish a positive footprint without much effort.

Economical and Sustainable Customer Acquisition Technique

According to Shopify, businesses spend anywhere from $21 to $377 to acquire a new customer based on their industry and competition. Customer referral programs are far more reliable and economical than other customer acquisition techniques.

A customer acquired through a referral is more likely to convert than a marketing lead because they trust the person who referred them. A referral program will lower customer acquisition costs, but you will also reap better ROI for every dollar spent. That’s great news for your marketing and sales team.

Improve Customer Retention

Did you know that businesses lose billions of dollars because of customer churn? If you could have a better strategy to retain your customers for a longer time, you can avoid all that loss and generate more revenue than you could through new customers.

Having smart referral campaigns in place can help you bridge this gap in customer retention strategy. When your loyal customers market your brand to their network, you appreciate them with rewards. This results in them staying connected with you for a longer period.

Expand Your Loyal Community Base

As mentioned earlier, referred customers always have a better customer lifetime value. This is because they are genuinely convinced that your products and services are good. They connect with your brand values and choose to stay with you rather than your competitors.

This positive mindset helps you expand your loyal fanbase. Referred customers will go on to become repeat customers and eventually turn into your brand advocates. Their reviews and comments will help you build a positive brand reputation organically.

Gather Valuable Customer Data

Best referral programs always engage both the existing and new customers effectively. What’s the result apart from generating revenue? You can gather plenty of valuable customer data.

This real-time data can provide practical insights to marketers and the sales team to improve their future campaigns, create a more realistic roadmap, improve customer support, and do much more. They help you deliver an unmatched customer experience.

Step-By-Step Guide On How To Start A Referral Program

Now that you know how a referral program can help a business, you are ready to build your own. But what steps do you follow to create an impactful referral process?

Here’s everything you need to know about how to start a referral program that brings high-quality customers.

Step 1: Lay The Foundation

A strong referral marketing program is built on three key components – exceptional products, excellent customer relationships, and clear marketing goals.

Setting these foundational pieces before exploring how to start a referral program will help you design a program that delivers the highest ROI.

• Provide exceptional products – Your product or service needs to stand out and make an impact. Otherwise, customers will not remember to refer your brand to their friends.

• Provide a great customer experience – Talk to your customers to get feedback about your products. These are the people who will recommend your products, so listen to them to understand your market.

• Set clear goals – Besides sales, what do you want to achieve with your customer referral program? Other goals for your referral program can include:
  • Increasing customer loyalty
  • Building brand awareness
  • Creating a viral marketing campaign
  • Driving customer acquisition

Step 2: Come Up With An “Elevator Pitch” For Your Referral Program

What is your referral program all about? Why are you creating one in the first place?

The first thing you need to do as you contemplate how to start a referral program is to decide what the program is about. A common practice is to develop an “elevator pitch” to help you convince others of your idea.

The pitch should sum up who your target audience is, the rules of the program, and the referral rewards in a few lines.

And since an elevator pitch is brief, it forces you to focus on what’s important and get straight to the point. If written properly, it can also serve as the framework for your messaging later on.

Here are some examples of elevator pitches that can serve as inspiration as you learn how to start a referral program:

• “Our referral program makes it easy for our loyal customers to promote our brand. They can send a unique referral link to their friends through text, social media, or email and instantly get a $100 gift for every successful referral.”

• “We offer our current customers a $25 discount when they refer a friend who makes a minimum purchase of $50. Customers are assured of a reward for every complete referral.”

Step 3: Choose Your Rewards

Next on how to start a referral program is to choose your referral rewards. What are you offering customers to share your referral link?

Don’t assume that satisfied customers will recommend your brand to your friends simply because you have amazing products and provide great customer service.

Well, these issues play a crucial role in the success of a referral program, but customers still want to know what’s in it for them.

What will they get when they refer your brand to other people?

As you can see in the image below, the reward can take multiple forms. Store credits are the most popular in ecommerce and SaaS industries, as they ensure repeat purchases. The same is true with a percentage discount or gift card.

Image via Impact

Just as every company is different, your referral reward will be too. Find out which reward will work for your business by figuring out what your customers value most.

For example, a company that provides cloud storage services can offer free storage space for successful referrals.

With some creativity, you’ll find that there are many rewards you can offer your customers such as:

• Discounts/coupons
• Commissions
• Freebies
• Store credit
• Free monthly subscriptions
• Company swag
• External gifts
• Charity donations

Take Hostinger for example. The web hosting platform gives its customers a 20% commission when their referral purchases a hosting plan for at least one year. Customers can withdraw the cash through PayPal when they earn more than $50.

Image via Hostinger

Step 4: Decide The Reward Structure

Once you are clear on what referral reward you will give to customers, the next step on how to start a referral program is to define the reward structure.

Will you offer the referral incentives to either the existing customer, the referred customers, or both?

A one-sided incentive rewards either the advocate or the new customer—not both. Incentivizing brand advocates encourages them to promote your brand offerings, but the referred customers may not be immediately inclined to make a purchase.

On the other hand, rewarding only the referred friend is likely to lead to a sale, but you will not get many referrals because loyal customers have no motivation to promote your brand.

That’s why it’s recommended to have a double-sided incentive that rewards both the brand advocates and referred customers.

Casper, a famous mattress company, has developed an effective double-sided reward structure to encourage referrals and earn more customers. When the existing customer refers to a friend, they receive a $75 Amazon Gift Card.

On the other hand, new customers who use the unique referral link get a 25% discount on their first order.

Image via Casper

Step 5: Design A Program That Converts

After defining your reward structure, the next step when learning how to start a referral program is designing it. How your program looks and feels will determine how customers interact with it and how many referrals you get.

When designing the program, ensure the message is simple and easy to understand. The program's elements should also align with your branding.

Pay attention to the following issues when designing your customer referral program to increase your referral landing chances.

Write A Catchy Headline

A catchy headline will help you attract users and get them interested in your referral program. A great headline for a customer referral program captures the essence of the program in a single sentence.

It shares what the program is about and the benefits of joining.

Examples of great headlines for a referral program include:

• “Give $5, Get $5”
• “Refer a friend and get $5”
• “Spread the word and get free products for life”

Swagbucks is a digital company that connects companies that want customer feedback with people who are willing to review products.

The company has an amazing referral program that motivates users to refer the company to their friends. Their headline reads, “Invite Your Friends & Earn 10% for Life.”

Image via Swagbucks

The headline is not only catchy but captures what users gain for referring a friend. At a glance, users can tell what’s in it for them, thus making it easy for them to decide whether to sign up for the referral program or not.

Use these headline writing tips to create a great title for your referral program.

Make The Referral Process Easy

Your referral program should make it easy for the customer to refer your brand to others. If the customer referral process is complicated, many people will not go through with it.

To succeed with referral marketing, provide a way for customers to recommend your brand in a few clicks.

And as you explain how your referral program works, ensure to cover;

• The incentives on offer
• What customers should do to earn the reward

This will help you avoid any misunderstanding with your customers later on.

In the example below, DigitalOcean has a straightforward referral program for its customers. The referral process is clear and customers know what needs to happen to earn the reward.

Image via DigitalOcean

Provide Several Sharing Options

Next, provide different ways for customers to share your brand to boost their chances of referring your brand.

Your best bet as you learn how to start a referral program is to use sharing options that are popular with your target users. For example, if your customers are young people who are always on social media, prioritize social sharing options like Facebook and WhatsApp.

Email is your best sharing option if you are a B2B SaaS brand targeting key decision-makers in organizations.

Swagbucks has multiple sharing options customers can use to share the brand. Brand advocates can use email or social sharing options on Facebook, Twitter, and Tumblr.

Users also have the option to copy their unique referral code and share it on their preferred platforms.

Image via Swagbucks

Craft Your Message

Lastly, you need to craft the message that the customer will deliver to their friend. The message should explain the referral benefits clearly and have a CTA so customers know exactly what to do next.

Vinyl Me, Please shows how simple messaging can effectively deliver the message. The brand offers the new customer a $10 reward on their initial purchase. The referrer also receives $10 whenever someone utilizes their referral code.

They'll earn even more if they refer more people who buy from you!

Image via Vinyl Me, Please

While pre-filled messages are convenient and easy to share, customers should be allowed to edit them to make them personal.

Your customer knows their friend better and a personalized message increases the likelihood of the friend buying from your brand.

Step 6: Choose the Right Referral Software (300)

The next step in learning how to start a referral program is choosing the right referral software. If you want to run the entire referral process smoothly and effectively, opting for a feature-rich referral marketing platform is imperative.

Here are some of the core features you should look for:

• Intuitive Interface: Your referral marketing platform should be easy for your team and existing customers.

• Level of Customization: The dashboard, rewarding structure, customer referral templates, and the CX should all be customizable to deliver a branded experience.

• Ease of Automation: A good referral program can work smoothly only with advanced automation. A good tool should allow you to automate every stage of the referral process without human monitoring.

• Seamless Integration: Referral programs can’t function independently. Thus, the platform you choose should integrate seamlessly with your CRM platform, email marketing tool, social media marketing tool, and third-party payment gateway.

• Reward Management: An efficient reward management plan is essential to building a strong customer referral program. A good referral marketing software should allow you to create customer loyalty tiers, track referral links, and reward referrers accordingly. This requires an advanced level of management capabilities.

• Pricing: Most referral marketing platforms offer services on a subscription basis. Opt for a plan that best suits your requirements and upgrade to a higher one once you generate enough ROI from referred customers.

• Advanced Reporting: A good referral software should be able to gather comprehensive data and generate periodic reports. Opt for a tool with advanced reporting capacities to help you draw insights and improve your strategy.

• Customer Support: Lastly, a good service provider should offer round-the-clock assistance to run your customer referral program smoothly. Opt for a tool that offers both email and phone support. The customer representatives should be well informed to answer queries and provide timely guidance.

Step 7: Promote Your Customer Referral Program

Promoting the program is arguably the most important step as you figure out how to start a referral program. It’s also where you need to spend most of the time if you want your referral program to be a success.

The great promotion continues even after you launch the program. While long-term promotion seems intimidating, it shouldn’t be.

Simply find ways to incorporate the referral program into your current marketing channels and you are good to go. For example, you can add a referral banner to your newsletter to get your email subscribers to sign up for the program.

Alternatively, you can have the banner pop up on your website when it loads or add a few lines to the order confirmation page to encourage shoppers to sign up.

The trick is to choose multiple channels to convince your customers effectively. Here are some of the most common channels you can choose to promote your customer referral program:

• Email: Run exclusive referral campaigns to highlight the benefits. Share a referral code or unique link your existing customers can share directly with their friends. Also include the link in transactional, promotional, or feedback emails.

• Social Media: Engage your followers by inviting them to check out your referral landing page. They can either sign up for the ‘refer a friend program’ or become paying customers.

• Website: You can promote your referral program across your website. From a pop-up form to a banner or a floating bar, you can use several elements to draw your customer's attention to the referral page.

• Chat: Your customers will contact you via chat for custom support. On the website or on social media, you can invite them to check your referral programs. Allow them to generate a referral link with a single click to share with their family and friends.

Braxley has created a dedicated landing page for its referral program. The Apple watch band manufacturer invites loyal customers to become Braxley Ambassadors by referring a friend.

The referrer will receive a reward of $10 cash every time their friends join the Braxley email list.

Image via Braxley

As with all forms of marketing, referral messages also depend on timing. Invite advocates when they are highly engaged, such as after purchasing or reading an informative blog.

Step 8: Track Your Progress

The next step in learning how to start a referral program is to track referrals effectively. Your referral program has several steps that need to be tracked to ensure everything is going on well.

Some of the important metrics you need to track include:

• Customer participation rate (the percentage of invited customers who accepted to participate in the program)
• The preferred sharing channels
• Sharing success rates
• Conversion rate (the percentage of referred users who become customers)
• Total number of referrals in a given time

Luckily, you can automate most of this tracking. From the moment you invite customers to the final sale, referral marketing software will help you set up and track your referral program.

Referral marketing software will also help you prevent fraud, including customers trying to refer themselves or attempting to claim a referral reward more than once.

Step 9: Review Data and Improvize

An integral part of learning how to start a referral program is collecting and analyzing data comprehensively. Gather customer data from different channels and compile them to observe trends, customer response, and performance.

Both marketing and sales teams can collaborate to analyze this data and draw insights to serve as the basis for actionable plans. Some of the ways you can implement the insights into improving your overall marketing strategy are:

• Find the gaps in an existing referral program and fix them.
• Predict customer behavior and fine-tune your offering to convert more referred leads into paying customers.
• Analyze the channels and focus on the ones bringing you maximum ROI.
• Rethink your rewards and do away with the ones not receiving the desired response.
• Use the insights to increase the efficiency of your customer support team.

With these steps, you are sure about how to start a referral program and run it successfully. Now let’s explore some popular customer referral program ideas that you can try for your business.

5 Profitable Customer Referral Program Ideas:

The secret to a successful referral program is offering rewards your customers wish for and will truly appreciate. Here are five expert-recommended customer referral program ideas to help you get started with a bang.

1. The Most Referrals Contest

A good referral plan should be profitable for your business and customers. It should also boost your existing customers’ competitive spirit.

While you will reward the referrer for each new customer they introduce to your brand, encourage them to supercharge their efforts by setting a goal.

Provide an exclusive reward for the customer who brings in the highest volume of new customers via referrals. To make the situation more interesting, you can set a deadline and upgrade the reward slightly in the final phase.

2. Support a Cause

Aligning your referral program to a social cause is one of the best customer referral program ideas. Instead of rewarding your loyal customers and their friends with discounts or gift cards, you can encourage them to donate to a charity.

Let’s say your business is supporting a cancer foundation. Instead of offering a discount for a referral, you can commit to donating $10 towards this initiative on their behalf. The more people they can get to register on your website, the larger the donation made in that customer's name.

People are attracted to such referral programs and respond more positively. This also helps you connect with them emotionally and build a positive brand image.

3. Enter a Bonus Draw

Everybody loves extra gifts, and your loyal customers are no exception. To encourage them to refer more family members and friends, give them a chance to win an extra gift.

Along with the standard reward, you offer a referrer a chance to enter a lucky draw and win a bonus gift. If they refer to 10 friends, they’ll have 10 entries.

The reward should be very attractive to ensure this referral program is effective. It could be a premium product, an exclusive dining experience, a free upgrade, or anything else that will entice your existing customers.

4. An Element of Surprise

Adding an element of surprise to your rewards is a great way to have more people refer to your brand through word-of-mouth marketing.

Along with the regular rewards or referral incentives, lure the referrers and new customers with a special surprise. You can check some of the top referral program examples to get an idea.

You can introduce a wheel of fortune on the referral page, offer a scratch card, have special gifts on a particular day, or experiment with gifts to have your customers glued to your website or app.

Go ahead and give it a try to enhance participation and lead generation.

5. Create a Campaign with Seasonal Rewards

Infuse a festive spirit into your referral programs. Whether it’s Thanksgiving, Christmas, Easter, the 4th of July, or Back to School, users are always in a festive mood. When you interweave festivities, fun, and celebrations into referrals, they are always bound to be more successful.

You can create campaigns with seasonal rewards for both the referrer and the referred customer. Adding a touch of personalization to referral program messaging enhances the overall impact and improves customer relationship management.

Best Practices for Running a Successful Customer Referral Program

Your goal is to learn how to create a successful referral program. When you invest resources into a program, you want to generate more leads and convert those leads into paying customers. What does it take to achieve that goal?

Here are seven best practices to generate maximum ROI from customer referrals.

1. Focus on Your Happy Customers

One of the fundamentals of learning how to start a referral program is to approach the right people for your program. Unlike general promotional messages, avoid sending referral invites to all your customers.

While you may have an existing customer base, not all would be ready to introduce you to their connections. The trick is to focus on your satisfied customers. Those who are already happy with your products or services and have positive impressions about your brand are your best choice.

Send a personalized invite to these existing customers to become your advocates and join the referral program.

2. Provide Customer Referral Templates

The referral program messaging should be consistent and accurate. Provide a template that all the referrers should use when inviting their friends.

The customer referral templates should clearly highlight the reward, steps, and conditions. You can allow the existing customers to customize certain sections of the invite and add a personal referral link when they email the invite to their connections or share it on social media.

3. Follow Up With the New Customers

The referrer and their friend are rewarded in a double-sided referral program. The referrer receives his reward soon after the friend registers. However, new customers can only redeem their reward when they subscribe to your services or purchase your products.

Once they enter your sales funnel, the sales team should rigorously follow up and nurture them with quality information. Converting them into paying customers is essential to achieving your referral marketing goals.

4. Consider Rewarding Conversion

If your primary goal is to gain new customers and generate revenue through a referral program, you need to rethink your reward structure. Instead of rewarding the new customer at the time of registration, invite them to purchase to redeem their referral incentives.

For instance, if you offer a 20% discount or a free tote bag, the customer can only collect after placing their first order. While this strategy may not be appropriate for all industries, it’s best for an ecommerce store.

5. Set Clear Instructions

While a referral program's process is simple, it is critical to provide all the instructions and guidelines when current customers register for it.

Communicate their responsibility, how the process works, and how you intend to reward the customer. Only once they agree to the terms and conditions on the referral page should they be allowed to generate a personal referral link. Without proper instructions, the referrers may set wrong expectations, which might put the entire program at risk.

6. Establish Anti-Fraud Measures

While you understand how to start a referral program, ensuring security for you and your customers is vital. Referral programs are not immune to fraudulent activities. From exploiting the rewards to hacking the entire process, fraudsters might harm you in many ways.

Choose a referral program software that provides a high level of security. Set a cap on the number of referral invites each user can send and establish anti-fraud measures for reward management. Regular testing and upgrading are also necessary to ensure the safety of your referral program.

7. Make the Process Fun and Effortless

Your existing customers will be interested in participating in your referral program if it is seamless, fun, and efficient. Examine some of the best referral program examples to see how it is done.

Make it easy for them to generate referral links, refer friends, and track the response. Provide a simple interface and easy navigation to make even the beginners comfortable with your program.

Allow them to easily access and redeem referral incentives when making a purchase. If you have sent a due date or limit, communicate it clearly. Providing an effortless experience encourages existing customers to return for more referrals and enhance your brand reputation.

FAQ

Q1. What is a referral program?

A. A customer referral program is a marketing strategy that rewards current customers for recommending your brand to their family members, partners, friends, and colleagues.

Q2. What are the benefits of a customer referral program?

A. A customer referral program is better than other marketing strategies because it has a low acquisition cost. People trust recommendations from friends over brand ads, thus increasing the chances they will buy.

Q3. What rewards can I give out to customers who refer my brand?

A. Some of the rewards you can consider for your referral program include discounts, store credits, commissions, and branded swag.

Q4. How best can I define the reward structure of my referral program?

A. The best customer referral programs offer a referral incentive to both existing and new customers. This incentive motivates the existing customer to share your brand and the referred friend to purchase.

Q5. Can I automate my formal referral program?

A. Yes, you can. Referral marketing software helps you automate and track referrals without human monitoring.

Q6. How do I start an employee referral program? 

A. You can use the same referral marketing software to create exclusive employee referral programs. Here are some important steps you need to follow:

• Recognize the employees
• Provide adequate training
• Generate and track exclusive referral links
• Provide a mix of incentives

Are You Ready To Launch Your Customer Referral Program?

Now that you know how to start a referral program, you are ready to launch an impactful program using the steps highlighted above.

A customer referral program is a great way to drive growth by rewarding customers to talk about you. It’s an effective way to attract customers at a lower cost and spur organic brand growth.

So, go ahead and launch your own referral program, and let us know how many new customers you acquire.