Building a Referral Program: A Straightforward 6-Step Guide

Ready to establish a referral program? A robust referral initiative has the potential to fast-track business expansion and enhance profitability. Nonetheless, successful programs often integrate with various aspects of digital marketing, making it advisable to implement them after optimizing elements such as your website, email marketing, and social media. Allow me a few minutes, and I'll guide you through the advantages, provide examples, and detail the steps to create a referral program that yields positive outcomes for your business.

What is a Referral Program, and Why Should You Start One?

Eight in ten people say they trust word-of-mouth recommendations from friends and family more than any other source of information, according to Nielsen. Referral programs increase the number of word-of-mouth recommendations your brand receives to capitalize on this.

Benefits of a Referral Program

While many people may emphasize the value of creating a referral program in terms of acquiring new clients, the advantages extend well beyond this singular aspect.

• Raise Brand Awareness: The average person mentions 56 brands in conversation each week, according to Deloitte. Referral programs keep your brand top-of-mind to ensure it’s talked about.
• Improve Conversions: Referred clients are three to five times more likely to convert, Annex Cloud reports.
• Decrease Churn: Referred clients have 16 percent lower churn rates than their counterparts, per Wharton.
• Boost CLV: Customer lifetime value is twice as high for referred clients, Journal of Marketing reports.
• Increase Profit: According to Wharton, clients acquired through referrals are 25 percent more profitable compared to their non-referred counterparts.
• Multiply Referrals: As per the Journal of Marketing, clients who come through referrals have been found to refer twice as many new clients, setting the stage for exponential growth.

Varieties of Referral Programs: Exploring the Different Types

There are two main categories of referral programs: customer referral programs and referral partner programs.

Customer Referral Program

Up to 80 percent of a typical company’s referrals come from current or past clients, according to McKinsey.A conventional customer referral program is designed to increase the volume of referrals within this audience. This page will primarily emphasize customer referral programs.

Referral Partner Program

Based on McKinsey research, 20 percent of referrals come from non-client sources. This is where a referral partner program comes in. Rather than focusing on clients, your aim will be directed towards other entities that serve as referrers, such as brands with overlapping audiences.

Exploring Effective Referral Campaigns

There are various strategies for running an effective campaign, each with its unique approach. Below, we'll delve into common methods brands employ to incentivize referrals, providing specific examples for each.

One-Sided Incentive

In one-sided incentive referral programs, only the referring party receives a reward. This could be in the form of cash, account credits, product discounts, free products, upgrades, or any other valuable incentive. An illustration is Shoeboxed, which offers its customers a 10 percent commission paid monthly for the first year each referral remains active. One-sided incentives are commonly utilized in referral partner programs but can gain traction in some customer referral programs with the right incentives.

Social Gifting

Social gifting referral programs share similarities with one-sided incentives, but both the referrer and the referred person receive rewards. For instance, PayPal employs a point system that grants both parties the equivalent of $10. Social gifting programs often outperform one-sided incentives, as referrers feel they are providing something valuable to their contacts.

Contests and Giveaways

Periodically, brands run contests or giveaways to rekindle interest in referrals, sometimes concurrently with ongoing incentive programs. The most common approach is counting each referral as an entry into a giveaway. Genesis, for instance, implemented a contest with three prizes, including a $500 grand prize.

Fundraisers

Fundraiser referral programs can be successful if the brand and customer base strongly support a cause. These are usually short-term campaigns to rejuvenate a standard referral program. Brands may partner with a cause, tapping into their audience for referrals, or pledge a donation for each referral. Upserve, for example, pledged a $200 donation for each referral that converted into a customer.

Referral Tiers

Referral tiers, often combined with one-sided incentives or social gifting programs, involve increasing rewards for the referring party as they refer more people. Pinto's referral program, for instance, provides patients with a $25 gift card for one referral, a $50 gift card for two, and so on.

How to Create a Referral Program

Having explored examples and gained background knowledge, let's now delve into the steps involved in setting up your referral program.

Step 1: Set the Stage for Success

I typically consider referral programs as “distant fruit” on the digital marketing tree. While highly efficient in propelling growth, referral programs leverage various digital marketing channels, encompassing websites, email, and social media. It is imperative to establish proficiency across these domains before implementing a referral program. Moreover, the success of such programs is contingent upon cultivating satisfied customers, underscoring the importance of delivering top-notch products or services and prioritizing customer satisfaction.

Step 2: Define Clear Objectives for Your Referral Program

Your initial step is to determine your target audience. While some brands might successfully implement a referral program that caters to all their customers, for the majority, customizing creative assets for specific personas or even developing entirely distinct referral programs for customer segments may be necessary.

Next, evaluate your objectives and identify the most effective metrics for measuring results. If your primary goal is to enhance brand awareness, tracking likes, or tags on social media might be the ideal approach. However, if lead generation or sales is your focus, narrowing down between the two can assist in fine-tuning other campaign details.

Step 3: Choose Your Referral Program Rewards

It is crucial to offer incentives that align with the value of each referral, a metric that varies across businesses. For instance, a referral to an attorney may result in a new client generating $10,000 or more, while a referral to an apparel company might yield only $400.

Understanding your customer lifetime value (CLV) provides insight into the revenue derived from each customer, facilitating the determination of affordable customer acquisition costs and the investment potential for your referral rewards program.

Once you have a clear understanding of your budget, consider implementing incentives such as:

• Product Discounts
• Free Products
• Product Upgrades
• Account Credits
• Gift Cards
• Cash
• Giveaway Items

Step 4: Select Tools and Develop Workflows

If your industry experiences limited referrals, it might be feasible to administer your referral program using existing tools accessible to your marketing team, such as UTM tracking codes, CRM, and email marketing platforms. However, for most brands, adopting a specialized referral platform that streamlines the process, including reward delivery, tracking, and reporting, proves advantageous.

Implementing such a platform enables you to establish workflows for soliciting referrals, expressing gratitude to clients for referrals, and nurturing your referral network.

Step 5: Promote Your Referral Program Effectively

With your technical setup in place, it's time to craft and launch creative assets for each stage of your referral program process. Ensure that your marketing team has access to all relevant persona documentation and a comprehensive understanding of the entire flow to maintain consistent messaging across channels.

Website

Create a clear and straightforward landing page that highlights the benefits of your referral program and facilitates easy client action. Consider strategically linking to this page throughout your website on key pages, such as a customer login page or a thank-you page displayed after a purchase.

Social Media

Referral programs rooted in giving, like social gifting and fundraisers, or those with time-bound features like giveaways, may excel on social media platforms.

Email

Implement a regular email campaign to engage your clients. Segment your email lists for more personalized communication—for instance, encouraging non-referrers to start and reminding referrers of their earned rewards. Automate thank-you messages for each referral, although a personal phone call may hold more significance, particularly in industries with challenging referral acquisition or high-dollar customer lifetime values (CLVs).

Customer Service

Empower your internal team with information and assets to encourage referrals. Account managers and customer service agents, who often have insights into clients' satisfaction, can verbally prompt clients to refer others and follow up with an email via a CRM template.

Step 6: Monitor Your Referral Activities and Incentives

Track the results of your referral program as you would any other digital marketing initiative. Experiment with different rewards and approaches to continually improve your results over time.

Get Help Creating a Referral Program

Drawing on my business background and expertise as a digital marketing consultant, I assist clients in developing impactful referral programs as they transition to advanced digital marketing strategies. If you're prepared to establish a referral program or require assistance in fortifying preliminary initiatives, I am delighted to offer my support. Feel free to reach out for a complimentary consultation.

You can also read this article on my website, How to Create a Referral Program in 6 Simple Steps.

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