When trying to increase sales, smart store owners focus on increasing repeat sales before acquiring new customers. After all, retaining an existing customer can be up to 5 times cheaper than acquiring a new one!
One of the best ways to both encourage existing customers to buy from you and acquire new customers is to use a referral program.
A well-designed referral program rewards customers for sharing your brand and getting their peers to buy from you. This reward can encourage them to buy again from you in the form of discount coupons.
But that’s not all. Referred friends also have a higher chance to buy from you because:
- People are four times more likely to buy from a friend’s recommendation, and
- Your referral program incentivizes the purchase with a referral specific reward!
A referral program is really easy to set up and can be left to run on autopilot. That is as long as you set it up well.
Here, we’ll discuss what those considerations are and how you can set up your referral program for optimal results.
1. Types of referral rewards you can give
To start, you need to consider what types of referral rewards you’re going to give your advocate (the person sharing) and the friend (the one being referred).
We’ve listed a couple of common rewards and the best occasions to offer them. Ultimately every business is different and some types of rewards would work better than others.
A. Cash rewards
The most straightforward of all rewards is cold, hard cash.
Giving out cash delights customers as the reward isn’t tied to the condition of a second purchase. On first thought, this may not be a good idea. After all, we are doing this for more sales, no?
However, there are companies who have received a lot of referrals and increased profits from giving out cash rewards.
There are a couple of reasons why this works.
First, not all products are suitable for immediate repeat purchases. For example, mattresses last a couple of years before needing to be replaced. In this case, a coupon will not only be irrelevant, it may frustrate your customer as they won’t be able to use it. And they probably won’t refer their friends as much.
Leesa sells mattresses with a 100 night sleep guarantee; if you haven’t fallen in love with it in 100 nights, you can return it.
Leesa’s referral program offered $50 to every advocate who successfully refers their friends to buy one. If they choose to, they can also donate the $50 to any charity of their choice, which is a nice touch!
To date, they have over three thousand active advocates and 33% of their sales have come from referrals. That’s pretty insane for a solution that runs quietly in the background!
Much of this success builds upon the basis of having an excellent product (with 78% five-star reviews). As their happy customers rave about the brand, the referral program provides that extra incentive to spread the love and for their friends to take up the offer and get one too.
Therefore, if your advocates are unlikely to make repeat purchases, giving cash rewards will benefit them and your business in the long run.
If your products are consumables or require more frequent repeat purchases, then giving discounts can be more appropriate than cash.
Cash rewards could still work, but there’s a decent chance your customers will use your reward to spend on your competitor or something else entirely. Coupons are effective in ensuring they come back to buy from you.
Discounts can come in the form of percentage off, or a fixed amount, e.g. $20 off. We’ll explore which may be more appropriate for your product category in a bit.
Leonisa, an undergarment company, actually uses both fixed amounts for their referral rewards and percentage discounts for the friend offer:
If your advocates are likely to make repeat purchases, give discounts instead of cash rewards.
C. Free stuff
Cash rewards and discounts are extremely popular rewards, but sometimes you can go with neither. In this case, you can choose to go with giving away your products (or part of it) or free shipping instead.
Free products (or part of!)
This can come in terms of giving away free physical products or free software/services.
Giving away your physical products can work well when made in conjunction with a cumulative reward system, where customers can be rewarded after a certain number of successful referrals.
A free product given after five referrals is essentially 20% off for every referral, but saying you are giving it away for free can make for a more enticing reward.
Riff Raff & Co. sells plush toys that emit sounds to help babies sleep more soundly. Their referral program rewards advocates who make 5 successful referrals with one of their toys for free (worth $64).
Riff Raff & Co.’s main customers are mothers, who are often in close-knit communities where sharing experiences and tips on motherhood. For them, achieving five referrals is not a difficult task. This is evident from the fact that 35% of their sales come from referrals!
The only caveat is deciding how many referrals you want your advocates to have before they are rewarded.
Too many and your advocates will get frustrated and give up when they aren’t able to hit the minimum required referrals. Too few and you’ll be losing money.
It’s about finding a sweet spot between the number of referrals that would be achievable for most customers and what makes financial sense for your business.
For an online storage service like Dropbox, giving away free space allows customers to use more of their product. Whenever someone laments about forgetting to bring their thumb drive, they would recommend using Dropbox. And to do so using their link.
Their referral program earned Dropbox a 60% permanent increase in signups, according to founder/CEO Drew Houston.
The other alternative you can offer is free shipping.
As more and more people expect free shipping from businesses these days, it may not feel like a big deal as compared to 20% off the price of the product.
Riff Raff & Co. offers free shipping as a friend offer instead of a referral reward, so despite our assumptions, offering free shipping does have its benefits. From the perspective of the friend, being offered free shipping from a referral is no different from getting it from the brand as a first-time customer.
2. Setting your Advocate reward and friend reward
Now you’ve decided on what rewards to give your advocates and their friends, it’s time to dive a little deeper into the specifics of the rewards.
Namely, you need to decide how often are you going to reward your advocates, and how much are you rewarding them with.
A. Immediate or cumulative rewards?
Immediate rewards are, as the name suggests, given as soon as one successful referral is made. It is the most straightforward and is used well by brands like Leesa and Dropbox.
Cumulative rewards are given out after the advocate as accumulated a specific number of referrals. Riff Raff & Co.’s referral program is an example of cumulative rewards.
So how do you decide if you should use instant or cumulative rewards?
Because instant rewards are given after every referral, it’s the more versatile of the two. It can be used for one time investments, like Leesa’s mattresses, or services like Dropbox that are used daily.
However, cumulative rewards can be very powerful if used in the right way for the right product.
Firstly, cumulative rewards work well when your product is something that customers can buy frequently, such as consumables. As they keep using your products, you want to reward them for staying loyal to your brand and to keep on sharing.
Even though cumulative rewards are gated behind a specific number of referrals, advocates won’t mind referring since they like your products and are using it frequently. They can keep sharing over months and even years if the rewards are worthwhile. In such cases, a program that combines both referrals and customer loyalty would be perfect.
Frank Body is one such example. They sell skin care products catered for women and they have a loyalty program called Hotel Pink.
Designed around a hotel staycation, Hotel Pink has different tiers which can be unlocked by referring friends and repeat purchases.
As they buy and refer more, they get to unlock even more discounts and referral rewards, as well as exclusive rewards like samples of products that have not launched yet and members-only contests.
B. How big a reward / offer is good enough?
Now we arrive at the big question: how much should you give?
We can’t tell you exactly how much rewards you should give, as this depends on many factors such as your product’s pricing, your competitors, and your customer acquisition cost. This will also require some market research and user testing.
We can, however, offer you some guidelines on how to go about choosing a range.
Offer at least 10% for friend offers
Through our experience, we have observed that retailers who give at least 10% in Friend Offers tend to enjoy higher referral rates. Anything less and the potential customer won’t see it as a big enough deal to act on the referral.
Consider offering the friend as much or more than the referral reward
While some retailers may focus on giving the advocate a bigger reward to encourage sharing, we need to remember that sharing is only effective if someone is buying.
The offer for the referred friend should be as important, if not more important than the advocate’s reward.
Imagine a friend came up to you and shared something cool with you. You later learn that he is getting $20 for a referral while you will get $5 off your purchase. Would you suspect that maybe he isn’t sharing with you because he thinks you will like it, but is doing it so he can get the $20?
Therefore we think it’s best to give the friend a better offer to not only encourage the sale but to make the referral more sincere.
Percentage or fixed discounts?
Choosing to give percentage versus fixed discounts is more of a psychological strategy, which falls under the marketing aspect of your referral program.
Depending on the price of your product, you can consider using the Rule Of 100:
If your product costs more than $100, give cash discounts. “$15 off sounds like a better deal than “10% off”.
If your product costs less than $100, use percentage discounts instead. “15% off” sounds like a better bargain than “$5 off”.
Percentage discounts also make more sense if you sell products at a wide range of prices. If your products range from $50 to $200, a fixed discount of $20 off will equate to a 40% off for the former and only 10% off for the latter. To counter that, you will need to give a fixed discount for all your products, which would be a hassle.
3. How to market your referral program effectively
Finally, your referral program is ready to go! All that’s left is to market it and get customers to start using it.
The more people know about your referral program, the more people will participate and thus improve your sales. There are three ways you can promote your referral program to maximize your exposure.
A. Promote your referral program on social media
Social media allows you to promote your referral program on your own, as well as get others to do it for you.
If you have been playing your social media game right, you should have a good number of followers you can promote it to.
As seen with this example from Boxed, sharing it on social media allows customers to tag or share it with their own networks with a click of a button.
The other benefit of social media is that your advocates can share their own personalized referral links on it with their networks.
However, don’t assume all your customers will gladly type out a post just so they can share it with their friends. The easier it is for customers to share, the better!
With templates, customers can just copy and paste a natural sounding message, throw in a nice image and share it quickly.
Engage influencers to target specific demographics
Another use of social media to promote your referral program is through influencers.
Influencers have a wide reach on social media, and can certainly help promote your products to their fan base. The key is to select influencers whose fan base closely overlaps with your target audience.
Threadbeast is a subscription box company that specializes in streetwear for men. MMG, a Youtuber with 600,000 subscribers bought a box from them and did a review on his channel. Because his subscriber base consists of the same demographics Threadbeast is targeting, he was given a referral link to promote in his video.
B. Feature your referral program prominently on your website
Promoting your referral program on your website is a no-brainer. However, some brands simply place it on a page somewhere and fail to advertise it visibly. Having it prominently displayed will help to promote it to existing and potential customers alike.
Using a hero image
The first option is to place it front and center with a hero image, like Kurgo has done:
Depending on your website design, your hero image may not be that big. However, we definitely recommend this as it gets the most attention. You can also have it as part of a carousel so you can display other promotions along with it.
In your navigation bar
Another option is to place it in your navigation bar, like Perrobox has done. It will be much less visible compared to the hero image, but you can draw attention with a catchy copy like “Get 40% off” or “Get $50 free”.
The advantage of having it prominently in your navigation bar is that it will be visible on every page, so visitors will keep seeing it and can access it easily.
Using pop-up widgets
Another option similar to the navigation bar is a pop-up widget.
Brode has done a good job with a small pop-up widget that hangs out at the bottom of the screen without being too distracting.
Remember, you want it to be visible and accessible, not in your visitors’ faces.
Post-Purchase Popup Widget
Our last tip is the post-purchase popup widget, which customers will see right after they have made a purchase.
At that stage, they are the most satisfied and will likely be more receptive to referring their friends. It is important to include links so they can share it through popular social media platforms and email.
C. Encourage your subscribers to refer through email
Email is the best way to reach out to ALL your customers to let them know you have a referral program. Even customers who have not even bought from you yet!
Sending emails are important for a few reasons. First, they help to remind your customers that they can refer their friends. In this day and age, we are bombarded with a thousand different pieces of information daily and we can never keep track of everything.
Hence, your email will be a friendly reminder that they have an option to get some rewards by referring.
To keep it simple, we recommend you to promote your referral program in your regular newsletters and through specific emails for referrals.
Embedded referral links in newsletters
Embedding a referral button in your newsletter is both subtle and elegant. While it may not grab your reader’s’ attention like a specific email does, you can have it included in every single newsletter you send out.
Sending specific emails for referrals
There are times when you just want to approach your customers directly and ask them to refer their friends. This can be when they have just made a purchase, or right after their order has been delivered to them.
In such cases, you want to make sure you write an email that will maximize your referrals.
Here are a few things to note:
- Keep your message simple and clear
- Make your call-to-action prominent
- Include instructions on how your referral program works and how they can actually refer
- State your referral reward and friend offer
This referral email from Advancement Courses is a great example that includes all those four tips.
They even include a template message that advocates can forward to their friends over email or social media.
We hope we have given you some referral program rewards ideas for your ecommerce store.
From determining the best type of referral rewards to promoting your referral program, these tips will help you to design the best referral program for your business.