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.

Right now, a potential customer is more likely to seek the advice of a friend or relative when in need of a product than to refer to a brand’s promotional material.

A Nielsen study found that 88% of customers trust recommendations from friends and family more than any other source of brand information.

Since this is the reality, every business needs a referral program to power its customer acquisition efforts.

In this article, we are going to guide you on how to start a referral program that brings in a steady stream of customers for your business.

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 and pinpoint where new customers are coming from.

Take Dropbox for example. The company has a successful referral program that can inspire you as you learn how to start a referral program.

Dropbox provides its users with 500MB of free storage space when they invite their friends to sign up with the platform. And guess what, users can get up to 16GB of storage for their referrals.

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.

In September 2008, the company only had 100K registered users. Fifteen months later in April 2010, the company had 4 million registered users – a massive 3900% growth rate all thanks to referral marketing.

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.

Here are the benefits of a customer referral program:

• Low acquisition cost – Referral programs motivate customers to recommend your brand to their friends for a reward.
  
  The cost of acquiring a customer through referral marketing is based on these incentives which are run on performance marketing platforms.

• Increases the trust levels with customers – Paid ads and campaigns do very little to help you build trust with customers.
  
  When you reach potential customers through someone they trust, their trust and confidence in your business grow.

• Has a proven record of success – Some of the popular brands we know have achieved success because of referral marketing. PayPal, for instance, grew rapidly in its formative years because of a referral program.

• Generates high-quality leads – When your existing customers recommend your brand, they bring leads that are a perfect fit for your business.
  
  They have a first-hand experience of how your product has helped them and can refer your brand to several of their friends who can benefit from your services.

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 for referring your brand to other people?

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 offers the reward to either the advocate or the new customer – not both. Rewarding the brand advocate only motivates them to share but the referred customers will not be excited to make a purchase right away.

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.

Omsom, a food brand that sells flavorful starter packs for Asian dishes has an amazing referral program where they reward both the existing and referred customers.

For a successful referral, both the current customer and referred friend get a $5 discount on their next order.

Image via Omsom

Step 5: Design A Program That Converts

After defining your reward structure, next on how to start a referral program is to design the program. 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. You also want to ensure the elements of the program are in line 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 come up with 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 for them to earn the reward.

Image via DigitalOcean

Provide Several Sharing Options

Next, provide different ways for customers to share your brand to boost the chances of them 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, prioritise social sharing options like Facebook and WhatsApp.

But if you are a B2B SaaS brand targeting the key decision makers in organisations, email is your best sharing option.

Swagbucks has multiple sharing options customers can use to share the brand. Brand advocates can use email or social sharing options to 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.

As you can see in the example below, Vinyl Me, Please has a simple referral message that explains the program and its benefits to the customers. There's also a CTA that tells interested users what to do next.

Image via Vinyl Me, Please

While pre-filled messages are convenient and easy to share, give customers the option to edit the message to make it personal.

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

Step 6: Promote Your 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.

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.

Mos, a bank that targets students, has mastered how to incorporate its referral program into its normal marketing activities.

The bank offers a $5 reward for a successful referral. While this is not a huge referral reward, they have been able to grow their customer base by adding their referral banner to their blogs and marketing content.

In the example below, they have added the referral banner at the end of one of their blogs.

Image via Mos

As with all forms of marketing, referral messages also depend on timing. Ensure to invite advocates when they are highly engaged such as right after making a purchase or after reading an informative blog.

Step 7: Track Your Progress

The last step in learning how to start a referral program is to set up referral tracking. 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 such as customers who try to refer themselves or those who attempt to claim a referral reward more than once.

FAQs

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 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 have a referral incentive for both the existing customer and the new customer. This is to motivate 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 allows you to automate and track everything from the initial share to the final sale.

Are You Ready To Launch Your 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.