Having a small business with a limited budget is no excuse for your lack of visibility. There are a lot of ways you can attract new customers, but a tactic you might have underestimated is word-of-mouth.
Word-of-mouth is one of the most effective ways to spread awareness about a new business.
Think about the last time you shopped from a new brand for the first time. You probably got a recommendation from a friend, because they’re the ones you trust the most. Since they’re unbiased customers, their response likely convinced you to try it out.
It’s human nature to trust recommendations from friends and family. In addition, 49% of US consumers say friends and family are their top sources of brand awareness.
While word-of-mouth referrals can take place organically, there’s another way you can facilitate the referral process.
This is where referral programs enter the picture.
What is a referral program?
A referral program rewards an existing customer or brand advocate when their referred friend makes an actual purchase. These rewards may range from freebies and discounts to coupons.
For example, Bombas’ referral program lets referred friends get 25% off their first purchase while brand advocates receive $20. By rewarding the brand advocates and referred friends, both parties become eager to participate in the program.
How to design and set-up a successful referral program
Launching your first referral program is easy as long as you know the right steps.
To start off, here’s what you need to do:
Step 1: Identify the goals of your referral program
What do you hope to achieve by launching your referral program? Before you begin executing one, contemplate the objectives and goals that you plan to fulfill.
Meet with your team to brainstorm SMART (specific, measurable, achievable, relevant, and time-bound) goals.
Here are some questions that could help you get on the right track:
- What is the target number of brand advocates that will participate in your referral program?
- How many customers do you wish to convert through your referral program?
- How much money will you allot to building your referral program?
- When do you plan to launch it?
Answering these questions will guide your team in setting the stage for your referral program. Plus, it ensures your goals remain aligned with the referral program you’re planning to launch.
Step 2: Understand your customers
A successful referral program requires your brand advocates’ participation. Put yourself in your customers’ shoes and think about incentives that would motivate them to sign up and join your referral program.
To start off, conduct face-to-face interviews with brand advocates to get their feedback on your proposed rewards. Launch a survey through online form builder tools like Google Forms, Survey Monkey, or Typeforms.
Aggregate feedback from your current customers and look for trends. If you use a cloud phone system for your business, you can also include questions about your customers’ preferences on referral rewards as people who contact your business for communication are more likely to share their thoughts on their needs and wants.
The responses you get could be used as the basis for your referral rewards. That way, you can compel brand advocates to refer their friends and lead them down the sales funnel.
Step 3: Choose the referral program rewards structure
The two main types of rewards structures are one-sided and two-sided incentives.
True to its name, a one-sided incentive structure rewards either the referred friend or the brand advocate. Meanwhile, a two-sided incentive structure offers rewards to both parties involved in the referral process.
Love Wellness’ referral program is one example of a two-sided rewards structure. The referred friend can get $20 off their purchase while the brand advocate gets $20 of store credit in their account.
A double-sided rewards system is effective because both parties have an incentive for making the referral process a reality. However, small businesses with a limited budget may opt for a one-sided referral instead.
Step 4: Pick your referral program rewards
Consumers always ask, “what’s in it for me?” And this is especially true for referral programs.
The referral process won’t succeed if customers aren’t impressed by the rewards that you can offer. Thus, you need to pick your referral rewards carefully.
What are your options? Popular referral rewards include store credit, cash, discounts, and free subscription or membership.
Here’s some of the best referral program incentive options for your business:
Cash
Cash is a compelling referral reward because it’s practical and can be used anywhere. While these rewards can cost a lot of money, they’re best for businesses that rely on expensive one-time purchases. Take for instance mattresses, cars, or financial services.
Novosbed’s referral program lets family and friends get $100 off a mattress, while brand advocates can snag a $75 reward.
Discount or store credit
Discounts or store credits are ideal for ecommerce merchants that rely on repeat purchases or customer loyalty.
That means merchants in the food, fashion, beauty, or pet industries could use coupons as an incentive to get current customers to return to their store. Meanwhile, it could be a compelling motivator to first-time shoppers who have reservations about trying your product.
Stationery brand, Leaders in Heels’, referral program lets brand advocates give their friends 10% off all products, while they can get rewarded with a 15% discount.
Free subscription/membership
Ecommerce brands that offer a subscription-based model can opt for a free month of subscription.
For example, GoodShave’s referral program gave friends 10% off while brand advocates got a free month of razors.
Freebies
Everyone loves free stuff! That’s exactly why offering a freebie or a small token could compel brand advocates to persuade their friends to try your brand.
For example, Harry’s referral program lets brand advocates send free razors to their friends.
Step 5: Build a referral program
Finally, it’s time to build the referral program.
Ecommerce merchants can build a referral program from scratch. However, there’s no need to fret if you don’t know how to code or automate the process online.
Good news: Advanced referral program software lets users build a referral program within minutes.
Users can simply create an account, pick their incentives, and integrate the referral program software with their ecommerce store. The platform will then automate the process of sending referral emails and distributing the rewards to brand advocates and referred friends.
Having a referral program is a cost-effective marketing strategy that can greatly improve your customer acquisition process.
Step 6: Encourage brand advocates to share your product
Encourage brand advocates to talk about your referral program on social media.
Using customers to advocate for your brand can lead to a higher engagement level compared to sponsored promotions.
To start off, add social media icons to the bottom of your referral email so recipients can share the referral program with the click of a button.
A good tip is to include a referral share message to introduce your consumers to the referral program. For starters, this short message should highlight the referral program incentives in a clear and concise manner. It should also provide a brief introduction to your brand or a link to the website—so interested customers can easily learn more about you.
Having a referral share message also lets brand advocates share in an instant. Without one, some may be too intimidated to write persuasive copy to convince their friends, and give up. After all, not everyone has the time or skill to write compelling emails.
Take, for instance, Peloton’s referral share message that encourages readers to get a Peloton to reach their fitness goals for the New Year.
In this example, the message is engaging and succinct. Customers learn they can get $100 off accessories, as well as the referral code that they can use.
Step 7: Thank the referrer
Convincing friends to try a product or service for the first time requires time and effort. Even if our loved ones trust our assessment, it can be difficult to prompt them to give your brand a chance. That’s precisely why you should remember to send thank you emails to customers who have successfully converted their friends.
For example, Massdrop’s email thanks customers for getting their friends onboard. Plus, they’re also informed of the next steps necessary to claim their referral credit.
Step 8: Collaborate with influencers
Influencers can be very influential.
So why not collaborate with them via product reviews or unboxing videos to promote your referral program? Influencers love joining referral programs, especially if they can get more rewards by referring as many followers as they can.
BAPE and SUPREME supplier SaruGeneral created an unboxing video for their $25,000 mystery box which has been viewed more than 2.3 million times.
At the bottom of the video, you’ll find the referral code Harrison10 which lets customers get 10% off their mystery boxes.
This example proves that influencer collaborations can significantly raise brand awareness and inform people about your referral program. More people will learn about your products and new customers can get discounts, while influencers will get rewarded. It’s the perfect win-win-win situation!
Step 9: Send a follow-up email
People receive tons of promotional emails in a day. Even if you send an email to promote your referral program, it may just end up ignored in their inbox.
In this case, it’s best to use an email marketing platform to send a follow-up email to customers that haven’t signed up to your referral program yet. At the very least, they know that your referral program exists. Just like the usual referral email, it should highlight the perks that they can get by referring their friends.
To avoid being perceived as pushy, you can subtly mention your referral program at the bottom of every promotional email.
Ibotta’s promotional email has a dedicated section to their referral program rewards.
Customers receive regular reminders to refer to their friends every time they interact with the brand. It also encourages them to join the referral program when they come across friends that might be interested in joining.
Step 10: Monitor referral program results
Like every marketing campaign, you must monitor referral program results to gauge your progress. Done right, you’ll be able to identify ways to improve your referral program.
Here are some metrics that you need to consider:
- Participation rate – Shows the number of individuals that have joined your referral program. If you have a low participation rate, launch awareness campaigns related to your referral program to bolster membership.
- Share rate – Shows the number of brand advocates that have shared or promoted your referral program on social media. This determines whether your referral rewards are motivating members to refer their friends.
Here’s how to interpret your share rate:
- 7% – poor result
- 15% – okay result
- 30% – amazing result
- Clickthrough rate – Indicates the share of referral links that have resulted in conversions (i.e, clicks, website visits, or purchases) on your ecommerce website. Those with disappointing results can opt to A/B test their landing pages and modify their CTAs.
- Conversions – Indicates the value you gained from your referral program. According to Hubspot, a 10% conversion rate for referrals is a good starting point.
Here’s how to interpret your referral program conversion rate:
- Less than 4% – poor result
- 10% – okay result
- More than 15% – amazing result!
Clickthrough rate, share rate, and participation rate evaluate whether customers are aware of and interested in participating in your referral program. In contrast, conversion rates show whether marketing efforts have led to substantial results.
Final thoughts
A referral program can speed up the customer acquisition process, especially as the retail landscape evolves to adapt to the digital customer experience.
Not surprisingly, most customers trust their friends and family, as compared to promotional or sponsored ads. Launching your own referral program is fast and easy as long as you know the right steps. Here’s hoping that these ten tips help you design and set up your own referral program for your business.
