Referral Marketing Best Practices

Common goals that almost all eCommerce marketers share are usually centered around the idea of what is going to drive more potential prospects, what is going to keep them engaged, and convert them into loyal customers. Obviously, driving new customer acquisition is a great for growing your business and meeting your revenue goals, but it doesn’t always have to be so expensive and complicated. 

If you can engage your most loyal customers and compel them to become advocates for your brand, you can uncover a powerful source of new customer acquisition. Better yet, it’s a channel that doesn’t rely on costly advertising or time-consuming collateral creation.

“Okay, we’re talking about word-of-mouth marketing...doesn’t sound like a new concept,” you might be saying. Well, stay with us -- there’s much more below the surface.

If that concept sounds familiar, that’s a good thing! It means you’re already thinking about using customer referrals to grow your business. The concept outlined above is the bare bones of a Refer-a-Friend program. So while you’ve likely already heard about referral marketing, here’s how to actually implement it and have success.

Let’s take a hard look at what really makes referral programs successful, and conversely, what makes them fail. We’ll analyze the most critical components that we’ve identified from powering Refer-a-Friend programs for some of the world’s biggest brands.

However, before we do that, let’s talk briefly about WHY referral programs are worth implementing for those who are more skeptical.

Three key reasons why referral programs are worth implementing

We’ve noticed three big benefits that brands running Refer-a-Friend programs realize. If you already have or are planning to launch a referral program, you are probably already aware of these, but if not it’s worth considering to make sure you’re covering your on-site marketing bases.

  1. Less time-consuming to manage. Many marketing initiatives require a constant input of time from your team to design creatives and write copy. Refer-a-Friend programs require only a modest amount of time to setup and launch, and then very little time to manage once the program has been launched. (In fact, your customers are the ones doing most of the heavy lifting!)
  2. Low-cost customer acquisition. With a Refer-a-Friend program, you set the reward amount and that won’t vary, so you have a fixed cost-per-acquisition. Plus, compared to more expensive channels like paid search where you might be breaking even or losing money on the initial transaction, you’ll likely be profitable from the time a referred customer makes their first purchase.
  3. Leverage social media. Many brands wonder if they’re making the most of the opportunity provided by social media channels today. Campaigns like Refer-a-Friend are great ways to increase the amount of social sharing, traffic, and sales that you see.

How to launch a successful referral marketing program

There are three key points that can make or break a Refer-a-Friend. Ignore them and your program may loop -- embrace them and your chances of a successful referral program go through the roof. These three points are:

  1. Personalize the experience
  2. Incentivize referrals
  3. Engage customers with smart email campaigns

Let’s start breaking down each of these 3 main points to walk you through exactly what a successful Refer-a-Friend campaign looks like.

1. Personalize the experience

Quite often, this is an overlooked step in building a Refer-a-Friend campaign. But here’s why you need to pay attention to this detail: customers like to feel connected to brands. They want to feel like they’re more than just a number to you.

This is understandable -- we’re pretty sure that Sarah, for example, would rather participate in a Refer-a-Friend program that has her name and picture associated with the account, rather than boring text (sans pictures), or worse, calling the account holder by a serial number. Not cool.

So how do you achieve this level of personalization? We suggest integrating Social Login into your site for a good first step. Then, when customers register for an account via Social Login, their name, birthday, profile picture, and more will be available to be used to power a highly personalized Refer-a-Friend experience. 

2. Incentivize Referrals

Getting customers to sign up for your Refer-a-Friend program is easy, and should start driving in new customers, right? 

Not necessarily. Getting customers to simply open your emails is hard enough, for example, and all that requires is a click (or tap)! Referring friends requires customers to actively share their referral links with friends, an action that takes more effort. Plus, there’s a lot of competition with other referral programs that your customers might be a member of -- why should they join yours? 

Here’s why: people will opt in to participate in a program only if it’s worth their while. This means you must have a strong incentive in place so your customers feel like it’s worth their time to join your program and refer friends.

Don’t skimp out here -- incentives make the eCommerce world go ‘round, so make sure you’re giving your customers the best one you possibly can. Here are some suggestions for high performing incentives:

  • Offer an incentive for both the referrer and the referee (eg, “Refer a friend and you both get $X off a purchase”)
  • Consider offering an immediate incentive after sharing to maximize the number of people that participate (the lack of instant gratification stops many people from referring friends -- this overcomes that issue!)
  • If possible, offer a special discount or item that you can ONLY get by referring a friend (eg. “Refer a friend to get this FREE exclusive t-shirt!”)

You might be wondering...“Will we be offering too many discounts here to be profitable?”

Nope! Obviously, your price points and average margins are going to play a role here, but as we mentioned earlier, referral programs are typically one of the most cost-effective ways to acquire new customers.

Let’s look at an example, assuming we have the following referral program scheme set up:

  1. $5 instant coupon code to the referrer for sharing
  2. $10 coupon code to the referrer when their friends buy through their link
  3. $10 coupon code off the first purchase for any of the referrer’s friends

#1 isn’t overly damaging to your margins because your acquisition costs for that customer have already been spent. Even if you offer this customer an instant coupon code for joining the referral program and inviting a friend, when they redeem that $5 code there won’t be any other costs associated with that purchase, so it’s likely to be profitable.

For #2, the same concept applies, except for one big difference: in this case, this customer has just referred a new customer, so not only are there no other costs involved in their next purchase than the $10 code, but they’ve also just created a new customer for you!

Lastly, #3 is the $10 discount that new customers get by coming through a friends referral link. This is also likely to be one of your lowest cost sources of revenue, again for the same reason as the other two purchases we just described: they’ll lack most of the traditional new customer acquisition costs that you typically incur.

Lastly, a note: If you don’t want to take the discount route, we always suggest offering free shipping. Just like “please” and “thank you”, “free shipping” is the magical phrase, a polite add-on to “please check out now, don’t abandon us now.” 

3. Engage customers with smart email campaigns

Part of a successful Refer-a-Friend campaign is keeping all parties engaged. If you choose to offer the incentive option that kicks a reward back to the referrer once the referee makes a purchase, you’ll want to notify the referrer when that happens!

This email notification is not only great for distributing the referral rewards, but it’s also great for keeping your brand top-of-mind. The referrer will definitely open the email that’s delivering their hard-earned referral reward, which gives you more customer touch points.

Since your customers will be eagerly waiting for their next reward, they’ll be sure to remind their friends that they referred to make purchases; this means you don’t have to worry about marketing to those potential customers because their friends will be doing that for you!

A big part of a successful referral program is keeping customers engaged. Which is why we also suggest setting up monthly status report emails.

People love seeing results. Quantifying someone’s actions and arranging them in a nice, packaged report, is quite satisfying to most (we may be nerding out a bit here, but seriously, who doesn’t like to see numerical progress??) and keeps them engaged on a realistic level. 

So why not have a summary readily accessible for your customers? Those using your Refer-a-Friend program should have access to knowledge like their amount of shares, along with the resulting clicks and sales they’ve driven.

Then, once they’re regularly receiving these reports, they’ll constantly be reminded of your referral program, increasing the likelihood that they continue to share and invite more friends -- a critical piece to the referral marketing success puzzle.

At this point you may be thinking “Okay, this is great advice, but how can I be sure that these people know what they’re talking about?”

If advice is silver, then results are gold -- so we’ll share two examples of clients of ours that have seen amazing results from our Refer-a-Friend program. 

  1. A leading brand in comfort clothing & apparel launched their referral program and just 2 short weeks later, the entire program had already paid for itself. They took the route of offering “20% off for you and 20% off for your friend.” On average, they see 35 sales for every 100 shares via Refer-a-Friend. 
  2. Another leading retailer has seen success with their Refer-a-Friend program offering $10 off for both parties -- referrer and referee.  They see 25 sales for every 100 Refer-a-Friend shares and referrals are now a major customer acquisitions source for them.
  3. A leading mattress brand sees 13 sales for every 100 shares via Refer-a-Friend -- a very powerful source of conversions, especially considering their large average order value.

Ready to ramp up your referrals?

Whether you’ve already attempted implementing a referral program or you’ve never taken the dive into this on-site marketing strategy, make sure that the referral program you decide to set up meets some, if not all, of our guidelines for maximum success.

Have more questions about referral programs? Click here to download a PDF outlining the "15 Critical Questions to Ask Before Choosing a Refer-a-Friend Provider."