Continuously engaging and delighting your current customers is vital to growing your business, especially when consumers are presented with several choices on several online channels by default. Many other information sources can also influence their buying decisions besides your marketing channel—and the most powerful influence of all belongs to their fellow consumers.
That's why brands are now investing in their own happy customers to drive their marketing strategies forward. Nearly 90% of businesses that launched structured referral programs saw their revenues grow within two years. Referred customers help increase profits by at least 16% as they bring in a new wave of patrons and tend to stay with a brand longer.
An In-depth Guide to Referral Programs:
- Marketing through Referrals
- Difference between Referral and Affiliate Marketing
- Types of Referral Marketing Programs
- Misconceptions about Referral Marketing
- What to Look for When Choosing Referral Software
- Referral Software to Check Out
- Common Reasons behind Referral Program Failure
- Frequently Asked Questions
Marketing through Referrals
Companies typically create positive customer experiences to develop loyal clients, who can then convince others to choose their products or services. But businesses are now aggressively taking this relationship a step further by developing programs that invite their customers to actively join their marketing efforts through referral campaigns.
Through referral programs, customers can earn incentives from a business by sharing their experiences about its product or service with their relatives or friends.
Difference between Referral and Affiliate Marketing
Referral marketing and affiliate marketing both allow you as a business owner to tap people outside your workforce to promote your products for you. However, the two differ in the following ways:
Person referring the product or service
In referral marketing, you reward your clients with incentives for referring a service or product to someone else through a unique code or referral link. In affiliate marketing, affiliates sign up to join your program. They may know all about your brand but they don't necessarily have to be loyal consumers of your products or services.
Referrer's relationship with new customers
People who end up transacting with your company personally know—and most likely trust—the person who referred them to your brand. Meanwhile, affiliates generally aren't personally acquainted with those they share links with.
Mode of referral
In referral marketing, your customers likely share the referral links with others through one-on-one conversations and other direct channels such as SMS, messaging platforms, email, and so on. In affiliate marketing, people discover the link by going to the affiliate's website, blog or vlog posts.
Reward or compensation
You can offer free products, shipping, discounts, or cashbacks to customers who are part of your referral program. Meanwhile, affiliates are paid commissions in return for the sales or subscriptions you get from the affiliate links they share with others.
Types of Referral Marketing Programs
There are a variety of ways you can seek referrals from the public. Here are some general approaches you can try:
You can offer your clients a reward for telling a neighbor or relative about your service and that person later decides to hire you. This type of referral is great for clients who have expressed satisfaction over their own experience working with your company.
Your business uses implied referrals when you describe your product or service to others—such as in a Facebook group or online forum—without making a direct sales pitch.
Businesses also make use of implied referral when they give a reward to people who share their offers on their social media platforms or blog. The referrers haven't bought their product or signed up for their services yet. It's easy to harness this type of approach when you've built a good and solid reputation in your location and industry.
This is usually tied up with direct referrals—you reward both the customer and the people they refer to your company. Rewards can either be physical or digital, including a free product, voucher, and others.
You can donate a percentage of your sales or run an event that will support a local charity, community college, animal shelter, or non-profit organization. In return, the beneficiary can help spread a good word about your company to the public.
Misconceptions about Referral Marketing
Here are some myths that may be keeping you from leveraging referrals in your business:
Myth 1: Referrals are like word of mouth—customers will eventually tell others about our business.
Reality: Happy customers don't automatically refer your product or service to others. While 83% of satisfied clients are willing to tell others about your brand, just 29% of them actually do.
Businesses have the responsibility of building a strategy that will encourage current customers to spread the word about their offerings. It should feel easy, natural, and rewarding for your customers.
You may also have to look deep into some issues, such as how good your product and customer service are compared to that of your competitors or how relevant your product is to your target market's needs.
Myth 2: If our business wants referrals, we'll just keep asking.
Reality: Constantly asking for referrals will annoy customers and will make your company look desperate. It may also ruin the personal relationship that you've worked hard to nurture with your clients. You may have to take a different approach than making a direct solicitation such as “Do you know anyone who could benefit from my services?”
Myth 3: If a referral program is just a matter of links and cookies, our IT team can build it.
Reality: Developing a system in-house may be manageable when you're just starting your business. But once you scale, can your homegrown app support other aspects of your referral program? Your system should be able to provide tracking and reporting, fraud protection, mobile access, notifications, communication tools, and portals for your referrers. It should also be able to integrate with your customer relationship management (CRM) system and other office tools.
Myth 4: Referral software is hard and costly to set up.
Reality: Software solutions aren’t just getting easier to set up. Their built-in features also allow you to add new customers and keep track of their performance without having to do any manual updating. This will be cost-effective in the long run because the software can continuously organize growing data and update itself as you adjust incentives and check your stats.
What to Look for When Choosing Referral Software
In our discussion about the keys and tips for a successful referral program, we identified the components every program needs: who your target referrers are, what incentives to offer (whether you'll reward just the referrer or both your advocate and the referred), and what metrics to use for analyzing performance. It's also important that you make it easy for your customers to refer your brand.
To manage and keep track of how all of these components are performing, it's best to find referral software that's suited to your kind of business. Here's a checklist of features you can refer to when selecting one:
👉 Simple set up and integration
Choose a platform that's compatible or that you can integrate with the current tools you use, including your e-commerce platforms or point-of-sale systems, CRM, email service providers, and social media. It should also be easy to install, learn, and use.
The online solution should have ready-made templates for your referral program and landing pages, which you can tailor to your business needs and brand. Software with white labeling features will allow you to feature your logo and apply your company colors on the dashboard.
👉 Referrals and sales tracking
The software should offer a tracking module, which you and your referrers can view to monitor the people they referred to your brand and resulting sales.
Your chosen solution has to be capable of creating reports that will give you insights regarding the performance of your referral campaign. This includes who your top referrers are, your most popular channels and incentives, revenue generated, and so on.
👉 Easy payouts
The best software has safe and simple ways to quickly payout referrers within the application.
👉 Contacts segmentation
The platform should allow you to sort and segment your contacts according to the duration of a customer's relationship with your company, for instance. This way, you can develop incentives for long-time patrons or a special reward for newbies in your community. You can also sort by service location or any other demographic.
👉 Fraud detection
The best tools can flag and block suspicious users and violators. Some examples of referral fraud include self-referral, broadcasting on coupon sites or discount sites, and account cycling or return abuse (the referred client returns a product once the referrer gets the reward).
Check the software’s maximum capacity for the number of transactions, how many referral programs it can run simultaneously and the availability of omnichannel support. Omnichannel support means being accessible across different channels and devices throughout the buyer's journey.
Other aspects of referral software to look into include:
Subscribe to a service that matches your budget. Some providers have a flat fee while others offer various plans with different rates, depending on the number of participants.
👉 Customer support
Referral software companies can offer support such as in-app chat or a dedicated customer success manager, depending on your chosen plan.
👉 Industry fit
It will be best to check the software company's official website as well as read online reviews to determine if it caters to the size and line of business you're in.
👉 Free trial
Several platforms can be used for a few days free. If you're choosing between a few options and they happen to offer free trial periods, try them out to see if they have the features you need.
Referral Software to Check Out
Now that you know the critical aspects of an online solution, let’s explore some examples.
Growsurf has a landing page builder and automatic link generators. Its tools let you customize the design of your popup window to match your branding.
The software is compatible with email service providers like MailChimp so the new contacts you add to Growsurf will reflect in your email contacts list. Moreover, you can set up notifications so that you get a message in real-time once someone signs up or after a referral campaign ends.
Growsurf allows you to customize the duration of your promos and choose the elements that will appear in your reports. This way, you can view your referral conversion rates, where referral links were shared, and who your top performers are, helping you plan who to reward in the short-term and what new incentive to roll out in the future.
You can also use this platform to reach foreign customers as it supports nine languages, including Spanish, Portuguese, Chinese, Korean, French, German, and more.
This online solution is recommended for SaaS and software startups and growing insurance and finance companies.
Growsurf offers three plans: Startup ($200/monthly for 10,000 participants), Business ($400/monthly for 25,000 participants), and Elite ($600/monthly for 75,000 participants). They all come with a free trial period wherein users can access all features and integrations found in the paid versions.
ReferralCandy integrates with major e-commerce platforms such as Bigcommerce, Magento, and WooCommerce. It offers a variety of attractive, customizable, and mobile-friendly landing page options.
You can choose from a variety of incentives from custom gifts, discount coupons, and cash rewards. You can later get to see various metrics through its analytics feature. They include who among your clients can make the most referrals, the number of emails sent, and the number of purchases made within a given timeframe.
It also has an automated email feature that notifies buyers on your e-store to join your referral program. The email system also automatically informs referrers about their rewards. It has fraud detection and blocking for invalid referrals.
ReferralCandy offers a 30-day free trial. You can choose between the premium plan, which is billed monthly at $49 per month, and the premium plan, which is billed yearly at $3,000 per month. Premium users have access to a dedicated account manager.
Initially popular among British telecom companies, London-based Buyapowa is suitable for enterprise-sized organizations as it has omnichannel functionality (including ease in sharing links on Instagram Stories) and multi-program capability.
Its dashboard allows you to manage advocate profiles and segment referrers, perform A/B testing for incentives, and conduct referral progress tracking. You can also challenge referrers to a race for referrals using its gamification component. You can display a leaderboard showing your runners and riders.
Businesses that tap their workforce for referrals will appreciate Buyapowa's ready-made referral programs involving employee friends and family members.
Its fraud prevention and data privacy features comply with international standards such as the United States' CAN-SPAM, the Canadian Anti-Spam Law, and the E.U.'s General Data Protection Regulation.
Buyapowa's plans start at $17,000 a year. You need to contact their team for a customized plan for your enterprise.
Another enterprise-level solution, Extole boasts a Reward Engine that can customize incentives (loyalty points, gift cards, coupons) and reward deserving or qualified referrers in real time. It also gives you tools to detect and prevent low-quality referrals.
The platform features pre-built sharing and referral templates as well as language localization, which widens your market reach. You can also create different variants of your referral program to determine which aspects work or need tweaking to meet your goals.
Extole's referral programs are optimized for social media sharing. By requesting your customers' social media data during sign-up, the software can help you build a program around the social channel or channels where they have the most engagement. Meanwhile, you can use the software’s audience segmentation feature to send personalized messages to your target demographic.
Extole can also generate real-time reports on who's sharing the most messages and driving up the most revenue.
The platform doesn't publicly list its payment plans. You may ask the sales team after booking for a demo. However, some reports say that its basic plan is worth at least $3,500 dollars a month.
If you enjoy a large social media following, VYPER may help make your brand go viral through different approaches: online giveaways, leaderboard competitions, milestone contests, and user-generated content. You can also choose how your contest will display—as a landing page, website widget, or embedded form.
You have a range of rewards to choose from—first place, milestone, and random winners. Customers are drawn by coupon offers, which they can redeem or use at online stores. Meanwhile, setting "bonus actions" allows you to reward referrers for following, liking, sharing, and referring.
VYPER can be integrated with Shopify and other e-commerce apps. It also has a built in email system that lets you send messages with the participant's share link or contest login link embedded inside.
You can enjoy white label features with VYPER's Enterprise plan. Under this plan, you can replace the software's logo with your own on the landing pages. You can also use your subdomain in place of VYPER's to boost your branding.
Paid users get access to Google Analytics and Facebook pixel tracking. Meanwhile, you can guard your referral program against fraudsters through its blocking feature for suspicious IP addresses.
You can use VYPER for free but you can only use your own logo and other brand elements with paid plans. The free version can only accommodate 250 leads and has a monthly revenue limit of $250. The Enterprise plan costs $149 per month for up to 30,000 leads monthly. Meanwhile, the Agency plan is worth $299 per month for up to 120,000 leads monthly. The Agency package also lets you create 10 sub-account/client accounts.
Influitive is known for making the most of your customers' voice by asking your referrers to create reviews and social media posts about your product or service as well as other activities when they sign up for your referral program. The challenges encourage feedback collection and community-building as referrers seek to earn points and reach certain levels to redeem privileges and perks. There's also an option to exchange earned points for donations to charitable groups.
This B2B tool has a mobile app and integrates with Facebook, Twitter, LinkedIn, Salesforce, HubSpot Marketing Hub, Marketo, Zapier, Tango Card, and more.
Their customer advocacy plan starts at $1,499 per month. Pre-built templates and campaigns, analytics and ROI reporting, and personalization and targeting come with the package. Meanwhile, you can request a demo to know more about their Digital Community plan, which has more features like forums and voting.
UpViral is great for referral marketing beginners as it features a drag-and-drop visual giveaway page builder and customizable landing pages.
The platform allows you to run an unlimited number of campaigns regardless of your subscription plan. This includes making a waitlist to build enthusiasm before any product or service launch. Meanwhile, its A/B testing feature for Business Plan holders lets you test elements of your landing pages, thank you pages, and email copy for maximum reach and impact. Data analytics is available on your dashboard to determine your campaign's performance.
It also has email automation tools that can send emails with social sharing buttons for easy link-sharing and other notifications. You can also set your system to send notifications automatically to welcome new subscribers or to notify contest winners and milestone achievements.
You can customize the content and appearance of social media posts for sharing on as many social platforms as you wish.
The mobile-optimized Upviral also works with most CRMS and operates with automatic fraud detection. It also allows users to create URLs for confidential content such as digital files, software downloads, and e-books.
UpViral offers a free 14-day trial on all its plans: Starter ($49/month for 10,000 leads), Business ($79/month for 25,000 leads), and Premium ($199/month for 100,000 leads).
If you want to discover more tools, you can view our other listicle for more options and insights.
Common Reasons behind Referral Program Failure
So you've subscribed to referral software and set your rewards on the platform. But how come nobody's signing up?
Here are some reasons why your referral program is floundering:
It's possible that your program doesn't seem to be gaining traction because your current customer base isn't large enough. You shouldn't have just adequate numbers—you have to ensure you have a happy bunch.
Stay engaged with your clients individually. Ask them how they find your product or service, and be receptive to their feedback. These trust-building measures will make it easy for you to later ask them directly if they'd like to offer a referral.
Rewarding only one actor
Referral programs typically reward the referrer only. You can get more out of your initiative by trying dual rewards that will incentivize both referrers and the friends referred.
The value of your discount or coupon may be too low or irrelevant to your customers' needs. Also, consider how often your customer transacts with your business. You may want to give a reward with an immediate value such—as gift cards—to clients who transact with you only a few times during their buying cycle. Meanwhile, you can give discounts off future purchases to customers who buy from or tap your services weekly or monthly.
Lack of communication
Did you hold a pre-launch event to introduce your referral program to your target market?
You can send an email announcement, hold a countdown on your website, or offer a free gift card to the first dozen or so who'll sign up.
Don’t forget to promote your referral program within your business—inform your staff and partners about it through email newsletters and posts on official social channels.
And remember to constantly stay engaged with your program members. Send a thank you message after they sign up. Give them progress updates about their pending reward or when their referral has been added to your program. You can also send a brief questionnaire to find out if they find the software easy (or hard) to use.
Difficult or confusing referral process or software
Signing up and referring friends to your product or service shouldn't feel like a chore. Can they easily share the link on social media? How many steps does it take for them to sign up or share a referral link? Are referrals brought to your homepage instead of a devoted landing page after clicking the referral link? Does your landing page have short but clear instructions about what to do next to join your program?
Expecting the program to run on autopilot
Although your referral program is fully automated, advertising it to the public shouldn't be a one-time event. Make it constantly visible by featuring it on your website's banner ads, company social pages, company newsletters, and customer satisfaction surveys.
You also need to use its analytics function to monitor your customers who have signed up, who they referred your brand to, and what incentives are drawing the most referrers.
Moreover, if you're using software for the first time, check your website's performance before installing it. Then check your metrics after you've launched your referral program to see whether you're getting more traffic and engagement.
Besides asking nicely, timing is important when asking for referrals. Wait until you've built a relationship with your customer before inviting them to refer your business to others.
You can also remind customers of your referral program when you're running a sale. Send SMS and emails in bulk before the sale date—list the products on sale and reasons for recommending the products to others.
Giving up too soon
Launching a referral program won't make you an instant viral sensation. Sometimes it takes time for customers to decide who to refer your business to. You may also have to conduct A/B testing for your landing page, incentives, and other elements of your program to determine which one attracts more clients and referrals in the fastest way.
Frequently Asked Questions
How should I test my referral program?
Before officially inviting customers to join your referral program, test the software yourself in these four areas: registration and member sharing, adding new referrals, rewarding members or referrals, and email automation.
Turn off fraud detection first so you can register yourself as a member. After you do, check if you automatically receive an email after signup, how the dashboard looks like, how it allows you to share a referral URL, and if this link brings you to the correct form or landing page.
When your program is already ongoing, you can run two versions of an incentive (fixed value versus percentage), image, call-to-action, and more. Some of the referral tools mentioned earlier have an A/B testing feature, but if your chosen solution doesn't have this, you'll have to determine which segment of your customers you want to test. Then run the test for your control and test groups at the same time for at least two to three weeks.
How do you calculate the success of your referral program?
You can use either of these methods:
Add up your total new revenue divided by total costs.
Step 1: Get your total revenue by multiplying your average selling price (ASP) by your projected conversion rate (or the percentage of the referrals who you expect to buy your products or get your services).
For example, your ASP is $12,000 annually. Of your 1,000 customers, you expect 10% (100) to make at least one referral within the period. Then your estimated conversion rate is 3%. Your formula is: $12,000 ASP x 3% estimated conversion rate= $36,000.
Step 2: Find the sum of all your expenses related to running your program per month:
Monthly subscription to the referral software (For example: $49 monthly plan x 12 months = $588).
The average hourly cost of managing your program multiplied ($30/hour at 20 hours monthly x 12 months = $7,200).
The value of referral incentives that result in sales (3 successful referrals per month x 12 months = 36 x $20 in dual rewards equals $720).
The sum of these three expenses: $8,508
The final formula will be: $36,000 ÷ $8,508 = 3.77317 or 377.32%
Consider your average customer lifetime value (CLV).
Research shows that referred customers are more loyal and effective at making more referrals, resulting in a lifetime value of 25% more than non-referred clients. To arrive at your referred customers' "true worth":
Step 1: Calculate your average CLV. Multiply your average sale price by the number of purchases an average customer makes. For instance, if your customer buys $300 worth of products an average of 4.5 times throughout their relationship with you, the CLV is $300 x 4.5 = $1,350.
Step 2: Multiply your CLV by 1.25 (which represents the 25% higher margin, according to studies). Using the figures in step 1, the formula is: $1,350 x 1.25 = $1,687.50, your referred customer's "real" CLV.
You can also compare the performance of your referral program against your other marketing methods such as paid advertising and email marketing.