How to Build a Referral Program That Pays for Itself

by Friendbuy

August 27, 2020

From BiteSquad to Nuuly to Imperfect Foods, today’s fastest-growing brands have used Referral Marketing to scale their customer bases. There’s no other marketing strategy that works quite like word of mouth: Research shows that being referred by a friend makes consumers four times more likely to make a purchase and that word-of-mouth referrals account for 20-50 percent of all purchasing decisions in most industries.

Referral marketing is by far the most effective channel for generating highly qualified new visitors, leads, and customers. Best of all, a well-designed referral program will pay for itself.

Here’s a look at the process behind building an ROI-positive referral program. 

1. Start with your target CPA.

Companies launching a referral program should understand their cost-per-acquisition (CPA) goals. What target CPA do you need to hit for a given marketing initiative to be ROI-positive? For example, what are you willing to spend to acquire a new customer through a display ad campaign or through an affiliate channel? Know this, and you have the first component for designing your referral offer.

Your target CPA will likely depend on several factors, but it most definitely includes your average customer lifetime value (LTV). 

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

2. Design a compelling offer for customers who refer.

In our experience designing world-class referral programs, we’ve found that consumers want to refer their friends to their favorite brands—they just need a little nudge. Creating the referral offer is all about giving them that little incentive to engage in repeat referral behavior. 

Our approach is to use your target CPA as a guide and provide a brand-consistent offer in the form of credit toward future purchases. This way, you can achieve coveted repeat referral behavior from your best customers while also increasing their future purchases. But not all e-commerce companies are in categories where offering future credit makes sense, which is why we also consider incentives such as third-party gift cards when it’s appropriate.

Other questions to ask are whether you need single-sided offers or double-sided offers—meaning offers for your customers who refer and for their referred friends—and how you will manage the fulfillment of these rewards. Depending on the specific goals of a referral campaign, there may even be scenarios in which you don’t need to offer any incentive.

3. Set up the core technologies for the ability to refer.

This stage is all about determining how you’ll execute on giving Advocates options for referring their Friends and how you’ll convert these highly qualified new visitors. 

This process includes: 

  • Determining placements for your referral calls to action (CTAs), such as your homepage, account page, a dedicated “refer a friend” landing page, post-purchase page, and mobile app.
  • Establishing which social channels to enable for your customers to refer into, such as SMS, email, WhatsApp, Facebook, and Twitter.
  • Giving Advocates the option to import their contact list during the referral process.
  • Delivering personalized referral links that Advocates can share anywhere.
  • Integrating with your existing technology stack, such as with your email service provider, to capture the email addresses of referred Friends.
  • Setting up the Buyer’s Journey for referred Friends to work seamlessly with your existing technologies while maintaining referral attribution and fulfilling customized referral Friend offers.

4. Put it all together with creative design and messaging.

This stage involves developing the assets you need for your program, including logos, widgets, imagery, and promo materials. 

Your referral program should embrace your brand’s voice, but it must do so with clear, compelling copy to make it easy for Advocates to know within a few milliseconds why they’re referring and how to do so.

This process includes: 

  • Designing branded widgets for your referral program.
  • Designing hero images, banners, and other graphical elements to promote your referral program across your website, social profiles, and other digital properties.
  • Writing, writing, writing. Get your best copywriter on the job to optimize every CTA, email subject line, and offer copy.

A good referral partner will take direction from you while incorporating the best practices to drive conversion across the entire referral funnel.

5. Test and polish your referral program prior to launch.

Lean on your referral marketing partner to ensure links look great, assets are optimized for high conversion rates, and details such as copy-and-pasting personal URLs (PURLs) are effortless for your Advocates. The benefit of a modern, sophisticated referral platform is a sleek, seamless, and easy referral experience.

6. Promote.

Once your referral program is live, it’s time to get the word out! 

Consider promoting your referral marketing through the following channels:

  • Website homepage
  • Dedicated landing page
  • Account login/details page
  • Mobile app
  • Email newsletters
  • Email and SMS receipts
  • Shipping update emails
  • Social media
  • Company blog
  • Email signatures
  • Chat
  • Support ticket signatures
  • Package inserts
  • Handouts for your store associates
  • And more!

Visibility is key, and not just for driving awareness. When that customer feels the impulse to refer a friend, you want them to have quick, one-click options to take action before they move on with their busy schedule.

7. Test and optimize.

Once your referral program has been up and running for 30-60 days, you’ll have plenty of data to start optimizing offers, placements, design, and copy to get more Advocates and Friends engaged. 

Metrics such as share rate (how many Advocates saw the opportunity to share and did so) and overall traffic from referrals are a few ways to measure the effectiveness and ROI of your referral marketing execution.

A good referral marketing partner will help you maximize the ROI of your program by advising on best practices for placements, technology, messaging, and more. 

Build a referral program that pays for itself.

At Friendbuy, we know what it takes to build a successful referral program. For the clothing rental subscription service Nuuly, Friendbuy launched a referral program that quickly generated 2,500 new referrals from the brand’s top 10 Advocates alone. Some of the most influential Advocates were responsible for more than 500 new subscribers on their own. It’s not just the size of your customer base that matters—it’s also the motivation they feel to share your brand with others.

When thoughtfully built, a referral program can achieve positive ROI quickly, driving growth and delivering long-term value as your business scales.

Maximize word of mouth at scale