Referral Marketing: The Essential Guide

Referral marketing harnesses the power of word of mouth by making sharing as easy as possible.


Brands in every industry are in fierce competition for consumers’ attention. The unfortunate result in the digital economy is that consumers are flooded with ads at every click and turn of the proverbial page, making it nearly impossible for brands to stand out. Referral marketing is the art and science of cutting through this noise by digitizing word of mouth through technology.

The result is that marketing teams who implement effective referral programs are able to work smarter, not harder, and spend wisely, not fruitlessly. Furthermore, as we’ll demonstrate in this Essential Guide, referral marketing fosters lasting customer loyalty instead of contributing to marketing fatigue.

Growth marketers know that word of mouth works because the data is clear and compelling. Emailed referrals can achieve open rates of 80 percent, while referrals through SMS achieve open rates of 99 percent. There is simply no more powerful way to get the attention of a target consumer than through the recommendation of a trusted friend. When properly executed, referral programs turn word of mouth into a sustainable & lucrative customer acquisition engine. Customers tell their friends, and friends become new customers who go on to tell more friends. Advocates then go on to make repeat purchases with their referral rewards, increasing their lifetime value (LTV). A well-designed referral program is how you maximize word of mouth at scale.

In this guide, we dive into what referral marketing really is, the components of a successful referral program, and what it takes to get started.

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Chapter 1

What Is Referral Marketing?

In the simplest terms, referral marketing is a technology-driven program that enables your customers to promote your brand to new customers (usually, their friends!).

Referral marketing harnesses the power of word of mouth by making sharing as easy as possible, adding tracking and attribution to all sharing activity, and typically through promotional offers for referred friends and incentives for customers—or advocates—whose friends convert to purchases.

Referrals occur through many different sharing channels, including email, SMS, and social media. When brands invest in an easy-to-use and engaging referral program, referrals offer unrivaled power and efficacy in driving highly qualified referral traffic, leads, and customers. 

Breaking Down the ROI of Referral Marketing

Marketing teams are always looking for the right combination of campaigns to maximize their return on spending. If you want to invest in marketing programs that make dollars and sense, we’ve got good news for you: The benchmark performance numbers for referral programs offer some of the best value you’ll ever get from a marketing channel.

Here’s a by-the-numbers look at what marketing teams are able to achieve through referral marketing:

Costs per acquisition (CPAs) as low as $1.

The less you spend on acquiring new customers, the more you’re able to attract—and the faster you’re able to turn a profit on your acquisition efforts. As you optimize your referral program, your average CPA should continue to drop.

A 5x greater average lifetime value.

Acquiring a new customer is just the first step in building a successful business. To achieve sustainable, long-term growth, your new customers need to become repeat buyers. Referral programs facilitate strong customer relationships that lead to repeat purchases and a much higher lifetime value than other marketing channels.

Marketing share rates of 30 percent or more.

Share rate performance can vary based on a number of factors, but some of our top-performing brands have achieved share rates in excess of 50 percent.

Conversion rates of 15 percent or higher.

Compared to the single-digit conversion rates offered by other marketing channels, referral programs are able to achieve more cost-effective conversion rates to accelerate your brand’s growth. Referred visitors are more qualified and have higher intent to purchase.

Referral programs can account for 5-20 percent of overall revenue.

In apparel & accessories and health & beauty brands, for example, the typical percentage of total revenue ranges from 5-14 percent. Subscription categories see total revenue contributions as high as 17 percent (and sometimes even as high as 30 percent when the brand is experiencing accelerated growth).

Referral marketing can achieve >25x return on investment.

Both the apparel & accessories and consumer packaged goods/essentials categories have achieved this level of ROI for their referral campaign spending. For high-consideration categories, this figure can be much higher, driving a 47x average ROI.

Regardless of your industry, a well-designed referral program can become a revenue machine that charts a new course for your company’s growth. For most brands, the biggest question is when to develop and launch their program.

Chapter 2

When Is the Right Time to Start a Referral Program?

Referral marketing should be on your radar almost as soon as you go to market. As you develop your strategy for growing and scaling your customer base, you should plan your referral program launch around certain milestones in your company’s growth.

As a very general rule, any business generating at least $500,000 in monthly revenue has an opportunity to quickly achieve ROI-positive results with its referral program.

Depending on your funding and/or your desired growth timelines, you may be willing to launch this program before your business reaches this milestone to help fast-track your ability to scale. But half a million dollars in monthly revenue is a good benchmark for knowing that you’ve got the existing customer base and the transaction volume to achieve strong ROI with a best-in-class referral platform.

A word of caution about launching a stripped-down referral program, either through cheap plugins or with a minimal internal implementation: Although it may seem attractive to launch a referral program as soon as possible, if you’re offering incentives to your customers and their friends without the necessary infrastructure, you may find yourself stuck in a quagmire of customer support issues while also spending hours trying to separate valid referrals from fraudulent ones. 

Without proper tracking, reporting, fraud prevention, and reward fulfillment protocols, you won’t have the seamless ease of use to make referrals fun for your best customers, the visibility you need to service your customers, or the ability to prevent bad actors from gaming the system. The result will be weak performance and frustrated users—not to mention too many headaches for your staff. 

Our recommendation is to be thoughtful in your timing for the launch of a referral program that combines high-performing sharing modules with robust tracking, reporting, automation, and reward fulfillment. This approach may ultimately delay the launch of your referral program, but it should result in faster scaling of your customer base and higher customer satisfaction, and thus higher ROI.

"As a very general rule, any business generating at least $500,000 in monthly revenue has an opportunity to quickly achieve ROI-positive results with its referral program."

Chapter 3

The Core Elements of a Referral Program

The success of your referral program is predicated on thoroughly planning how you will execute its many moving pieces. To achieve success with referrals, you will need to strategize, build, and/or acquire the following key components.

The Offer

What incentive are you going to give your customers, or advocates, when they deliver new customer conversions to you? Most campaigns feature one of two offer structures:


Your existing customer, the advocate, receives a reward for sharing your brand and delivering new customer conversions. This can be in the form of a discount toward future purchases, account credit, a gift, or other incentives such as a third-party gift card.


Your advocate receives their incentive, and their friends are also enticed with an offer to become a new customer. Common examples of this offer structure are promotions such as “Give $10, Get $10,” which reward both the advocates and their friends when new referral conversions occur. This offer structure is more common because it is proven to yield higher ROI.

Core Technology

In practical terms, how will you deploy your referral program and manage it on an ongoing basis? The referral program itself must be highly accessible and super easy for your customers to use. But it must also allow your marketing team to manage offers and analyze performance, and allow your support team to address customer support inquiries. 

And then there’s the need for automation, particularly if you want your program to scale. A scalable referral program must automate reward fulfillment, facilitate business rules such as minimum purchase requirements, distinguish new customers from repeat buyers, and incorporate waiting periods for returns and cancellations. These are just a few of the back office considerations you need to address to achieve sustainable success with referrals.

A comprehensive referral platform is your best bet for implementing professional, engaging referral assets that facilitate referrals between your advocates and their friends, while also providing the technologies to support your business operations requirements.

Let’s start with sharing enablement:


Email is one of the two highest-converting channels for referral programs. When customers refer via email, we see open rates as high as 80 percent. Our data across thousands of clients validates that your advocates love to share via email and that referred friends who receive these emails are highly captive and very likely to engage with these referral invitations.

When you activate referrals via email, here are a few technologies you will need: the ability to customize and A/B test subject lines and the email body, analytics specific to this referral channel, a high domain authority for deliverability, and CAN-SPAM compliance technology. A big bonus would be an automated reminder email for friends who do not convert; this reminder can boost the performance of the email channel by 30 percent.

Referral Marketing - The Essential Guide - Smile Direct Club

Personalized URLs (PURLs)

Another high-performing channel is the personalized URL, or PURL, which is a personalized referral link that your customers can copy and paste when referring. The power of personalized referral links is that advocates will share them in many different ways—via text, in Slack, or even in a post on their personal blog. In fact, PURLs and emails usually occupy the No. 1 and 2 spots for highest-performing referral channels. PURLs should be short and preferably easy to read. The ideal PURL has a vanity component, meaning it contains the name of the advocate in the link itself.



One of the easiest share actions is to share via text/SMS. Your referral widgets should allow the user a one-click option that launches SMS on their phone and pre-populates the SMS message with compelling copy plus the advocate’s referral link. All the user should have to do is choose their recipients and send. Ideally, your widgets should be responsive to know when a user is visiting on a mobile device versus their desktop and therefore display the SMS option only when on mobile.


The Bouq Co - Friendbuy - Referral Marketing - The Essential Guide

Social channels

Your sharing widgets should cleanly present the different sharing channels that are right for your brand, be they Facebook, Messenger, WhatsApp, and/or Twitter. Most social networks have APIs to facilitate friendly sharing experiences, where copy and imagery can be customized to entice viewers to click through.

An effective referral program should take advantage of these interfaces to garner high-quality referral traffic. Over time, with robust analytics across each social channel, you can optimize which social networks are best for your customer base.


Desktop and mobile widgets

Your referral widgets are the center of referral activity for your customers. As such, they should be elegant yet highly sophisticated apps unto themselves. Widgets should be placed at different locations on your site and mobile app, in line with referral marketing best practices: a primary CTA, a post-purchase page, a landing page, and an account page. Each placement will have its own considerations for real estate and display behavior (e.g., embedded versus overlay).

Widgets should combine clean design and imagery with compelling copy, while making it easy for your customers to share quickly into their desired channel or copy their personal referral link to share wherever they choose. And without a doubt, your widgets must be mobile-responsive. Ideally, your marketer can update copy and imagery through a simple UI and make the widgets render perfectly on desktop and mobile. Furthermore, referral widgets should display the appropriate sharing channels in a mobile-responsive state, such as SMS and WhatsApp.

Floyd - Friendbuy - Referral Marketing - The Essential Guide


Program analytics

Analytics are essential for optimizing your referral program over time. As a top-line measure, you want to monitor advocate sharing rates, total referral clicks, and referral conversions. But to truly maximize performance, you need to understand the performance of each sharing channel: email, personal URLs, SMS, social, and so on. Doing so allows you to get the most out of each channel while also allowing you to spot anomalies in a specific channel when the reason may not be obvious.


Business rules, reward validation, and fraud prevention

At Friendbuy, we often say, “Make your offer compelling, but make it a high bar.” Your referral program should know the difference between a new customer and a repeat buyer, but that’s just the beginning. Should your offer be combined with a minimum purchase requirement to make it profitable? Do you need to account for returns and cancellations? Is there a free trial that must convert into a paid plan before issuing the advocate reward? How will you handle bad actors who try to game the system through a variety of means such as fake email addresses and manipulation of cookies? Good, core technology will allow you to address these concerns and many more at scale.


As your business scales, your referral program will as well, generating thousands of shares and referral purchases. Automation is key to handling the increased volume. Without it, your business operations may suffer under the weight of a successful referral program. Here are a few examples of automation in action for referral programs: 

    • Triggered emails to advocates and friends reminding them to take advantage of offers and fulfill rewards
    • Automatic session-based discounts for referred friends
    • Automatic deposits of account credit for advocates who’ve earned them (with full validation of business rules)
    • Maximum rewards earned in a month or a year, with triggered messaging to reduce support inquiries.

Once your program hits an inflection point, you may find yourself in a catch-22 struggling to address these concerns, so it’s best to build with automation in mind from the beginning.


Chapter 4

Best Practice Placements

Awareness + Accessibility + Ease of Use = Impulse Referrals.

This is the winning formula for a high-performance referral program. Your customers will refer on impulse whenever they feel like doing so, but only if:

  1. They have awareness of the program
  2. It’s highly accessible
  3. It’s super easy to use

In our experience launching referral programs for the world’s top brands, we’ve developed a number of best practice placements to ensure success via the formula above.

Here are a few placement strategies that deliver proven results:

Primary CTA

Featuring a primary CTA offers share rates as high as 42 percent and conversion rates averaging 9 percent on both desktop and mobile.
Referral Marketing: The Essential Guide - Primary CTA

Referral landing page

Share rates can be as high as 45 percent for customers reaching this asset, with conversion rates up to 10 percent.

Referral Marketing: The Essential Guide - Referral Landing Page

Post-purchase overlay

These overlays drive high share volume and program awareness, while delivering average referral conversion rates of 8 percent.

Referral Marketing: The Essential Guide - Post-purchase overlay

Account page widget

Use all available real estate to maximize referral program visibility.

Referral Marketing: The Essential Guide - Account Page Widget
Native mobile app

Mobile apps give referral programs one-click referral potential for your most engaged customers.

Referral Marketing: The Essential Guide - Native Mobile App


Chapter 5

How Your Referral Marketing Partner Can Help

Referral programs are highly specific to each brand. Your company’s size, category, customer base, transaction volume, customer acquisition cost (CAC), and customer lifetime value (CLTV) must all be accounted for when developing your strategy for referral marketing. Furthermore, your conversion funnel, ability to offer discounts or credits, and your preferred Buyer’s Journey for referred friends will impact many of the core technology decisions discussed in this guide.

When you’re ready to launch your referral program, your marketing team can expect to collaborate in the following ways with your referral marketing partner:

1. Have an onboarding/kick-off session.

In this meeting, you and your referral marketing partner will discuss your goals for CPA, percentage of customers acquired via referral, and integrations to support your Buyer’s Journey.

2. Build an offer strategy.

There are many offer strategies that can work, but the type of offer and structure that is right for you should be informed by campaign goals as well as the core technologies available to power offer fulfillment.

3. Decide on design, creative asset development, and messaging.

You should lean on your referral marketing partner and the technologies enabled by their referral platform to implement elegant referral assets that incorporate best practices for performance, many of which have been discussed throughout this guide. Your marketing team will be closely involved in this process to ensure brand consistency.

4. Launch, analyze, and review your performance.

Lean on data to tell the story of your initial launch and identify opportunities for improvement. A good referral marketing partner is proactive in helping you grow with each new lesson learned.

5. After 30-60 days, gather data and optimize your referral program.

Once you’ve been live for a while and have gathered a good sample of baseline data, your referral marketing partner can provide insights and strategic recommendations for offer testing, custom audience targeting, and additional campaign types to increase ROI and accelerate customers acquired via referral.


Chapter 6

Customer Spotlight: Nuuly

When clothing rental subscription service Nuuly first sat down with Friendbuy, the company had already experienced some success in attracting customers and generating revenue. But the company’s leaders knew it hadn’t achieved a scale of operations that was sustainable over time. The company turned to referral marketing to leverage its existing customer base and achieve that scale.

Nuuly ended up choosing a double-sided offer strategy that rewarded subscription service credit to both its advocates and their friends, with no limit to the amount of rewards that could be earned. Friendbuy helped them develop their campaign, which included a strong focus on social sharing and featured a number of slick, user-friendly features such as automatic rewards credit, anti-fraud measures, and built-in analytics to monitor performance and enable A/B testing.

Within weeks of the launch, Nuuly had generated thousands of new paying customers for its service. Its top 10 advocates accounted for more than 2,500 new customers on their own, with leading advocates generating more than 500 subscribers each. Since this initial wave of success, Nuuly has continued to lean on its referral program to grow its customer base, using A/B testing and other optimizations to push its ROI even higher.


Chapter 7

The Power of Partnership

Your target consumers are inundated with marketing content all day, every day. Flooding the “airwaves” with ads is unlikely to lift you above the crowd—it merely adds to the noise that consumers are now trained to tune out, thus preventing them from noticing your brand.

Referral marketing is your solution to cut through the noise and separate yourself from the crowd in the congested landscape of paid media. The right partner will help you unlock the scalable ROI potential that only a referral program can offer.

Book a Meeting

We’ve seen firsthand what it takes to grow a successful brand, and we are passionate about helping e-commerce businesses achieve organic growth through referral marketing. Our team can help you get up and running quickly. Schedule a demo to learn more.



About Friendbuy

Our mission is to empower growth marketers through innovation.

Our referral marketing platform accelerates customer acquisition and builds loyalty for the world’s most innovative brands.

Our first customers were challengers: entrepreneurs who were hungry, innovative, and rebellious. Through relentless collaboration with these fast-growing brands, Friendbuy has emerged as the referral marketing platform of choice for disruptive startups such as Dollar Shave Club, Away, Casper, and Outdoor Voices. Today, our clients also include Fortune 100s such as Walmart, Intuit, Disney, and Nestlé.

Friendbuy is the only referral platform loved by product teams and marketers alike. Our refer-a-friend programs offer unsurpassed ROI, expanding your reach and transforming customers into loyal and engaged brand advocates.

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