A Growth Marketer’s Guide to Building a Successful Referral Program

by Friendbuy

September 8, 2020

Referral marketing accelerates growth by digitizing word of mouth. Your customer advocates tell their friends about your brand; these referred friends become new customers, who then tell their friends. Meanwhile, your original advocates go on to make repeat purchases with their earned referral rewards, increasing their customer lifetime value (LTV). 

When properly executed, referral programs turn word of mouth into a sustainable and lucrative customer acquisition engine. Keep reading to learn what growth marketers need to do to build a successful and scalable referral program.

1. Decide when to launch your referral program.

It's never too early to plan your referral marketing strategy. A referral program can significantly lower your average cost to acquire new customers (CAC), thereby increasing your probability of success through any given marketing channel.

So, on the one hand, you might consider launching a referral program as soon as you go to market. But on the other hand, a robust referral program that combines seamless sharing technologies with fraud prevention and reward automation does require investment. 

To achieve ROI-positive results with a comprehensive platform like Friendbuy, we recommend that a business have the transaction volume to support this investment; roughly speaking, this translates to at least 1,000 monthly orders and/or half a million dollars in monthly revenue.

[Free Download] New to referral marketing? Start with our introductory guide to  launching a successful referral program. >>

2. Set your offer strategy.

An effective referral program typically provides an incentive to customer advocates for referring their friends to convert as new customers. Incentives can vary depending on the business category, such as a free month for a subscription service like Dollar Shave Club, additional storage for a service like Dropbox, or account credit for a luxury luggage company like Away. 

Because you only need to reward advocates for new customer conversions, you have quite a bit of room when thinking about advocate incentives. At Friendbuy, we see that cost per acquisition (CPA) from referral marketing can be as low as $1, and the vast majority of successful programs achieve CPAs in the low single digits. Therefore, make the offer compelling so that your customers are excited by the prospect of earning rewards as they spread the word to their friends. And don’t forget to also welcome referred friends with your best possible offer for becoming a first-time buyer.

3. Identify the core technologies you will need.

Your referral program must be highly accessible and super easy for your customers to use. Advocates will only engage if they are presented with user-friendly widgets that make it easy to share via email, SMS/text, personalized referral links, and social channels such as Facebook, Messenger, WhatsApp, and others. 

And if you want your program to scale, you’re going to need automation for reward fulfillment, applying automatic discounts or depositing credit, sending triggered emails, and a host of other performance-boosting technologies, in addition to fraud prevention. 

The fastest way to access this core technology is through a trusted referral marketing partner who will take the time to understand your buying journeys and your e-commerce infrastructure to tailor a solution that’s optimal for your business.

4. Implement the best practices for referral marketing.

Many marketers are initially unsure if their customers will take the action to refer their friends. What we’ve learned at Friendbuy through years of launching referral programs for the world’s top brands is that your customers actually want to refer their friends. The secret is to follow our formula for generating impulse referrals: 

Awareness + Accessibility + Ease of Use = Impulse Referrals

Your customers need to be aware of the program, and it must be highly accessible and easy to use. This formula can work wonders, even in the early stages of your go-to-market launch. For example, newcomer clothing subscription service Nuuly launched its referral program with Friendbuy and generated more than 2,500 new subscribers just from its top 10 advocates. 

You may be able to jump-start your referral growth with just a few advocates with significant followings, but only if you implement the best practices to make it easy for your advocates. At Friendbuy, we’ve cultivated these best practices through years of experimentation and optimization. Success starts with good technology and incorporates great design, compelling copy, and our best practice placements that are tailored to the UX of your site and mobile app.

5. Gather baseline metrics and optimize.

Referral programs are a source of incredible insights. You will quickly learn how your advocates like to share and how you can optimize these sharing channels. A/B tests are essential for optimizing every aspect of the referral funnel. Your referral marketing partner can provide insights and strategic recommendations for offer testing, copy and design optimizations, and additional campaign types to increase ROI and accelerate customers acquired via referral.

You will also identify the cohort of your best customers because they are the ones advocating for you. Use this information to better understand your customers and increase loyalty.

Build a successful referral program that scales.

Every growth marketer wants to invest in solutions that maximize their growth potential. Referral marketing is one of the few channels that you can own and that scales as your business scales. 

Friendbuy is built to grow with you, whether you are a young startup recently in the market or a Fortune 100 penetrating new markets. Friendbuy will help you achieve consistent growth and positive ROI at any stage of your business. 

Maximize word of mouth at scale