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Word-of-mouth marketing is shown to be up to 10 times more effective than traditional advertising. You can grow your word-of-mouth reach by building a referral program to incentivize more recommendations and more sales. Here’s how to build a referral program that works in just two weeks.
What Is A Referral Program?
A referral program is a way to incentivize and encourage existing customers to introduce a brand to their friends and family, which are new potential customers for the brand. Capitalizing on the trust and relationships that current customers have with their peers, a referral program aims to acquire new customers through word-of-mouth recommendations. Typically, these programs offer rewards, discounts, or other benefits to both the referrer and the referred, creating a win-win situation for all parties involved.
Why Do Referral Programs Matter?
The referral marketing statistics speak for themselves: referral programs matter a lot for businesses seeking a cost-effective marketing strategy. Referral programs can bring your cost-per-acquisition (CPA) down to $1-$3. Friendbuy customers average a 25x return on spend, while the retail average is just 2.87x, nearly half of referral marketing's return.
But that’s just the average, some brands can experience a much higher return. For example, some Friendbuy customers have seen a 47x return on ad spend (ROAS) in the “high consideration” category. Not only that, but referred customers also have a 16% higher lifetime value than non-referred customers.
Why? It all comes down to how incentivizing your customer referral program is. More on that further in this post.
How Does A Referral Program Work?
Referral programs reward existing customers (Advocates) for referring new customers (Friends) to the brand. Both Advocates and Friends are typically rewarded once the referred Friend makes a purchase, or completes some other valuable action for the business. However, there are a few different referral incentive structures that brands can choose from to customize their referral program.
Generally speaking, here’s how referral programs work:
- Businesses set up a structured program where they offer specific rewards to existing customers, their advocates, for referring their friends.
- Existing customers share their unique referral link or code with friends, family, or colleagues.
- A new customer is given an incentive to shop, typically an exclusive offer not available elsewhere on the merchant's site.
- Once the referral is validated, the advocate receives their promised rewards. This could be in the form of discounts, gift cards, points, or something else entirely.
- Businesses can track the success of their referral program using analytics to understand which referrers are most active, which incentives work best, and how the program impacts overall sales and growth.
Options For Building A Referral Program By Monthly Revenue
When it comes to establishing a referral program, businesses have a spectrum of options to choose from, each with its own set of advantages and challenges. Whether you're a budding startup or an established enterprise, there's a solution tailored to your needs. Let's explore the primary approaches:
Do It Yourself: Up To $50K In Total Monthly Revenue
For businesses that prefer a hands-on approach, building a referral program from scratch is a viable option. This method offers the highest degree of customization, allowing companies to tailor every aspect of the program to their specific needs and brand identity. It's particularly ideal for businesses with a unique business model or those with in-house technical expertise.
It is also a good option for smaller businesses (under $50K monthly revenue) that can handle managing referrals manually. If this sounds like a good fit for your brand, then take a look at this free referral tracking sheet to get started.
However, the drawbacks are evident: it requires a significant time investment, technical know-how, and continuous maintenance. Not only that, but without prior experience in referral marketing, there's also a risk of overlooking key elements that drive success.
Use A Referral Program App: $50K-$100K In Total Monthly Revenue
With the rise of ecommerce platforms like Shopify, there's plenty of apps designed specifically for creating referral programs, Friendbuy included. Referral program apps offer a balance between customization and ease of use, with pre-built templates and features that can be tweaked to fit a brand's image. This approach is ideal for ecommerce businesses looking for a quick and efficient setup.
While these apps offer convenience, they might lack the flexibility or advanced features that larger businesses or unique business models might require.
Partner With Experts: Over $100K In Total Monthly Revenue
For businesses aiming for the pinnacle of referral marketing, partnering with an experienced provider, like Friendbuy, is going to get you the best results right out of the gate.
From custom-building and designing your referral program to optimizing it for maximum effectiveness, every detail is tailored to perfection. This enterprise-level attention ensures that the program aligns with the brand's goals and reaches its full potential. It's particularly ideal for large businesses or those in regulated industries that require a more nuanced approach.
With Friendbuy's enterprise service, you're not just getting software; you're getting a partner dedicated to your success. Learn more about our referral program software. Contact our team to book a meeting.
How To Create A Referral Program From Scratch
Now that we know how your business can benefit from a referral program and what options are on the table, let’s go through the step-by-step process of creating a referral program. Here’s what we’ll cover:
- Define your target CPA
- Choose an incentive structure (who gets rewards)
- Choose your referral rewards
- Decide on a reward structure
- Set up your core technologies
- Design the different elements of your referral program
- Test and polish your referral program prior to launch
- Improve your referral program with A/B testing
1. Define Your Target CPA
Your CPA is your cost per acquisition and it’s one of the most important variables your business will ever encounter. This is the number that tells you exactly how much money you’re spending to acquire new customers.
A “good” CPA will depend on what you sell. You don’t want to pay $100 per acquisition if you’re selling $90 sweatshirts, for example
When you see the impact of your referral program on CPA, you’ll find it’s far less expensive than traditional advertisements. For example, Friendbuy’s benchmarks in the apparel category beat $10, which is a “good” CPA, according to Wordstream. We found our clients only paid $1-10 in cost per acquisition.
Here’s what to do:
- Before you start building your referral program, look at the typical CPA in your category.
- Compare it to Friendbuy’s benchmarks.
- Then set a goal for your campaign.
Once the data starts rolling in, you’ll be able to tell if you’re on track or if you need to make adjustments.
2. Choose An Incentive Structure (Who Gets Rewards)
The most basic unit of most customer referral programs is the reward. First: who gets it? This is called the “incentive structure” in the world of referral programs and there are two options:
- One-sided incentives are those where you pick one party who gets the reward. For example, you might create a referral reward program where the existing customer doing the referring gets a $50 gift card if they send a new customer your way.
- Double-sided incentives (rewarding both the referrer and the person being referred) ensure motivation on each side.
Depending on your industry, you’ll most likely use double-sided incentives for your customer referral program.
You can easily decide who gets rewarded by editing either the Advocate Reward or Friend Incentive in your referral campaign on the Friendbuy dashboard:
3. Choose Your Referral Rewards
We’ve thrown around the word “incentive” a lot. But what does it mean? You’ll have to pick a specific reward that your existing customers will find incentivizing in the first place. Here are a few examples of rewards and incentives that work well:
- Coupon code. A quick incentive: give them a discount on the next purchase they make through your referral link.
- Account credit. Even more directly, boost their account credit, which only inspires them to spend more at your store.
- Gift card. Transferable gift cards can be great incentives, and easy to share through a referral link as well.
- Points / badges. If you have a VIP program with “points” earnings, make a referral worth more points than anything else they can do.
- Third-party gift cards. There’s something exciting about having a company buy someone else’s gift card because you made a referral for them.
- Cash rewards. Let’s be honest: this one will always work.
4. Decide On A Reward Structure
A successful referral program ultimately comes down to this: what is going to motivate people to refer friends? And what’s going to motivate those friends to sign up for the first time?
The rewards above are a good start. But let’s get specific about rewards structures in a referral marketing program.
4.1 Standard Reward Structure
The standard reward structure is simple: if an existing customer refers a new customer, they get a reward.
It should sound as simple as cause and effect. Here’s Thinx doing exactly that.
The standard reward structure fits neatly into two statements. “give $10, get $10” Easy-peasy. The key here? Use specifics for customer referrals. Notice the exact numbers (like $10 off) that promise no surprises, just incentives.
Additionally, it’s a good idea to remember the rule of $100 — Customers perceive dollar-off discounts as being more lucrative when AOV is over $100. On the other hand, percentage discount offers are perceived as being better when AOV is below $100.
4.2 Tiered Reward Structure
Maybe you don’t want one friend from one customer only. You can pile on the rewards with a “tiered” structure. This is great for “gamifying” your referral program, which means letting loyal customers “unlock” greater rewards the more they participate.
In the example above, Cora boosts customer rewards if they refer 6-10 friends. Think of this as the modern version of the “buy 10 sandwiches, get one free” punch card. By giving better rewards for customers who unlock greater tiers, you inspire more loyalty—and give customers even more reasons to tell their friends.
Want to see more brands using these rewards structures? Take a look at these 23 customer referral program ideas.
4.3 Referral Contest
What if you don’t think a small incentive is particularly engaging for your target audience? You can pump the numbers up without dramatically increasing your budget. Use an incentivizing referral contest to give referrals a chance at winning a far more ambitious prize.
Nature Box, for example, gave out top-three prizes with Amazon gift cards and free snacks. The total for the top three spots? $900. Yet if enough customers tried to win the top prize, the cost-per-acquisition had the potential to be even lower than traditional refer-a-friend programs.
4.4 Multi-Step Or Staged Reward Structure
When Casper ran an ad for their referral program, they used a limited-time incentive of a $200 gift card. But they also wanted the rewards to have “evergreen” value. The solution? A multi-stage reward structure with two separate tiers.
This is a great option if you need to run referral programs in off-season months, far away from the holidays. It’s also ideal if you do want to use the holiday boost in shopping to create separate “evergreen” rewards that keep customers coming back all year long.
5. Set Up The Core Technologies For The Ability To Refer
It all sounds great, right? But you still might have one thought: I have no idea how to execute a referral program, let alone something like a “gamified reward structure.”
Don’t worry. The core technologies all come as part of a platform like Friendbuy.
But you do have some decisions to make. You can customize your referral program according to the following variables:
- Where will you put your CTAs? Home pages, customer account pages, refer a friend landing pages, post-purchases pages? Some of them? All of them?
- Which social channels will you employ? SMS, email, WhatsApp, Facebook, Twitter are all options for finding your referral audience.
- What can your Advocates do with their profile on your site? The “Advocate” is your referrer, the person spreading the word. A good customer referral platform will let them manage and view their options from within their customer account page.
- Choosing the “trigger” that kicks in the reward. For example, do you want to pay for a referral of a new customer registration? Or will you wait until the new customer makes their first purchase? Some companies require a minimum purchase price before rewards kick in.
If this all sounds a tad on the complicated side, refer to our Getting Started feature. You’ll notice that many of these decisions can spring from the “Offer Strategy” you choose. Settle your Offer Strategy and you’ll likely find the answer to these key platform questions.
6. Design The Different Elements Of Your Referral Program
Is it enough to offer a good reward for your referrers? That’s a start. But you still want to highlight the quality of your program with creative design and messaging. The more appealing you make the rewards program look, the more likely it is you’ll attract new brand advocates who want to work with you.
Let’s look at some examples to help make it work:
6.1 Referral Landing Page
A landing page opens the real estate to make the full sale for your referral program. Include the following details:
- Reward details (for both parties, if applicable)
- Social and SMS sharing buttons
- A link to send out the referral right now
- A pre-written script for the referral
You can see all four elements in MeUndies’ referral landing page below:
Read more about how to create a high-converting referral landing page.
6.2 Referral Emails
Your customers’ email inbox is some of the best real estate for inspiring a referral. After all, they’re just a click or a “send message” button away from contacting their friends! Make it easy on them with your emails by including a link. And don’t forget to explain the benefits of referring a friend.
In the Metromile example above, notice all the essential details are there. They explain the reward (a $10 Amazon gift card), the trigger (“for each one who gets a qualified quote”), and the benefits (“they’ll save money on their car insurance”). Think of your email as the “pitch” for your referral program.
6.3 Referral Widgets
Theoretically, the referral program should be an easy sell. After all, you’re not asking for money. You’re offering it. But you still need one essential element to make your referral program more enticing. Lower the “friction” it takes to try it out.
All the customer has to do is enter their friends’ email, their own email, and click send. The message is even written for them.
If you can't figure out why your referral program isn't getting traction, consider how visible your CTAs are and how compelling your offer strategy is.
Read more about high-converting referral widgets.
As an Enterprise customer, you'll work with the Friendbuy onboarding team to determine an incentive structure that works best for your business, design and build widgets that fit your brand, and work with you to optimize and A/B test your copy for optimal results.
7. Test And Polish Your Referral Program Prior To Launch
No matter how good your platform, you never know how a referral program is going to suit your particular audience. You’ll need to test it. But what does that look like in practice? Here are some elements you can test separately, based on where they appear in your referral funnel:
- Top-of-funnel variables are all about what your customers first see. In an email, that’s your subject line and first line. On a website, it might be a banner you place. Test colors, copy, and rewards to see which top-of-funnel pitches generate the most referral engagement.
- Middle-of-funnel variables are what you test when you have a customer’s interest. Test your widget headers, your landing page copy, your background hero images (both in emails and landing pages), and your advocate rewards to see what generates the most interest.
- Bottom-of-funnel variables are friend rewards (what the “friends” in refer-a-friend programs receive for signing up), recommended products for referring, and even the referral codes your advocates receive. You can also test out the “dummy” template email copy for referrals that you automatically fill into your online widgets so your customers don’t have to type out their recommendations themselves.
8. Automate Referral Program Promotion
You’ll do a lot of creation and testing as you create your referral program. But here’s the good news. When you figure out what works, you can incorporate all sorts of customer referral automation so your program starts to take on a life of its own.
For example, if you add a post-purchase overlay that sells the “refer-a-friend” program, it might look like this:
Once that’s set up, you don’t need to touch it again. Customers who order from you will always see that post-purchase overlay.
If you want to automate a more proactive approach to getting new referrals, set up an automated email blast to go out every quarter. You don’t have to write fresh content for this email blast each time. You can simply write it once and publish it multiple times throughout the year.
The key to making automation work? Even though it’s automatic, make sure your referral program pitches are distinct and obvious. That post-purchase overlay, for example, grays out the rest of the screen temporarily. When you’ve tested your pitch and polished your referral copy, you’ll start to get referrals automatically.
9. Improve Your Referral Program With A/B Testing
Think of it like trial and error, but smarter. A/B testing can sound intimidating if you haven’t had a referral platform with robust testing features in the past. Fortunately, Friendbuy makes that part of the equation easy on you. For instance, there are four basic steps with testing on Friendbuy you can repeat time and again:
- Select the widget/element you want to test to set it as your variable
- Create a second variable by duplicating that widget/element
- Edit the variable to test a new option
- Assign weights to each variable, such as 50/50, to equally test the two
You can find more information on A/B testing at our documentation pages. Our recommendation? Start with the big elements first. Pricing, for example, or the top-of-funnel elements like the color of your widgets will be vital for attracting attention and motivating people to join your referral program. Once you get a sense of which generates the most attention, you can dial down to the smaller factors and continue to iterate until you’ve discovered what your customers respond to.
5 Customer Referral Program Examples
To give you an idea of how we work with brands to launch referral programs quickly, take a look at these referral program examples below.
1. Olive & June: 14-Day Referral Program Launch
From standard referral flows to more complex referral funnels, Friendbuy’s customers have been able to get started with referral marketing quickly and easily. A shining example of this streamlined success comes from beauty brand Olive & June, which used Friendbuy’s platform and resources to launch its referral program in just 14 days.
This fast launch was made possible by the following:
- A clear vision for their referral program. Olive & June leadership entered its onboarding kickoff call with Friendbuy with an offer strategy already selected. The brand chose to reward advocates with free nail polish on their next purchase for referring their friends, aligning with their referral marketing goal of driving repeat purchases from their customer base.
- A plan for implementing best practices. Although Olive & June was eager to launch its referral marketing program, the brand didn’t want to compromise Friendbuy’s best practice recommendations. Their fast embrace of these recommendations led to a faster onboarding process that ensured the brand’s referral program received the best support possible. This improved future performance and ROI without slowing down the program’s launch.
- Providing strong examples and guidance on referral asset design. Olive & June supplied Friendbuy with examples, design instructions, and detailed feedback to quickly create assets that were on-brand, supporting a seamless integration into the company’s e-commerce site.
- Using Friendbuy integrations to support launch. Olive & June used Friendbuy’s integration team to handle their Shopify and Klaviyo integration of its referral program. This allowed the Olive & June team to focus on incorporating the program into their brand, something extremely important to them, rather than using resources to manage an integration.
- Cohesive communication and project management. Throughout the onboarding process, Friendbuy and Olive & June were able to work cohesively through a primary point of contact who managed all stakeholders on the Olive & June team . This coordination ensured that Friendbuy’s project timelines and deadlines were met, keeping the brand’s referral program on time for a fast launch.
Thanks to its own internal preparation, as well as trust in Friendbuy’s best practices and proven processes, Olive & June succeeded in meeting its goal of launching a referral program in just two weeks.
2. Heartfelt Creations: Building a Referral Program in Just 17 Days
Craft and decor brand Heartfelt Creations wanted to create a referral program that featured more advanced elements than a standard referral program. To achieve this, the company required a development and launch process that accounted for added technical complexity—even as the company sought a fast time to launch for its referral program.
Despite this added complexity, Heartfelt Creations launched its referral program in just 17 days with Friendbuy. Here’s how the company made this possible:
- It identified its referral strategy early on. Heartfelt Creations knew it wanted a strong offer at the center of its referral program. Prior to its kickoff call with Friendbuy, the company had already chosen a “Give $20, Get $20” double-sided offer. By the time of this initial meeting, the brand’s leaders had already committed to implementing Friedbuy’s best practices that they had learned about during the sales cycle. This fast buy-in streamlined the development timeline and facilitated a strong working relationship.
- It provided good assets to support the design process. Heartfelt Creations knew which assets it wanted in its referral program, so Friendbuy was able to turn around branded widgets and emails four days ahead of schedule.
- It made fast decisions regarding technical elements. Heartfelt Creations designated its preferred developer resources from the beginning, facilitating technical discussions early on in the development process. This early intervention gave Friendbuy’s tech team time to spec out different options for the referral flow and provided both sides with more runway to consider advanced referral program offerings.
- It used webhooks to automate reward fulfillment. Heartfelt Creations was able to utilize Friendbuy’s reward program webhooks. This made it possible to deposit account credit directly into an advocate’s account after they referred a friend. This resulted in a more seamless referral flow for advocates, and the early involvement of Heartfelt Creations’ technical team helped complete the integration 13 days ahead of schedule.
Even when seeking a referral program that goes beyond standard practices, Heartfelt Creations is proof that a dedicated, involved customer can speed up development and launch.
3. Thinx: How Friendbuy’s Shopify Plus Integration Helped Thinx Grow Referral Revenue by 114%
The collaboration between Friendbuy and Thinx led to the introduction of several new features. One of the standout features was allowing Advocates (existing customers who refer new customers) to accumulate and stack account credit earned through referrals. This was made possible by integrating Friendbuy’s platform with Shopify Plus.
The Shopify integration also facilitated automated referral code generation for the friends who were referred. Additionally, it provided out-of-the-box reward validation, which took into account returns and cancellations. This automation reduced the workload on Thinx's team, allowing them to concentrate more on enhancing the customer experience.
Friendbuy equipped Thinx’s customer experience specialists with more control over the referral program. They could manually adjust account credits when necessary and had the capability to report on referral activities in detailed granularity.
Friendbuy significantly enhanced the referral experience for Thinx’s customers. They introduced a customizable referral dashboard on the customer account page.
Through this dashboard, Thinx’s customers could view their rewards, monitor the status of their sent referral invitations, and even send reminder emails to friends who hadn't completed their purchase. This improvement led to a significant reduction in customer service inquiries.
Results: The integration of Friendbuy’s platform with Shopify Plus played a pivotal role in Thinx's referral program's success. As a result of this collaboration, Thinx witnessed a substantial growth in their referral revenue by 114%.
Brendan, a representative from Thinx, praised Friendbuy's commitment to customer service and their ability to listen, iterate, and develop features that resonate with their customers.
4. Byte: Friendbuy-Powered Referral Program Drives More ROI than Any Other Channel
Byte's referral program, powered by Friendbuy, allows customers to easily obtain their personal referral link or share it through various channels such as email, SMS, and social media.
Advocates (existing customers) receive a $100 gift card for every friend they successfully refer. Referred friends benefit by receiving a 75% discount on their first impression kit and an additional $100 off aligners.
Byte integrated the referral program throughout their brand experience. This includes strategically placed CTAs (calls-to-action) on their website, in triggered emails, and promotion on social media platforms.
A unique feature is that any referred friend who clicks on a referral link is greeted with a personalized pop-up message welcoming them to Byte. Upon entering their email address, they receive a promo code which can be applied at checkout.
Friendbuy's platform offers the flexibility of running unlimited campaigns. An example highlighted is the "Friendsgiving" campaign that Byte executed during the holiday season. In this campaign, advocates were rewarded with gift cards for each successful referral, leading to a 2x increase in referral conversions.
Friendbuy seamlessly integrates with other technologies in Byte's tech stack. An instance mentioned is the integration with Delighted, which manages NPS surveys. This allows Byte to automatically prompt customers to make referrals if they provide a high NPS score of 9 or 10.
- The combination of raising awareness and ensuring ease of use led to significant growth for Byte.
- The "Friendsgiving" campaign alone resulted in a 2x lift in referral conversions.
- The strategic insights and support from Friendbuy have been instrumental in enhancing the effectiveness of Byte's referral program.
A significant aspect of Byte's collaboration with Friendbuy is the proactive support from the Friendbuy team. Byte's representative, Aaron, particularly appreciates the strategic and data-driven recommendations provided by his Friendbuy Customer Success Manager, which have consistently yielded positive results.
5. Nuuly: How Friendbuy Helped Drive Thousands of Subscriptions Within Weeks of Launch
Nuuly's referral program is designed to be simple and enticing. When a brand Advocate gets complimented on an outfit, they can easily share a referral link with their followers. The program typically offers a "$10 credit" incentive for both the referrer and the referred. However, during the holiday season, they enhanced the offer to "give $20, get $20", doubling the usual incentive.
Nuuly's top 10 brand Advocates actively promote their referral links on social media platforms, especially on YouTube and Instagram. This has led to significant organic traffic and high retention rates for the brand.
- The referral program has been a massive success since Nuuly's launch. Just from the referrals shared by their top 10 brand advocates on social channels, they gained over 2,500 new subscribers. Some individuals have even referred more than 500 new subscribers each.
- The word-of-mouth generated by the program has become a significant driver of sales for Nuuly. Their strong influencer presence, particularly on Instagram, has amplified the program's reach and impact.
- During the holiday season, when Nuuly doubled their referral offer, they experienced their best sales numbers since their launch.
- As a response to the challenges posed by COVID-19, Nuuly reduced its spending on paid media and other paid channels. In this context, the referral program powered by Friendbuy became even more crucial, playing a pivotal role in sustaining Nuuly's organic growth.
Ready To Create Your Referral Program?
You may not nail every detail of your customer referral process from the first day. But there’s plenty you can do to get started. Replicate the examples you saw here. Decide on a reward structure that makes sense for your potential customers and current customers. Start A/B testing your biggest variables so you start to understand what your audience wants.
Rome wasn’t built in a day. Don’t expect your referral program to be a smashing success in the first few hours after launch. This is a marathon, not a sprint. But if you stick to these strategies and continue optimizing your incentives and offers with Friendbuy, you might be surprised at how much success you can have with your existing customers in generating word-of-mouth referrals. Contact Friendbuy now.