When aiming to expand your company’s reach, your existing customer base may be the most powerful tool up your sleeve. With a great referral program in place, you can turn your current buyers into active contributors to your business growth.
Referral programs are a highly cost-effective strategy for boosting your customer acquisition efforts. These programs connect you to a new network of potential leads with minimal effort. Simultaneously, your program can boost customer loyalty and lifetime value by engaging your existing network over and over again.
Keep reading to learn more about referral programs, including what they are, why they work, and how you can build one for your own brand.
What is a referral program?
A customer referral program—sometimes known as a refer-a-friend program—is a structured system that encourages current buyers to recommend a product or service to their peers. In most cases, this requires some sort of referral incentive that gives your audience good reason to actively reach out to potential new customers.
The role of a successful referral program is to turn happy customers into brand advocates. Instead of investing in campaigns that target potential buyers directly, your team can use this program to let your best customers do the talking, which can be far more effective than spreading the message yourself.
People trust their peers more than any other groups or ads, with as much as 92% of shoppers trusting the recommendations given to them by friends and family members. When real people start recommending your brand, you can gain instant trust from new users — including those you may not have considered reaching out to — and let your conversion rates soar.
Word-of-mouth marketing is the perfect vehicle for your brand message, and referral programs are one of the best ways to make it happen.
6 best referral program ideas
Referral program examples can be found in just about every industry. After all, this referral marketing technique is highly flexible and can work for companies of any size, from massive brands like Google and Uber to small businesses and even freelancers. Below, we’ll describe some ideas that you can customize and make your own.
1. Two-way referral incentives
Two-way incentive systems are one of the most common types of referral programs, allowing the referrer and the referred customer to benefit from their participation. Here are a few real-world business examples of this type of program:
- Dropbox: Free storage space to referrers and the referred friends who use their invite codes.
- Airbnb: $30 in travel credit for referrers and $55 for friends who use their referral link.
- 24 Hour Fitness: Free personal training or store credit to referrers and a free seven-day pass for new leads.
There are many ways to customize two-way referral incentive programs to your liking. You can offer free products or services, or give a free trial or sample. You may also offer higher-value incentives to referrers than referees (and vice versa), or entice current customers to participate with better referral rewards for first-time recommendations. Some brands may even reward loyal customers for leads, not just for conversions.
2. One-way referral incentive
While referral programs with incentives for both participants can increase interest from new leads, a referral campaign that exclusively benefits current customers can be effective in its own way. When you invest solely in your existing customer base instead of spreading your budget between two parties, you make it more enticing for current buyers to influence others to choose your brand.
Consider this situation: If you have a $50 budget for a referral reward, you can either offer $25 each to the referrer and referred friend (a two-way incentive) or you can offer $50 only to the referrer. Choosing the latter option can catch the attention of more current customers, so they’re more likely to promote your brand.
By investing in existing buyers, you create an experience that is more engaging and builds long-lasting loyalty.
If you don’t have the budget to promise a reward for every referral, or you want to attract more referrers with the possibility of one massive reward, using a contest-based program may be the best route. This type of referral program gives customers the chance to earn a big prize just by getting new customers or leads on board.
Here are some examples of what a referral contest may look like:
- A mobile app company offering one entry into a monthly drawing for a free month of membership per referral.
- A clothing store offering a $100 gift card, $50 gift card, and $25 gift card for the top three referrers over a three-month period.
Even Tesla has a contest element within its referral marketing program. When current customers refer someone who purchases a vehicle, the referring customer gets free car-charging benefits and the chance to win a brand-new Tesla model.
4. Refer-a-friend challenge
Another referral program idea is to make it a personal challenge. Instead of having a few select winners, you can allow customers to unlock new perks by reaching set milestones for the amount of referrals they make.
For example, an auto repair shop may provide 10% off two oil changes per year once someone makes their first referral. When they reach three lifetime referrals, they may unlock birthday discounts and priority service, too.
This is a great way of turning referrals into an ongoing, engaging game in which there are no losers. It can also spread your investment throughout the year, so referrers are guaranteed to return to your brand to take advantage of benefits.
5. Ambassador program
Making your customers feel important can be an incredibly effective way to gain referrals. By elevating your best customers to “ambassador” status, they’ll feel more compelled to promote your product or service.
An ambassador program is easy to set up. First, you can select the segment of your customer base that is most likely to share your brand with friends and family, as well as on public social media pages and other marketing channels. Then, invite the group to sign up for the ambassador program, which allows members to earn rewards when someone signs up or makes a purchase through their referral link.
When building this exclusive referral program, make sure you have a way to screen applicants—even just by browsing their social media pages—before accepting them. Since they’ll carry the title of ambassador, you want to make sure they can represent your brand without tarnishing your name.
The final type of referral program doubles as a fundraiser. Many consumers love to know they’re contributing to a good cause, and this referral marketing strategy provides an easy way for them to do a good deed.
Fundraiser referral programs work a lot like one-way incentive programs, providing one reward for every new customer or lead. However, instead of that reward going to your current customer, you’ll donate it to a specific nonprofit on their behalf.
This type of referral program can stand out by showcasing your company values, so you may even get new business simply by being an ethical brand.
Drive in new business
Whether you own an e-commerce store, a brick-and-mortar location or both, developing a strong referral program can help you get new customers while improving your return on investment. Referral programs help you turn existing customers into your greatest advocates, so you can build engagement and your customer acquisition rate all at once.
When customers are already recommending your product or service, there’s no reason not to give them a bigger platform. Once you have your referral program in place, you can start maximizing the power of your customer base by focusing on online reviews, a powerful word-of-mouth strategy for the digital marketing age.