- Referral programs can help you get more leads and customers while spending less
- With referral incentives, social gifting, or tiered rewards programs, you don’t have to spend a dime until you make a sale
- Referral contests are effective tools for building brand awareness, although purchases aren’t guaranteed
New customers are a key ingredient for business growth, but shoppers are often hesitant to try new brands. That’s where referral marketing comes in. When people get recommendations from others they trust, they’re four times more likely to make a purchase. With the right referral program ideas, you can turn your existing customer base into your most powerful advocates and boost your sales.
Most marketers agree customer referral programs have a lower cost per lead than any other channel—you don’t have to pay a dime until you make a sale. You can also rapidly boost the number of referrals you get. Plus, referral programs are your chance to re-engage loyal customers with rewards built to satisfy.
Learn how to create a successful referral rewards program with these four referral program examples. You’ll learn how they work and the metrics that can help you track their success.
1. Referral incentives
The most traditional referral marketing strategy is a simple, incentive-based program that gives customers rewards for successful referrals. When the referred friend completes a purchase, you can provide your client with:
- A gift card
- Store credit
- Cash reward
- Free products
- Company swag
- A free month subscription
The more expensive your product is, the more valuable your referral incentive should be. Convincing friends or family members to buy high-end products is far more difficult than getting them to buy a cup of coffee, so your reward should motivate clients to put in the effort. For example, a real estate agent should offer far more than a $5 gift card after a successful close that’s worth thousands in commission.
This customer referral program idea is a simple way to boost revenue. To ensure your program is driving profits, some metrics you can track include:
- Average initial purchase value: How much referred customers are spending on their first purchase. If you want to ensure you never lose money from your program, you can adjust the value of your reward as needed.
- Cost per acquisition (CPA): The average amount you’re spending to achieve each sale. A successful referral program should decrease your CPA, helping you drive up your profit margin over time.
2. Social gifting
Social gifting takes the referral incentives model to the next level. In this situation, referrers still get rewards when a friend completes their first purchase—but the friend gets a perk, too. For example, when a new user signs up for Uber Eats with a current customer‘s code, they get a discount on their first purchase (for example, $10 off). After the new user’s first purchase, the referrer gets a discount too.
Social gifting creates a win-win situation. Referrers don’t have to put in as much effort to convince their friends to try your brand. This referral marketing idea is ideal if your goal is to increase customer acquisitions. To maximize the results of social gifting, track these metrics:
- Conversion rate: The percentage of referred leads who make a purchase. You can consider adjusting your offers if you’re not gaining as many customers as you’d like.
- Repeat purchase rate: The percentage of clients who buy more than once within a set time frame. This should increase or stay steady. Otherwise, new and existing clients may be dropping off after they claim their reward, which means your active customer base isn’t growing.
3. Referral contest
Referral contests use one large reward—for example, a $100 gift card or plane tickets to Hawaii—to entice existing clients to recommend your business. These contests can activate your customer base without requiring them to buy anything. You’ll often see referral contests on social media, with brands offering one raffle entry for every friend their followers tag. Once the entry deadline passes, the brand randomly draws a winner.
As an example, a yoga studio may host regular contests for Facebook followers to win free three-month memberships or workout swag.
Hosting monthly referral contests is a great way to build brand awareness while helping you maintain a positive brand reputation, since potential customers will learn about you from people they trust. To maximize your brand’s reach, you can track your:
- Participation rate: The percentage of clients who participate in your contest after seeing it on one of your marketing channels, such as social media. A low participation rate is a sign that you need to improve or increase your marketing for the referral campaign or offer a better prize.
- Average number of referrals per contest: Spotting trends in this metric can help you identify what prizes are most enticing for current clients.
- Daily website, landing page, or profile visits: While running a contest, you should see a spike in visits to the channel where you’re directing referred customers. If there isn’t an increase in visits, there likely isn’t more brand awareness.
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4. Tiered rewards
Some of the best referral programs can help your small business create a domino effect for word-of-mouth marketing. When you offer tiered rewards, referrers are more likely to keep on referring—and the people they refer may join in on your program too.
A tiered rewards program can take two forms. One, you can offer more enticing prizes for each successful referral that your customers provide. For example, clients can get a $10 reward for their first referral, then $15 on their next. Or you can offer one-time prizes or ongoing perks (like priority customer support) when clients reach a certain amount of referrals per year.
Tesla is a brand that blends social gifting with tiered rewards. Once a referred friend activates their Tesla solar energy system, the referrer and their friend both get cash rewards. The referrer can also earn a free Powerwall product once they hit 10 referrals.
If you run a service-based small business that wants to focus on tiered rewards, you may offer a $10 gift card for the first referral. Then, after five referrals, you can provide any service for free.
This referral program idea can turn your best customers into long-term brand advocates. It also uniquely offers the perk of keeping existing clients engaged with your brand, which means you’re maintaining happy customers while gaining new ones. A couple of metrics you can track to understand your program’s success include:
- Customer lifetime value (CLV): The total profit you expect to make from the average customer throughout their entire relationship with your brand. An effective tiered rewards program should increase your CLV. Learn how to calculate CLV.
- Customer growth rate: How quickly your customer base grows within a set period of time. A positive growth rate indicates you’re keeping existing clients and adding new ones. A negative or stagnant growth rate indicates your churn rate (the number of customers who leave your brand) is too high, meaning your program isn’t driving customer loyalty.
Accelerate business growth with new referral program ideas
A strong referral program can help small business owners generate more leads, acquire more customers, and increase long-term client retention. There’s no one way to ask for referrals, but the type of referral marketing program you set up should depend on your goal. For example, you can reward clients when they refer someone who makes a purchase, or you can host a contest that offers a prize to one random referrer—no purchase necessary.
Once you’ve selected your referral program idea, read our tips for running digital marketing campaigns, so you can effectively promote your new program to your client base.
The information above is provided for educational and informational purposes only. It is not intended to be a substitute for professional advice and may not be suitable for your circumstances. Unless stated otherwise, references to third-party links, services, or products do not constitute endorsement by Yelp.