Keely Lords
Brand Manager
A robust customer referral program can be a game-changer for your business, turning satisfied customers into brand advocates. Here, we’ll cover the essentials of creating an effective customer referral program, including definitions, types, strategies, ideas, examples, and how Postal can assist in this process.
What is a customer referral program?
A customer referral program is a marketing strategy that incentivizes existing customers to refer new clients to a business.
By offering rewards, benefits, or perks, businesses encourage their loyal customers to spread the word about their products or services. It’s a form of word-of-mouth marketing to acquire new customers.
If executed well, this can be a win-win situation for both business and customer, where the business enjoys increased revenue through an expanded customer base and current customers enjoy praise and free brand awareness.
What are the benefits of a customer referral program?
Major benefits of such a program can include the following:
1. It’s cheaper than other marketing
New customer acquisition is an investment in itself and can be costly at times. A referral program can reduce these costs by leveraging existing customers to bring in new ones.
It cuts down on the need for expansive marketing campaigns and cold-call sales, and taps into the trust and satisfaction of existing clientele.
2. Referred leads convert better
Trust is powerful – for example, you’d be more likely to try out a product if a friend or fellow professional recommended it to you. You trust their judgment.
In that spirit, a 2021 TrustRadius survey found that customer referrals are the top marketing tactic for 49% of tech vendors. Plus, another source finds that referred leads are 30% more likely to convert.
3. They stick around longer
Referred customers are also 16% more likely to stay with you. Rewarding existing customers for their advocacy creates a sense of community and loyalty.
As a result, bonds are strengthened and engagement grows – making for a stronger overall customer base.
Ultimately, benefits go beyond immediate sales. Your reputation as a brand grows, and your growth as a business becomes more sustainable. Word-of-mouth marketing is powerful, trusted, and effective, delivering the double benefit of a steady stream of new, high-quality customers while retaining your most loyal clients. Your revenue stream – the lifeblood of your business – becomes more robust and longer-lasting.
How does a referral program work?
So, how does this all work? A referral program usually operates via a unique referral link or code that you share with existing customers. When your customers share this link with those in their network, and people sign on using that link, both parties get a reward.
You’ve likely seen this in your own inbox – a friendly email from your existing service provider offering you a free month of their service or 20% off your next purchase if you spread the word about them. And likewise, a new customer you’ve just “signed” will also get a free month or 20% off as a reward for coming on board.
Different types of customer referral programs
There are many types of referral programs – some standard, some bespoke depending on the company. It really depends on the structure and rewards offered. Let’s look at some common types of incentivized programs:
1. Single-sided referral programs
In this program, only the referring customer receives a reward. This is straightforward – an existing customer refers a new one, and they get a benefit for doing so.
2. Double-sided referral programs
In this case, both the referrer and the referee get a reward. Not only does the existing customer get a benefit for referring a new lead, the new lead gets a perk for signing up. Predictably, this leads to greater referral numbers and higher conversion rates.
3. Tiered referral programs
In this case, the more times a customer refers someone, the more rewards they get. Let’s say they get 10% off for their first referral, and 20% off if they refer two or more. This tiered system can also include milestones and a more diverse range of referral incentives to encourage ongoing referrals.
4. Social media referral programs
This is where a customer shares referral links via their social media platforms, be it an official company page or via their personal network. This strategy leverages the power of social networks to reach a broader audience – with the potential to go viral for those customers who are social media savvy.
5. Employee referral programs
This type of program incentivizes the existing employees of your business to spread the word about you beyond traditional sales outreach. You can incentivize this by offering bonuses or additional time off. This can be effective as your employees likely have robust professional networks within the same industry as yours. It also drives greater employee engagement when they have a tangible stake in your product or service.
6. Advocate referral programs
Advocate referral programs focus on your most loyal and enthusiastic customers, turning them into active brand ambassadors. These advocates can receive exclusive perks, such as beta product access, special discounts, branded merchandise, or even brand features on your website and social channels for their own business in exchange for promoting your products or services.
7. Influencer referral programs
You’ve heard about social media influencers – this is where you collaborate with those who have a large following in your sector. According to Marketing Dive, 69% of consumers trust recommendations from influencers, family, and friends rather than from the brand itself.
8. Partner referral programs
There are many businesses and organizations out there who complement yours with their own product or services – especially in B2B. A formal partnership arrangement can benefit both parties in a two-for-one referral campaign – plus, you expand your reach and introduce your brand to a new, yet relevant audience.
8 Ways to Build an Effective Customer Referral Program
Building an effective customer referral program involves strategic planning and execution. There are many variables to success in the referral process, but the eight key methods below will help ensure your program gains traction in attracting and retaining customers.
1. Target the right customers
You know who your ideal customers are – but do you know who your most loyal and happy customers are? If not, start with this. These customers are with you because they like you, and consequently are more likely to advocate for your brand. Their word of mouth will have greater impact on new prospective customers.
Use customer data to segment and target these individuals. Look at length of tenure with your brand, repeated purchases, interactions with your customer success team, willingness to do case studies, and other indicators of satisfaction and loyalty.
2. Create a systematic reward system
People like rewards. They especially respond when rewards are clear, well-structured, and speak to their specific needs and interests. Rewards can range from quantitative benefits (I.e. discounts) to qualitative benefits (I.e. exclusive access to newly released products).
To maximize incentivization, your rewards should make sense. They should have real value and be aligned with your brand image.
3. Build a referral program promotion strategy
What use is a referral program if no one knows about it? You need to get the word out via a promotion strategy. Use multiple channels including email campaigns, social media networks, your own website, in-app notifications, etc. Use compelling visuals and messages highlighting the benefits of the program to your target audience.
Just like any marketing campaign, consistent and widespread promotion maximizes awareness and participation.
4. Make your referral program easy to share
No one likes extra work on their plate. Make it as easy and as simple as possible for your customers to promote your brand – including using unique referral links, social media sharing buttons, pre-written messages, one-click distribution, and other elements to smoothen the process. The easier it is for customers to share, the more likely they’ll participate.
5. Engage with your customers
Connect with your customers on a regular basis, keeping them engaged with your referral program. Send them friendly reminders, updates, and especially thank-you notes to those who actively promote your brand. Those who feel appreciated will keep spreading the word.
It never hurts to send a thoughtful gesture like a gift for those who newly sign-up to be a referring brand as well as when certain referrals hit benchmarks in amount of referrals.
6. Measure the effectiveness of your referral program
Tracking is crucial. Use reporting tools to monitor your KPIs such as number of referrals, conversion rates for referred leads, costs of customer acquisition, revenue collected from referred customers, etc. and identify areas for improvement.
Review all this regularly, analyze the data, and continually refine your strategy to maximize the effectiveness of your referral program.
7. Create customer-centric content
Yes, you can use content marketing to support your referral program. Create blog posts, solicit testimonials, write success stories, develop instructional videos, and build landing pages that highlight the benefits of referring others – and show how to do it properly and effectively.
8. Make your referral program easy to join
Again, “easy” is key here. Make it as easy as you can for a customer to join your referral program. Streamlike the sign-up process, ensuring that it’s simple, quick, intuitive, and user-friendly. Provide clear step-by-step instructions with as few steps as possible for the customer. They are busy, and you’re asking them to help you – so help them by easing the process.
Customer referral program ideas
So what incentives can you offer the customer? There are many:
1. Contests and giveaways
Run contests where customers earn entries for each referral they make. Winners can receive significant prizes, creating excitement and encouraging more referrals. Gamification is always a great tactic for engagement.
2. Gifts
Offer gifts as rewards for referrals. These can be branded merchandise, exclusive products, or items that align with your customers’ interests. Since the customer is going out of their way to do something for your brand, this is your chance to truly thank them - not make them a walking billboard for your brand. Choose something that is of quality and useful to THEM!
3. Early access program
Provide referrers with early access to new products or services, or you can even offer enhanced visibility with your product team to understand the future product roadmap. This exclusive benefit can motivate customers to refer others to gain early access.
4. Customer loyalty tiers
Create a tiered loyalty program where customers earn points for referrals that can be redeemed for higher rewards as they progress through different tiers.
5. Exclusive events
Invite top referrers to exclusive events such as product launches, VIP gatherings, or special workshops. This not only rewards them but also strengthens their connection to your brand. By inviting other referral customers, you can start to create a community around the group.
6. Discounts
Offer discounts on future purchases for both the referrer and the referee. This double-sided reward encourages more referrals and repeat business.
7. Top referrer rewards
Recognize and reward the top referrers with special prizes or recognition. This can create a competitive environment and motivate more customers to participate.
8. Community benefits
Create a sense of community by offering benefits that enhance the customer experience, such as access to a private forum,such as Slack exclusive content, or special support services.
Examples of successful customer referral programs
There are many lessons to learn from existing success stories in referral strategies. Let’s look at five of the most well-known and best referral program examples out there:
1. Dropbox
Online storage service Dropbox’s success story is one of the most famous examples. Dropbox grew from 100,000 users in Sept. 2008 to a staggering 4 million in Jan. 2010 – with 35% of daily signups coming from its referral program. A big part of that, reported CEO Drew Houston in a presentation, was due to a two-sided incentive structure. See his slide deck for more details.
2. Acorns
Fintech company Acorns offers cash bonuses to both referrer and referee via its referral program which is integrated directly in its app for ease of sharing and tracking. Anytime a customer encourages someone in their network to sign up for Acorns, they get an additional $5 for their investment profile – and the new customer gets $5 as well. It’s a win-win.
3. Stitch Fix
The online style consultancy Stitch Fix offers credits when an existing customer refers a new one. These credits can be used as a discount on future purchases both for referrer and referee. People usually trust the judgment of their friends and family ahead of any brand, especially when it comes to tangible things such as fashion and style – so this word-of-mouth setup is a great attractor for new customers.
4. Health Paws
People with pets are more likely than non-pet owners to include a donation to charity, according to FreeWill’s annual Planned Giving report. This fact isn’t lost on the pet insurance company, Health Paws, which offered a donation to animal shelters for each referral – a winning strategy which will continue after its acquisition by Chubb. This socially conscious approach strengthens customer loyalty and drives referrals.
5. Google Workspace
Money is a great driver – and as such, Google Workspace’s referral program offers cash rewards for each new user referred to its Business Starter, Standard, or Plus program. For example, if you referred 50 new users to the Plus program, you’d get $23 per user, and you can offer them discounts as well. Google even publishes case studies on the most successful referrers in its network – have a look and see for yourself.
How Postal can help you build a customer referral program
Postal offers a comprehensive platform to enhance your customer referral program. With Postal, you can easily manage and automate the gifting process, ensuring timely and personalized rewards for your customers.
Postal’s wide range of gift options allows you to tailor rewards to your customers’ preferences, making each referral feel valued and special. Additionally, Postal’s analytics tools provide insights into the effectiveness of your referral program, helping you measure success and refine your strategy.
Learn from our experts how you can integrate Postal with your CRM and streamline your operations to maintain a consistent customer engagement strategy. You’ll ultimately drive more referrals and fostering long-term customer loyalty.
