As a business owner, you’re always on the lookout for new ways to grow your customer base and drive sales. One effective strategy to achieve this is by creating your own customer referral program. By incentivizing your existing customers to refer their friends and family to your business, you can generate new leads that are 2x more likely to convert than leads acquired through paid marketing channels.
Referral marketing has been a popular growth channel for businesses since PayPal launched its referral program back in 2000. PayPal offered its customers $10 for every new customer they referred to the platform, and it worked wonders for the company’s growth. In just a few months, PayPal saw its user base grow from 100,000 to 1 million. Since then, many businesses have adopted this strategy, and it’s become one of the most effective ways to acquire new customers.
Referral marketing has become especially popular in recent years due to the rise of social media and direct messaging. People are more connected now than ever before, and it’s easy for them to share their experiences and recommendations with their friends and family. As a result, a recommendation from a friend or family member carries more weight than any other form of marketing.
Following in the footsteps of PayPal, many other startups launched epic referral programs to drive growth – some other examples of success include AirBNB, Starbucks, Tesla, and Evernote.
You can find (and copy) the exact referral strategies of these startups by using their templates to create your own referral program…
- Referral program template for PayPal
- Referral program template for AirBNB
- Referral program template for Starbucks
- Referral program template for Tesla
- Referral program template for Evernote
Fast forward a decade and the referral marketing trend has grown even more. Startups led the way, but now we’re seeing all kinds of businesses launch referral programs to generate more high quality leads. Solar companies, Plumbers, Yoga Studios, Insurance Companies, Education platforms and more. The list goes on!
If your plan is to generate more leads this year than you did last year, then you’re probably already asking yourself…
How can my business get more referrals?
The answer is simple. All you need to do is create a referral program, and invite your loyal customers to spread the word!
Now, let’s dive into the steps you need to follow to create and launch your own referral program. If you follow these 8 seps, you’ll be up and running and generating referrals in just a few weeks.
8 Steps You Can Follow To Create A Referral Program
Step 1: Define Your Referral Program Goals
Before you create your referral program, it’s essential to define your goals. What do you want to achieve with your program? Do you want to increase sales, generate new leads, or just reward the customers that are referring to their friends anyway?
Once you’ve established your goals, you can design your program to align with them. For example, if your objective is to increase sales, you can offer a discount to customers who refer a friend and make a purchase. If your goal is to generate more leads, then you could include a mechanic in your referral program where the top referrer every month win’s a prize (on top of the standard rewards they should be getting for each referral).
Step 2: Design Your Referral Program
The next step is to design your referral program. You’ll need to decide on the type of referral program you want to build – a single-sided or double-sided program. A single-sided referral program rewards only the referrer, while a double-sided program rewards both the referrer and the referred friend. Double-sided programs are generally more effective since both parties benefit from the referral. Once you’ve decided on the type of referral program you’ll launch, you’ll need to make sure it has a catchy headline so that people notice it and feel motivated to get involved. Here are some examples of striking headlines that you could adapt for your own referral program:
‘Give $50, Get $50.’
‘Refer a friend, and you’ll both get rewarded!’
‘Offer your friends a discount. If they accept it you’ll get one too!
You’ll notice that all the headlines cater to a double sided referral program where both parties get rewarded – this is because these types of programs simply perform the best. People like getting rewards, but they are MUCH more likely to refer if they know their friends will get something too. It makes them feel more comfortable to share their referral links when they feel like they are giving their friend an incredible offer as they introduce them to your business.
Pro tip: Look for software that comes with built-in referral program templates. By using a referral program template you can model your referral program design on a template that has been created by an expert, this will save you a ton of time and mistakes! If you want to create a referral program quickly, then using a template is the only way.
Step 3: Choose Your Rewards And Incentives
The rewards you offer for referrals will play a significant role in the success of your program. You’ll need to strike a balance between offering enough incentive to motivate customers to refer their friends and ensuring that the rewards don’t eat into your profits. A great way to calculate the value of your reward is to take your total average marketing budget per month, and divide it by the total amount of converted leads you get per month. Technically you’re making the reward value the same as your current cost per converted lead.
Remember that referred leads convert at a rate 2x higher than leads acquired through paid marketing channels. So even if you make your reward value the same as your ‘cost per converted lead’ you’ll still be winning because more of the leads actually convert. Making your reward value too low will mean that the incentive to refer is lower too. So it’s a balancing act!
Some popular referral rewards include Amazon gift cards, Digital Visa cash cards, discounts, free products or services, and store credit.
Some referral programs offer tiered rewards, where customers receive increasing incentives for referring more friends, but in our experience (having created over 200 referral programs for brands) we have found that tiered referral programs are more complicated to manage and actually drive lower results. Keeping your referral program simple is the best tactic you can use to ensure your success. One referral = one reward. Everybody can easily understand how it works, and it’s simpler for you to manage it too.
If you want to know how to calculate the value of your reward, you can read this post or see the summary in the visual above.
Step 4: Make sure you have a killer offer!
We already discussed rewards and incentives in the previous step, but if you want to win at referral marketing you need to take it one step further. This is the secret sauce that most marketers miss…
Choosing the right ‘incentive’ in your double sided referral program is actually more important than choosing the right reward. The incentive is what you offer the person being invited.
The incentive for the person invited is crucial to get right because if there is a good incentive the person referring will actually be more motivated to refer friends because they feel more like they are giving their friends something, than selling your product or service. People love to give offers and incentives to their friends, it boosts their ego and makes their friends happy too. The incentive is also a great motivation to push the person invited to actually convert and become a customer of yours, based on their friend’s recommendation.
So having a great incentive means that the person referring is more likely to share their referral link with more friends, and the person being invited is more likely to act. This is why we suggest having a killer offer for the person invited.
An offer can be anything from free onboarding, a free month, a free consultation, a free call out-fee, a coffee voucher, a bottle of wine, an upgrade, a discount, or anything similar – think of it as a perk
Step 5: Build Your Referral Program
Now that you’ve done all the planning, it’s time to build and launch your referral program! There are two ways you can do this:
1. Hire a developer and build your own custom referral system
2. Use referral software that offers a plug and play solution
Building your own custom referral system will give you the most flexibility, but it will also mean you have to do a lot more work to get your program off the ground and maintain it. There are many hidden elements to consider like how you create a referral link, how each user tracks their referrals, how you issue automated rewards and incentives, setting up various email notifications, and more.
In most cases, you can get all of these features and more by using plug and play referral program software. We’ve written a full guide over here [link] that covers ALL the features you should look for when choosing your referral software, but to summarize, you should make sure the software you choose offers:
- Ease of use
- Customization options (so that your program can look and feel on brand)
- A simple way for your users to share their referral links, and track their referrals
- Automated referral tracking and reporting
- Easy reward management
- Integration with other tools
- Data privacy and security
- Excellent support
We strongly suggest using a referral software tool to build your referral program because it means all the technical elements are taken care of, this allows you to focus on the marketing elements that you know best – mechanics, branding, messaging, promotion, and more.
Step 6: Connect Your Referral Program To Your CRM
Connecting your referral program to your Customer Relationship Management (CRM) system is a crucial step in ensuring the success of your referral campaign. This integration will allow you to easily track and manage all of your referrals, and send them directly into the workflows you already use. By automating this process, you can save time and resources, and ensure that your leads are being followed up with in a timely and efficient manner.
More importantly, when those referrals convert, your CRM (if integrated) can let your referral program software know that a conversion has occurred. This can automatically trigger a reward for the person referring too. Having all this automated makes your job as a marketer much easier to manage!
Another thing you can do by connecting your CRM is automatically generating referral links for all your CRM contacts. This means every contact in your CRM has their unique referral link right in their profile. This means you can include a contacts referral link in all your customer communication going forward!
Your CRM system can also help you keep track of valuable data, such as the number of referrals and converted referrals generated by each contact. If you have this data in your CRM you can easily reach out to your top referrers to thank them!
Overall, connecting your referral program to your CRM system is essential for streamlining your referral process, optimizing your results, and making sure your customers referral links are always ready and available for when you next message them.
Step 7: Promote Your Referral Program
Once you’ve created and launched your referral program, it’s time to promote it! Asking your customers to spread the word about your business is simpler than you think, you just need to take the leap and do it.
You can use various channels to promote it to your customers, including directly emailing your customers, promoting it on social media, running paid advertising to a page where people can join your referral program, installing widgets and pop-ups on your website to promote your referral program, and more. For a detailed list on how to promote your referral program to your customers read this guide.
It’s crucial to communicate the benefits of your referral program clearly. Highlight the rewards customers can earn, the ease of participating, and the value your products or services will deliver to the friends that get referred.
If you’d like to know more about ways you can promote your referral program and ask for referrals, you can read our article that covers ‘how to ask for referrals’ [link] here.
Step 8: Setup Referral Tracking (And Optimize Your Referral Program)
After launching your program, you’ll need to monitor its performance regularly. Analyze the data to determine how many referrals you’re receiving, which people are driving the most referrals, what social or direct channels people are using to refer friends, and which rewards are most effective.
Use this information to continuously optimize your program. You can tweak your incentive, adjust your messaging, or experiment with new promotion channels to invite more people to start referring.
As with all things in marketing, tracking is essential. Great marketers know the sources of their best leads, and they allocate more time and resources into the channels that deliver the highest ROI. Below is an example of the kind of referral analytics you should be tracking once you’re up and running.
Those are the eight most important steps you need to follow if you want to create a referral program. We also suggest researching other referral program examples, the best way to learn is to look at what other businesses in your industry have done to achieve success.
Examples of customer referral programs (built using Referral Factory)
Finfuture referral program (finance industry)
Share your referral link with friends, inviting them to get a free financial consultation. Referrals are a great way to grow your business if it’s in the finance industry, as people are far more likely to trust a financial advisor they know handles their friends’ money.
Optimus referral program (education industry)
Refer a friend and get a discount on your future courses, they will get a discount too, it’s a win-win! Education is the perfect industry to launch a referral program in, because like-minded people stick together. If you’re in marketing, you know other marketers right? If you’re learning to code you know other junior developers right?
Angel’s Cafe referral program (food and beverage industry)
A classic invite-your-friends campaign offering a coupon to your friend if they try the service. This campaign performed extremely well for one simple reason… People love to offer their friends free food! Having a great incentive was key to their winning referral strategy.
Ourbus referral program (travel industry)
A classic give-and-get. Share your referral link with a friend and you’ll each earn $15! We all know that people are addicted to sharing their love of travel, and this referral program leveraged that to its fullest.
Radius referral program (Insurance industry)
A give and get that took the UK by storm. In times of economic recession, people need basics more than luxuries. This is why Radius used a reward and an incentive that would encourage their customers to get involved – fuel. Give £50 of fuel, get £50 of fuel. It’s a total win win all round!
iKhokha (Online industry)
A B2B referral program where businesses had the opportunity to help other business owners succeed. Businesses owners received a cash back reward for referring other entrepreneurs to switch to iKhoKha for all their payment processing needs – and the business’ they refer receive a 10% discount on their card machine plus a chance to apply for funding after three months. The reason this was so successful is that entrepreneurs have a tight community and are very driven by helping other businesses overcome similar struggles that they have faced, this campaign gave business owners a chance to help other just like them.
Auspac Solar referral program (Solar industry)
A big reward for a big referral. Get $250 for every friend you refer that installs solar panels. If you’re going green to save the planet, it make sense that you’d want your friends to join the party too. This is why solar is such a great industry to launch a referral program – because people are naturally motivated to spread the word, they just need to be promoted to do so.
Referral Factory referral program (B2B industry)
A classic B2B referral program, where you can earn $100 for referring another business. This referral program leveraged cash as the reward, and an extended free trial as the incentive. These are the most popular rewards and incentives being used in B2B referral programs.
When is the right time to launch a referral program?
There is no perfect time to launch a referral program, but the right time to start asking for referrals is when you have at least 100 people in your network to ask. This could be 100 customers, 100 fans, or 100 supporters of your business. If you’re just starting out and you don’t have any customers or fans yet, it will be hard for you to see a lift in your customer acquisition by asking 0 people to refer. This is why we suggest launching a referral program as a secondary marketing tactic – first launch your business, then launch a referral program once you’ve gotten at least a bit of traction.
Keep in mind though that if you want too long, it will become difficult to integrate your referral program into the marketing stack you’ve then built. If you have a referral program integrated into your business early on, you’ll end up building your marketing stack around it so that everything can remain integrated and automated and all your leads (including your referrals) can flow into the same workflows. This is yet another reason that we suggest using plug and play referral program software over building your own referral system from scratch – because of the built in integrations that come with an out of the box solution. You’ll be able to connect your referral program directly to your CRM without writing a line of code. What a win!
How many referrals can I expect to generate?
Every industry is different, so it’s hard to say exactly how many referrals you could generate by launching a referral program, but there are some benchmarks that you can use to forecast how many new customers you could potentially acquire by adding referral marketing to your overall growth strategy in 2023.
We’ve pulled data from our top performing 1000 referral programs, and then averaged the results to create this graph. Below you can see how many referrals were generated on average, based on the number of customers that were asked to refer.
The three biggest factors that influence how many referrals you can generate are quite simple:
1. How many people you have to ask for referrals – the more loyal customers you have to ask for referrals, the higher your success rate will be.
2. How good your incentive is – a great incentive means people feel comfortable promoting your business to their friends, because they can say ‘Hey, use my link and you’ll get 20% off’. Essentially the person referring is getting an ego stroke because they are helping their friend, and a reward if their friend buys. This kind of motivation is sure to drive the success rate of your referral program up.
3. How much people love your brand – this is a hard one to fake, if you have a great business and you look after your customers, they usually will be more than happy to spread the word about your business. Happy customers = more referrals. On the flip side of that argument though is a harsh reality. If your business has a bad reputation, gets lots of complaints and negative reviews, then you probably will find that most people won’t be comfortable referring you to their friends.
How much work is it to manage a referral program?
Managing a referral program does require some effort, but it doesn’t have to be overwhelming. With the right tools and strategy in place, you can streamline the process and make it a relatively painless task.
The amount of work required will depend on the size of your program, the complexity of your reward structure, and the level of automation you have in place. For example, if you’re manually tracking referrals and sending out rewards, it will be more time-consuming than if you have an automated system that handles everything for you.
Here are some of the key tasks involved in managing a referral program:
1. Tracking referrals: You’ll need to keep track of who referred whom, and whether or not they completed the desired action (such as making a purchase or subscribing). This can be done manually or through automated referral program software. You’ll also need to track who your top referrers are, and the reach of each of your referrers unique links – so you know which of your customers are pushing to promote your business the most.
2. Sending out rewards: Once a referral is confirmed, you’ll need to send out a reward to the referrer. This could be a discount code, free product, or cash reward. Again, this can be done manually or through automated referral software. If you have a large base of customers that you’re launching your referral program to, we don’t suggest doing this manually as it will take a lot of time.
3. Monitoring program performance: You’ll want to keep tabs on how your program is performing, including how many referrals are coming in, what the conversion rate is, and how much revenue each referral is generating. If you choose the right referral software you should get referral analytics out of the box which means your tracking should automatically be set up.
4. Promoting your referral program: If you want to keep people referring over time, you’ll need to continuously promote your referral program to your customers. You can do this by installing widgets on your website so that your customers get reminded every time they log in, or if you have a business with physical stores you can promote your referral program using posters on the wall. You do this by creating landing pages where people can register to join your referral program, then you create posters to print and hang up in your stores that say ‘scan this QR code to refer friends!’ You should also consider sending once off emails to your customer base at least every second month, re-issuing their referral links and reminding them to keep referring.
How much does referral software typically cost?
The cost of referral software can vary depending on the provider and the features included in the package. Some providers offer a free plan with limited features (free trial), while others charge a monthly fee that can range from $50 to $1000 or more.
Below we’ve listed a breakdown of the top referral program software on the market right now, and the range of pricing in their various plans. This comparison shows the review scores of real reviews, from real people, across trusted review sites like G2 and Capterra.
When choosing a referral software provider, it’s important to consider the features you need and the budget you have available. Some providers offer a pay-as-you-go model based on the number of referrals or rewards issued, while others offer a flat monthly rate.
It’s also important to consider the potential return on investment (ROI) of your referral program. A well-executed referral program can bring in high-quality leads and increase customer loyalty, resulting in a higher ROI than the cost of the software.
Keep in mind that if you’re new to referral marketing you need to choose software that offers great support – chat and video support is a must as you’ll probably have lots of questions as you get started. Below is a feature comparison of the most popular referral software being used right now – the features compared are those on the entry level plan for each of these referral program software providers.