Referrals are a really powerful way to grow your business. There's no doubt that consumers trust businesses more when they're recommended by a friend or colleague. Referrals can also lower your customer acquisition cost, increase your conversion rate, and boost your customer retention rate.
But how do you get more referrals from your existing customers and employees? How do you create referrals, so that it becomes a consistent and scalable source of new business?
Let’s go over some things we like to do to create and run a successful referral program for your business. We will also give you some examples of referral programs from different industries, and show you how to use social media and digital marketing to promote your referral program and generate more referrals.
What is a referral program?
A referral program is a word-of-mouth marketing strategy that encourages your customers and employees to recommend your products or services to their friends, family, colleagues, or contacts. In exchange, you reward them with incentives, such as discounts, cash, gift cards, free products, or bonuses.
This can help you leverage the trust and loyalty of your existing customers and employees, and get them to take on the marketing of your business for you. By asking them to refer people who would benefit from your products or services, you can attract more qualified leads who are likely to be interested in your offer.
How to create a referral program
There are many ways to design and implement a referral program, depending on your business goals, budget, and target audience. However, there are some common steps and things we like to do that you should follow to create a referral program that works.
Know your numbers. Before you launch your referral program, you need to have a clear idea of how much you can spend (how much you can give the referrer) to get a new customer. This is largely based off another number you need to know: how much your average customer spends with you. By knowing how much the average customer spends with you, you’ll be able to use that (and the resulting profit you’ll make from that customer) to create referral incentives that maintain your profitability and are enticing to your prospective referrers. (We’ve used it twice, but it ‘referrers’ even a word? Who knows.)
Choose your incentives. The incentives are the rewards that you offer to your referrers and referred customers for participating in your referral program. They should be attractive and relevant to your referrers, and allow you to maintain profitability. There are many types of incentives that you can use, such as:
A percentage discount or commission. This is a simple and effective way to reward both parties with a percentage off your products or services. For example, if Justin tells Joe about SpokoMedia and Joe signs as a client, Joe gets a 5% discount on all fees and Justin gets a 5% commission on all fees we charge Joe (before the discount). This is easy to build into your pricing, and it creates a win-win-win situation for everyone. (This is a real thing we offer, not just an example!)
A gift card. This is a fixed amount that you give to the referrer or the referred customer that they can use to buy your products or services, or to shop at a partner store. For example, if you run a landscaping business, you can give a $100 gift card to the referrer or the referred customer that they can use to get their lawn mowed, or to buy plants or tools at a local nursery. This can help you with budgeting, and it can also create a pricing arbitrage, where the perceived value of the gift card is higher than the actual cost of the service or product.
A free product, service, or bonus. This is a non-monetary reward that you give to the referrer or the referred customer, such as a free trial, consultation, upgrade, or add-on. For example, if you run a fitness studio, you can give a free month of membership to the referrer or the referred customer, or a free personal training session, or a free t-shirt. This can help you with budgeting, and it can also create a pricing arbitrage, where the value of the free item is higher than the cost of fulfilling it, so they feel great about getting something of high value, even though it doesn’t cost you that much!
Set up your referral program. Once you have decided on the above, you need to set up your referral program and make it easy for your customers and employees to join and share it. You can use a referral software for this, like ReferralCandy, Referral Rock, or Friendbuy, to create and manage your referral program. Or you can use your own website, email, or CRM system to run your referral program. Depending on how many potential referrers you have, this could be more complicated as you scale.
Promote your referral program. The next step is to let relevant people know about the program and the offer, so they can start telling others about you. Depending on who you want to roll the referral program out to, you can do this in a few different ways:
Your website. Feature your referral program call-to-action prominently website. This can be done in different places based on what your referral offer is, and who you want referring for you. Your homepage, product pages, checkout page, thank you page, blog, or footer are all places that would work well. You can also use a referral widget or popup to show your referral program to all your visitors right when they enter the site.
Your email. You can send email invitations to your past and current customers and employees, and ask them to join your referral program or let them know that when they refer someone to your business, they’ll be compensated. Another great idea is to send email reminders to your existing referrers periodically and update them on their referral status, rewards, and progress. You can also include your referral program link or code in your email signature, your newsletter, your transactional emails, or your feedback emails.
Your social media. Post about your referral program on your social media platforms to let everyone know about it. You can also use social media ads, stories, live videos, hashtags, or geo-tags to reach more potential referrers. You can also encourage your referrers to share your referral program on their own social media accounts, and make it easy for them to do so with social sharing buttons or tools.
Optimize your referral program. The last step is to optimize your referral program and make it more effective and efficient. You can use data and feedback to test and improve different aspects of your referral program, like your incentives, how you sign-up referrers, your referral message, your referral channels, or your referral audience.
Examples of referral programs
Here are some examples of referral programs we’ve liked:
SpokoMedia gives referrers and referred clients 5% of the referred client’s monthly fee as a discount. Let’s say Client A is paying $750/month and refers Client B to us. Client B decides on a package at $1,200/month. They each get 5% of $1,200 off per month, so Client A is now paying $690/month and Client B gets their $1,200 package for $1,140/month right from the start!
Airbnb rewards both the referrer and the referred customer with travel credits that they can use to book their next trip. The referrer gets $25 when the referred customer completes their first stay, and $10 when they complete their first experience. The referred customer gets $40 off their first stay, and $15 off their first experience. Airbnb makes it easy for its users to share their referral link or code via email, text, or social media, and it also provides them with a personalized referral dashboard where they can track their referrals and rewards.
Dropbox rewards the referrer with extra storage space for every new user they invite. The referrer gets 500 MB of free space for every friend who signs up and installs Dropbox, up to a limit of 16 GB. Dropbox also gives the referrer an option to share their referral link or code via email, Facebook, Twitter, or a direct link. Dropbox also gamifies its referral program by showing the referrer a progress bar and a list of their referrals and rewards.
Uber rewards both the referrer and the referred customer with a discount on their next ride. The referrer gets $5 off their next ride for every friend who signs up and takes their first ride with Uber. The referred customer also gets $5 off their first ride. Uber makes it easy for its users to share their referral code via SMS, email, or social media, and it also shows them a referral history and a referral status in their app.
Referrals are a powerful way to leverage the hard work you’ve already put into your customers and clients and get them to do your marketing for you. By creating and running a referral program, you can operationalize referral getting and make it a consistent and scalable source of new business.
Happy referral getting!
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