How to Create a Successful Customer Referral Program?
Referral marketing generates 3 to 5 times higher conversion rates than any other marketing channel. The success of referral programs comes from our natural tendency to trust word-of-mouth much more than any other promotion form. It also delves into the inner desire for peer validation that we all share. In short, people would rather have a friend explain to them why they need to check out a business rather than listen to the business talk about itself (duh).
Kantar Media report proves that the recommendation is the most trusted source of information for customers sitting on the fence. According to the statistics, as many as 93% of customers trust their friends and family's advice and 77% of customers are willing to buy a product or use services recommended by someone they know. Despite 83% of clients eager to recommend a brand, only 29% do. What makes that number so low? In short, lack of incentives. People need an additional reason to actually recommend products, services, or brands, and that's where referral programs come in.
Referrals seem to be the low-hanging juicy fruit for your business. But you still need a bit of effort to create a referral program that works effectively. So let's start from the very beginning.
What is a referral program?
"Reference marketing is an organized form of promoting products or services through customers to their friends."
A referral is nothing more than a recommendation of a given product or service to another person. A referral program, though, is a system designed by a company in which those recommendations are being incentivized and rewarded. Companies create referral programs to incentivize customers to spread the word about their products or services, thus gathering new leads and, eventually, new clients. How does it work?
Let's assume that a customer has an account in a bank with an active referral program. They can recommend creating a bank account or choosing a similar banking product offered under the program to a friend or a close family member. In exchange, the bank pays an appropriate bonus or award both to the person who took advantage of the recommendation and to its current customer who recommended the product, that is, sold it to other customers.
The above scenario is an example of a double-sided referral program in which both parties get rewarded. If this doesn't suit your business goals, you can also launch a one-sided referral program where only one party (the referrer or the referee) gets a reward.
Either way, someone gets rewarded for spreading the word about your business, and it's up to you to decide which party needs to be incentivized more. The beauty of the referral programs is that you can make a lot of adjustments on the way to make the most out of it. Are people not very interested in referring right after the launch? Change the rewards for more suitable ones. Users tend to bring your company a single referral, and they lose interest afterward? Add tiers and offer more valuable rewards for referring multiple customers. Changes like these can make a difference.
How to create a referral program step-by-step
Here's a quick step-by-step guide so you won't get lost in the process.
1. Set the target of your referral program
As I’ve mentioned before, companies run referral programs to acquire paying, loyal and engaged customers, not just referrals. But, for starters, the goal of your referral program might as well be a certain number of referrals. Go big or start small and iterate – the approach you’re going to take is all up to you! The important thing is to have a specific target in mind while executing all the next steps.
2. Select a perfect referral program solution
There are hundreds of software that lets you run a referral program. Ask yourself, though, what exactly do you need? Will a simple referral solution suffice?
Maybe an API-first promotion engine that offers referral programs and discount coupons, gift vouchers, and loyalty programs? In that case, you may want to get started with Voucherify. Or maybe what your company needs is a big CRM tool to handle all your customer-related business in one place?
3. Define the audience of your campaign
If you want your referral program to be successful, you need to know exactly who is the perfect referral. To define an ideal customer, you may try creating marketing personas – browse through your existing customers and select all those things that make them a perfect fit for your company.
4. Choose a single- or double-sided referral program
Sometimes companies need referral programs because they have a solid set of loyal customers but struggle to find new ones. There can be dozens of reasons for that, like a general lack of recognizability. In such a case, you may try creating a one-sided referral program: incentivize your existing customers to spread the word about your products, knowing well that they can vouch for themselves, and people will eagerly buy if they only knew about them.
In some other scenarios, double-sided referral programs work much better. Referrers have a bit easier job finding you new customers and referees get rewards right after purchasing at your store for the first time. That’s what I call an excellent start!
5. List out the incentives
Different tools provide different sets of incentives – it is possible that you will be limited by the software you’ve chosen in the second step. In Voucherify, though, the list of available incentives is long – you might reward referral program participants with gift card credits, discounts, vouchers, physical items, free services, loyalty points, or free shipping.
Select all the incentives you’re eager to try out, and plan, which of them would go to the referrers, and which to the referees.
6. Find ways to promote your referral program
After creating your referral program, you need to let people know that it exists. The obvious place for such information is on your store homepage or in the client's account. You can also inform customers on Facebook and other social media platforms, send emails, SMS notifications, and so on.
If you’re already using a distribution tool, such as Braze, it would be best to integrate your referral program software with it, so you can plan the distribution right away.
Here is an example of a referral email sent by Harry's:
7. Create content to use in the campaign
Spreading the word about your referral program shouldn’t be random. Prepare the content of notifications, social media posts, emails, infographics, or blog posts beforehand, so you can unleash the full potential of your campaign anytime.
Make sure, though, that your referral program is here to stay, so don’t throw anything on the line in the first few days – think of a long-term strategy, to remind your customers about the program from time to time.
Be prepared for referrers, who will eagerly bring a few customers in the very beginning, but then could lose interest. Spend some time on preparing post-referral communication, encouraging them to continue spreading the word around.
8. Make sure you can follow all the referrals
Tracking referrals is a vital part of the process. Only with full knowledge of the number, sources and effectiveness of referrals can you tell if the referral program met your expectations.
There are a few metrics you need to track to have a full picture of the referral program:
- Participation rate indicates how many of your customers joined the referral program in any way – sent their first referral, shared the information about it or generated a personal referral link.
- Referral rate tells you how many referrals have been made. The first level of referral rate tracking should be a total number of referrals, but it would be great to dig a bit deeper, and see which referrers are the most engaged (send the most referrals).
- At first glance, a thousand referrals may indicate a successful referral program. Still, without knowing the exact conversion rate, which tells you how many referrals ended up with either acquiring a paying customer or at least a sign up, you can’t be sure about it. It’s up to you, which action you would count as a conversion, but it won’t hurt to track both.
9. Run your program
When everything seems to be ready, it’s time to launch your referral program. Launch day isn’t the last step, though – once you open the referral program to customers, you have to track its progress and see how people respond to it, so you can react properly. Don’t forget to prepare your support team for an increased number of tickets, since the rules of your referral program might confuse customers, and those interested might want to ask for further information directly.
10. Make it better
After a while, when you get enough data, you should review it and define the pain points of your referral program. There’s always something to improve, as customers’ preferences change throughout the months (sometimes days!). Keep an eye on the most important metrics and don’t forget to refresh the program from time to time, even if it seems to work well.
Best practices of referral programs
Coming up with a referral program that will bring the expected results doesn't have to be complicated. There are various tricks to help you successfully convince undecided customers. Here are some of them:
1. Excellent customer experience is not enough
Not even 30% of satisfied customers will share the experience with their friends and family if you stop at that. Of course, you probably won't activate everyone out of that uninterested 70 %, but it still would be a colossal waste, right? So, let the referral incentives do wonders for your referral program. What can be such an incentive?
- Coupons – discounts for the first order, lower price for a specific product or service – there are plenty of ways to use coupons as an incentive for both referrers and referees. What's most important is that coupons build positive associations with your brand.
- Gift card credits – money to spend for anything they like in your store. That's a great idea for two reasons. One: people will get cheaper stuff. Two: you will get happier customers.
- Loyalty points – a perfect incentive for referrers. The more customers they find for you, the more loyalty points they get. Giving loyalty points to your customers as an incentive in referral programs works both ways, especially if a loyalty program is an integral part of your customer relationship management.
- Free items – getting things (or services) for free is simple but effective, and it can become a gateway to acquiring engaged customers with a high lifetime value. It's also a great way to reward referrers – especially those who brought more than a single customer to your company.
All of those might motivate customers to spread the good word about your brand or a particular product. More than 50% of people are likely to recommend a company if offered an incentive in exchange – that's already 20% more than without any referral program! And 39% of consumers claim that incentives such as discount coupons, free items, or gift cards significantly increase their chances of recommending a brand.
2. Referral programs are all about conversion
At the end of the day, referral programs aren't about recommendations – they are about conversions. The bottom line in every referral program is to convert visitors into paying and satisfied customers.
Assuming that you already have recommendations, where are your booming conversion rates? Suppose more than 90% of people trust in their friends' opinions more than in any other form of advertisement, and only 74% decide to purchase for the same reason (recommendation). What happens with the remaining 20%?
These are only examples of numbers that present a gap between the number of recommended customers and the final number of referral acquisitions. In the real life of a traditional referral program, this gap can get and usually gets much broader.
To maximize conversions, ensure that the referring process is as easy as it gets, so the referrers won’t have to waste time looking for their referral link, but could start referring right away! Sharing a product directly from an online store with a reflink attached? Elegant, simple, and approachable.
Read on to see three tested techniques for upgrading your referral marketing and turning more recommendations into conversion growth.
3. Offer double-sided benefits
In a double-sided referral campaign, the incentive is offered to both the referrer and their friend. For example, your customer gets 15% off the next purchase and a gift card for a friend with $10 to spend in-store. Why does this approach work?
- Your customers are motivated to spread the word by word-of-mouth.
- It's a chance to endow friends or family with real value carried by a gift card or coupon code.
- With an incentive in hand, referred customers are more likely to follow word-of-mouth.
4. Gamify your referral program
Run a program that is fun for customers. Gamification is no longer a marketing embellishment. Instead, it's a proven technique for keeping customers engaged along the way.
Multi-level programs reward customers based on the number of referred customers. Thanks to this, clients won't stop at just a single recommendation. Rewards are like levels in the game. With every new acquisition, a customer gets better compensation.
- Make rewards a surprise.
- Inform customers at the very beginning about the program rules and reward schema.
- Put a time limit on every incentive.
5. Create referral groups
Each customer will be motivated by a different referral reward – there is no one-size-fits-all strategy here. However, various promotions with attractive incentives may activate dormant users and show you clues for improving the reward schema.
- Run rapid flash sales for referrers. For example, if you introduce your friend tomorrow, you'll get 50% off your order.
- Launch a gift card campaign with a predefined balance to spend for friends and family of your customers. By adding a short time frame, you can count on a fast conversion spike.
- Create social contests for customers and their friends, and reward both sides for social shares or other activities within your profile.
- Offer product-specific deals based on order history or cross-selling. Such personalized campaigns help you to exceed customer expectations and build loyalty.
Here is how Ovo Energy creates a feeling of urgency to motivate advocates to make a referral:
6. Spread the word yourself
Referral marketing is all about open and honest communication. If you want to succeed with a referral program, you also need to make sure that you not only tell customers about the referral program, but that the rules of the campaign are transparent, fair, and straightforward.
Here is what you can do to make sure that customers won't miss your referral program the next time they visit your website:
- Train the sales staff to pass the information to customers at the points of sale.
- You should advertise your referral program on the main page and a dedicated landing page if you run a website.
- Create save-worthy images and catchy taglines to promote your referral scheme on your social media channels.
- If you have access to customers' emails and explicit permission to contact them for marketing communication, inform them about your referral program via a dedicated email campaign.
There are many ways to boost the number of customers joining your referral program. Only with extensive user research will you find a referral strategy that's right for you.
I hope that this guide will help you create a successful referral program, which will eventually bring you lots of happy customers. And if you still need more information and a better understanding of referral programs, feel free to read this thorough referral guide.
Turn more happy customers into conversion growth