As a DTC brand, knowing how to effectively identify, reward, and encourage your best customers to refer their friends is key for sustainable growth. Every time a customer (AKA Advocate) refers a friend, that’s one less person you need to acquire through paid channels.
Customer referrals can be a powerful driver of growth.
But where do you start, and how do you pick incentivized referrals that fit your unique business?
Watch the event replay or read the article below for a step-by-step guide on how to find your best customers, pick the perfect incentive, and use those insights to accelerate your growth with a referral rewards program. We’ll also share the results of four A/B tests from Casper, an innovative ecommerce sleep company that has launched and optimized a referral program that yields a 7x greater return than other marketing investments.
Here's our step-by-step guide to incentivized referrals for your best customers.
Step 1: Identify Your Best Customers
Defining and identifying who your best customers are is no small feat. The best way to start is with data. If you haven’t already, try implementing a customer experience management tool that consistently gathers feedback from your customers, such as Delighted. Delighted can help you:
- Set up customer or employee surveys
- Collect feedback
- Analyze customer sentiment and
- Drive real improvements throughout an organization based on that feedback
The typical ecommerce customer has a range of experiences with your brand, including visiting your site, creating an account, maybe giving their email address, making a purchase, receiving a product, interacting with the support team, and more.
It’s important for every brand to view these interactions as a holistic customer experience (CX), as it has a significant impact on growth.
Once you have a CX program in place, you can leverage that data to find your best customers. How? Well according to Delighted, it takes three simple but critical steps:
- Set up listening posts
- Segment your results
- Close the loop
Let’s start with Step A, setting up your listening posts. Those listening posts are surveys you set up throughout the customer journey. Think about the different interactions your customer may have with your brand and/or your team, and determine which areas are ripe for feedback, which will give you insights into how to improve. Some of the most common places for listening posts are quarterly NPS scoring, post-support CSAT, user research for product market fit, and cancellation flow surveys.
There are also different methods of surveying your loyal customers, such as through email or through an in-app experience. You want to ensure the way you present surveys is non-disruptive to the customer journey, as you don’t want to impede key behaviors and actions (such as checking out).
Now to step B, segmenting your results. After you’ve received feedback, how do you use that to identify your best customers? Delighted recommends starting by segmenting your positive feedback. If someone left a glowing, 5-star review, that means they’re more likely to refer-a-friend.
Then look at trends over time, are those customers constantly providing 5 star online reviews, or is this their first time? Satisfied customers that have consistently provided positive feedback are even stronger advocates for your brand.
And then, segment by customer details. A “healthy” or “successful” customer will look different for each company, it might be based on their customer lifetime value or if they’re on a specific customer loyalty program. Overlay the data points that identify a healthy customer with your segment of positive feedback customers to have a really clear vision of who your best customers are.
And finally, step C, close the loop. After asking customers for their feedback, make sure you put the right systems in place to close the loop with them, as they’ll only feel heard if they know you’re acting on their feedback.
One great way to close the loop with loyal customers is with your referral rewards program. With Friendbuy, Klaviyo and Delighted, you can automatically prompt a referral to customers with their referral link that leave a positive NPS score of 9 or 10, making it easy for them to take action and refer-a-friend.
Another way to close the loop is to automate an email with a personalized thank you. If they took the time to leave feedback, you can take the time to say thank you! Plus, you can also use that email as a chance to gather testimonials (and foster customer loyalty).
Below is an example of how Casper uses Delighted to do all the above. They start with a post purchase survey asking how likely a customer is to refer-a-friend. If someone replies positively, they send a subsequent email that drives to their refer-a-friend landing page. That real-time data is also automatically sent to Slack, and sent to Looker and Simon Data for deeper analysis.
Step 2: Choose the right incentive to drive customer acquisition
Now that you’ve identified who your top customers are, it’s time to find the referral incentives that really encourage them to recommend you to their friends and family. Because let’s be honest, nothing in life is free.
Rewarding existing customers with money sounds like the opposite of what you’re trying to accomplish as a business. But when done thoughtfully, it can make your customers feel appreciated and encouraged to refer friends.
One tool that helps make distributing referral rewards to acquire customers seamless is Tremendous. Tremendous allows brands to distribute any type of referral reward to people around the world. E-commerce brands and other organizations use Tremendous to give their recipients a choice between a direct deposit of cash, Visa cards, 3rd party gift cards (i.e. Amazon, Adidas or Uber Eats) and charity donations. They also handle all the technical headaches that might come with it, including currency conversions, cross-border regulations, and reporting.
When looking at how to incentivize those top customers to refer friends, Tremendous recommends aligning the interest of all three parties involved: your company, the existing customer, and the referred customer. As a company, you want to acquire new customers and maximize ROI. Your existing customer wants to receive something in exchange for referring someone. And the referred customer wants value in exchange for trying something new. So how do you align all three?
You have two options:
- Offer discounts on your product
- Offer some form of third-party incentive, like money, gift cards or Visa cards
Choosing the right incentive for your business depends on the product or service you sell and what is most motivating to your customers.
For some brands, offering such referral incentives or a discount on your product might make sense. For consumer goods or services that customers repeatedly purchase at a relatively low cost, a discount toward a future purchase makes sense, as it encourages repeat referral behavior.
A good example of this is Uber Eats. They offer existing customers $10 off an order of $25. Referred customers get $20 off an order of $25 or more. This means:
- It only costs them $30 to acquire a new customer
- It keeps customers within their ecosystem by encouraging both existing and new customers to buy from Uber Eats
- The average Uber Eats customer spent nearly $240 in Q4 2021
So you can imagine that the LTV of an Uber Eats customer is way higher than the $30 acquisition cost.
But, that model doesn’t make sense for every business. That’s where a tool such as Tremendous comes in handy.
For example, Casper sells mattresses and a range of other sleep products. Their least expensive mattress is a twin-size original foam mattress which costs around $900. Their most expensive mattress is $4,000.
Casper mattresses are super high quality, and a mattress is a high-consideration purchase. People often only buy one mattress every few years.
So, for their existing customers, a discount toward a future purchase isn’t an appealing referral reward. Instead, Casper offers existing customers a $75 Amazon gift card, while the referred customers get 25% off their mattress.
That’s made their referral program one of Casper’s most-effective marketing strategies — generating 7x higher lift than their average marketing investment.
In summary, here are three things to keep in mind when deciding on an incentive that fits your business. First, consider your product, especially at what frequency people are purchasing. Then, consider your customers and what will motivate them to refer their friends on a repeat basis. Then, run experiments to find exactly what dollar amount maximizes conversion rates (more on that below from Casper).
Step 3: Incentivize customers at scale with a referral program
After finding your best customers, picking an incentive that's going to motivate them, how do you get them to drive sales at scale? Try a best-in-class referral program.
Powering referral programs to help brands accelerate growth through word-of-mouth referrals is what Friendbuy does. If you’re wondering why referrals are the best way to activate your top customers, there are three reasons:
The first one is high margin growth. As mentioned before, every customer you acquire through referral is one less you have to acquire through a paid channel. That creates high margin conversions.
Second is identifying your best customers. I know you might be thinking “wait, we did that in step 1”. But the more data and understanding you have of your top customers, the better, as you’ll be able to keep them more engaged. And a referral program can help you do just that, as it’s usually your best customers that are doing the referring.
And last but most certainly not least, referral programs provide significantly higher customer lifetime values and faster conversion rates than other channels. We typically see that referred friends convert 5x faster than other channels, and their lifetime values can be 3x - 4x higher.
Okay now that you’re as hyped about referral marketing as we are, here’s how you scale it. Friendbuy has a formula for referral program success - e=mc2. Just kidding, it’s:
AWARENESS + ACCESSIBILITY + EASE OF USE =
The first ingredient is strong awareness of your referral program - in order for your current customers to share on impulse, they’ll need to know that you actually have a referral program. The next ingredient is accessibility - it has to be really easy to get to. And then finally, it has to be super simple to use. When working together, these ingredients make a referral program successful.
Below are some of the recommended best practice placements to get your customers to refer on impulse.
First is a Primary Referral Call To Action. Let’s say two friends are talking at a bar, your brand comes up in conversation, and one of them says, “here, let me send you my referral link.” That’s a referral happening on impulse. You want to make sure that customers can get to your referral program within 5 - 10 seconds.
Above, SPANX has a referral CTA that says ‘Get $20’ on the left-hand side of their homepage which triggers the overlay so people can easily share. We typically see that 46% of referral revenue comes from this placement - it has the highest share rate of all placements.
It’s also recommended to include a referral widget on the order confirmation page of your site, like Casper has below. This way, every customer that purchases from you will now know that you have a referral program. Including a referral widget post purchase is also a great way to capitalize on the excitement of the purchase and many customers will even share with friends as soon as they’ve purchased.
You might also consider including a referral dashboard like the below from Dollar Shave Club, so your customers can track their referral program rewards and invitations, and send reminder emails to their friends who have not yet converted. Lastly, you’ll want to make it easy for your customers to grab their referral links from this placement. This is especially important for subscription businesses or brands where your customers are frequently logging into their account page.
Now that you have all the referral program placements you need to drive impulse referrals, it’s important to let people know about your referral program.
One great way to do this is to send a dedicated email to your customers announcing your referral program. AWAY sends a dedicated referral email to their new customers to make sure they know about the program, offering $20 for everyone. Their dedicated email also links directly to their refer-a-friend landing page so people can easily share.
You’ll also want to keep the referral program top-of-mind for customers who are interacting with your brand. A best practice is to include a referral CTA in your newsletters, transactional emails, new product announcements, and order and shipping confirmation emails. AWAY includes a Referral CTA link in their newsletter emails that link directly to their referral program landing page.
There are tons of other innovative ways you can share your referral program with your customers, including via SMS and direct mail. Below is an example of how Persona Nutrition includes a box insert with all of their vitamin deliveries that includes a QR code that directly links to their referral program.
Step 4: Maximize ROI like Casper
This one isn’t really a step, but more of a playbook of how to really effectively identify and reward your loyal customers and scale referrals.
Casper saw an opportunity to drive revenue from top customers with referral campaigns. They needed a partner that could do four things:
- Operationalize A/B tests
- Provide visibility into program performance
- Validate these referrals, and
- Fulfill referral rewards
The Casper team has now been working with Friendbuy, Delighted and Tremendous for three years and have partnered very closely to scale their program. Their program is extremely efficient because they’re leveraging their existing customer base and have strategically included referral placements throughout the customer lifecycle.
There are a few key places that they trigger referral communications, including after a customer leaves a positive NPS score, after a customer leaves a positive product review, it’s highlighted at the top of their order confirmation page, they include it in their printed materials with product instructions, and they have dedicated touchpoints in their post-purchase email series. That’s a lot of key listening posts.
They also quickly test and optimize their referral program continuously. Here are four recent tests they’ve run and their results.
This is an offer strategy test that Casper is currently running, to see if a higher Friend offer of 25% off, and a lower advocate offer of $75 works better than a lower friend offer at 20% and a higher advocate offer of $100.
Curious which one performed better?
Drum roll please …
Version A! Version A has a 26% lift in shares and a 16% lift in conversion.
Another key element Casper tests is placement, as accessibility and ease of use is critical. For Casper, it’s prominent in their navigation bar with a cash icon. They’ve tested not including this placement and when it was removed, their referral revenue significantly dropped.
It’s also in their hamburger menu, as well as on their order confirmation, order details, and shipping status pages. Although small, these placements are driving 60% of their total referral shares.
Another way you can scale your referral program is to consider implementing a product specific referral program. After COVID, Casper saw massive growth in pillows, so they leaned into that trend and added a pillow referral program. You’re also either in the market for a mattress or you’re not. With pillows, everyone knows someone who needs a new pillow.
Casper is making use of the space on their main refer-a-friend page to let Advocates know about their pillow referral program. They ensured they didn’t cannibalize their mattress referral program, so they A/B tested this before rolling it out. They also do the reverse, and have a refer- a-friend to a Casper mattress CTA on their pillow referral program landing page.
Finally, Casper tests “referral blowouts” with their audience, as they know urgency works for their customer base.
So periodically, they temporarily increase their referral incentive from a $75 Amazon gift card to a $200 gift card. They’ve seen a lot of success with that method, as their last referral blowout had a 29% lift in conversions, compared to the prior 3 months.
The above recommendations are just some of the ways that high growth brands like Casper are incentivizing their best customers to drive new customer acquisition and drive sales.