Word of mouth advertising is typically known as the mother of all marketing techniques. Granted, the statistics vary depending on where you look, but some sources say that word of mouth advertising is trusted above all other forms of advertising by more than 90% of people around the world.
With that in mind, the natural next step is to ask how to increase word of mouth marketing for your online business. That’s exactly where referral programs come into the picture!
We’ll cover a range of referral program ideas, how to create a referral program, and much more in this info-packed guide. Let’s get to it!
What is a referral program?
A referral program is a marketing technique that businesses use in an effort to have existing customers influence friends, family, and colleagues to also become customers.
This is one of the best ways to market an online business, since it takes full advantage of the tendency for consumers to trust one another more easily than they trust businesses themselves (as demonstrated by the statistic cited earlier).
What makes customer referral programs a particularly great addition to your online business is that it has a pretty phenomenal return on investment.
For example, in their early days of working to increase their user base, PayPal was able to generate 7-10% daily growth in user numbers with a referral program. By giving existing customers $10 per referral, and new customers $10 for signing up, PayPal was able to launch their total number of users to 100 million. That was after trying traditional advertising methods which turned out to be too expensive – even compared to the $20 customer acquisition costs they had through their referral program.
Affiliate program vs referral program
What’s the difference between a referral program and an affiliate program? It’s pretty easy to tell, actually! While referral programs depend on existing customers to promote the business in question, affiliate programs employ online marketing professionals to generate new customers from their respective audiences.
While affiliate programs certainly exist outside of the digital marketplace, eCommerce affiliates typically come in the form of online influencers, bloggers, and digital marketers, to name a few. In exchange for sending new customers to a business, affiliates are typically compensated with a commission for each customer that comes from their audience base.
When discussing potential affiliate partnerships, be sure to consider a broad range of factors including the affiliate’s track record, the guarantees they may be providing, and the rates offered by other professionals. There’s no hard-and-fast rule to go by, so don’t be afraid to negotiate for better terms.
Customers love getting gifts - 85% of #ecommerce customers made at least one purchase in the past year because they were incentivized to do so by the prospect of getting rewarded! Click To Tweet
Top 4 benefits of referral programs
1. Keep your customers happy with rewards
This might be the most obvious of all the benefits of referral programs. Customers love getting gifts, even if it means they have to work for it a bit. Don’t believe us? The fact is, roughly 85% of customers made at least one purchase in the past year because they were incentivized to do so by the prospect of getting rewarded (40% made at least 4 purchases).
So if they’re willing to spend money to get a reward, it makes complete sense that they’d be happy to get rewarded for referring friends, family, and colleagues (which is free for them to do)!
2. Boost your brand’s trustworthiness
In eCommerce, it’s always good practice to include security and guarantee badges on your online store’s website – in fact, one survey of online shoppers found that roughly half (48%) of the respondents were most influenced by trust badges to trust an unknown website. But what you might’ve not known is that referrals are also an effective tactic for improving your brand’s trust, reputation, and overall awareness.
The same survey found that the third most common reason that respondents trusted an unknown website was because a friend, family member, or colleague had used the site. A referral program can bring your business new renown!
3. Increase your repeat purchase rate
Of course, when you reward your existing customers who generate referrals, you’ll want to give them something that will bring them back to your store again and again. Handsome discounts, eye-opening vouchers, or free products with their next order will give your customers enticing reasons to spread the word about your business and help increase your repeat purchase rate.
Why’s it important to put effort into improving your repeat purchase rate? There are plenty of reasons, but one of the most important is that repeat customers make more referrals the longer they stick with your business. This opens the door to exponential customer growth.
4. More affordable than alternatives
Running a referral program is an amazingly cost-effective way of marketing your online business. Not only will you be cutting down on your customer acquisition costs (CAC), but you’ll simultaneously be generating higher revenue. One study found that, on day one, referred customers are $0.45 more profitable than other customers.
Regardless of what you’re selling or how much you’re currently spending on acquiring new customers, investing your time in developing a successful referral program is almost guaranteed to reduce your CAC.
How to create a referral program
Not sure how to create a referral program?
Follow these five simple steps and you’ll be well on your way to generating more happy customers.
1. Understand the competition
By now you probably know that you’re not the only one in your niche who’s looking to start making the most of a referral program. There’s a high likelihood that many of your competitors are already ahead of you in that regard – but that doesn’t need to be a bad thing.
Since there are others who have established their eCommerce referral programs, you should study their strategies and offer your customers an even better deal. Similarly to the way that you can change up your pricing strategies in order to outperform your competitors, you can use creative referral program strategies to undercut them as well.
Are other businesses offering a 10% discount as a reward for referrals? Offer 20%.
Are they offering free shipping on the customer’s next order? Do the same and include a free gift with it.
Are they giving vouchers as rewards? Give out bigger vouchers.
The possibilities are endless, but you’ll need to look into what your competitors are doing before you can possibly outcompete them.
2. Study your customers’ needs & interests
While you consider how much effort you’ll be putting into studying your competitors, just remember that you should be putting even more effort into studying what your customers truly want. After all, what’s the point of offering a reward to incentive referrals if your customers aren’t interested in that reward?
Take a look at your inventory and determine what your best selling items are (and what they have been over in the past). Purchase patterns are a good indicator of what your customers want and need.
If that’s not enough to make a solid decision, just go ahead and ask them straight up! You can send out short questionnaires to a select group of your ‘best’ customers and ask them, if they were to receive a reward for a referral, what would they want. Whatever you do, don’t waste your time giving out gifts that people don’t want or need – best case scenario they don’t make more referrals, worst case scenario your customer can decide not to purchase from you anymore.
Side note: If you send out a survey it’s probably best to keep the questions in multiple choice format so that your customers can answer quickly. Plus, by providing the answer choices, you can make sure your customers don’t start asking for Ferraris!
3. Make it easy to participate
If you want to maximize participation rates for your referral program, then minimize the obstacles your customers must overcome.
Every step that your customers need to take in order to participate in your referral program is another chance they have to change their minds. Limit the number of opportunities they have to say ‘no’ by streamlining the process to the best of your ability.
This is a similar principle that online businesses follow with regards to reducing shopping cart abandonment. Two of the top five reasons for cart abandonment have to do with the customer being forced to fill their information again in order to complete the order. Seriously… how big of a bummer is that?!
The bottom line: By cutting down on extra forms, online businesses can increase their sales. You can do the same for your referral program!
4. Communicate clearly (before and after the referral!)
As far as your referral program goes, communication will be most essential for two major purposes. First, to let your customers know what they’re getting themselves into. And two, to let your customers know that you really care about them.
Unclear expectations are a big red flag for most consumers, particularly in the world of online retail. When you don’t have the benefit of being face-to-face with your customers, the last thing you want them to think is that you’re unreliable or shady. The best way to avoid that is to be specific about what they can expect to gain from participating in your referral program, and to let it be known in no uncertain terms.
Once your referrals start rolling in, reaching back out to the customers who made the referrals is critical. After all, you want more referrals, don’t you? So be sure to touch base with those awesome people who referred you to their friends and say thank you. You can even ask them how they’re enjoying their reward to get a better understanding of how you can incentivize them to continue referring your business to others.
5. Track, analyze, optimize, repeat
You can’t know for certain where you’re headed unless you first know where you came from. In that spirit, the best way to grow and improve your referral business is to track the relevant data, analyze the results of your efforts, and optimize your strategy accordingly.
When that’s done – do it again. And again. And again. The world of eCommerce is dynamic. Your niche will change. Your audience interests will change. Your business expenses will change. And so on. Keep up with the times and keep your referral program growing stronger by keeping accurate tabs on how it develops over time.
And don’t be afraid to take some chances! If you tried one approach and it didn’t work out quite as well as you had anticipated, try something different. If it ends up doing worse than the first approach, change it up again. Just make sure you’re tracking your efforts so that you can continue getting better.
Why should you track and analyze all of your store’s data by hand? You can use the BeProfit Profit Tracker app to analyze your store’s performance for you automatically – that includes your marketing efforts!
Stop using those clunky spreadsheets or, even worse, neglecting your store’s data altogether. Take control of your data and optimize your profitability with the power of BeProfit, available now on the Shopify App Store and Wix App Market.
Easy referral program ideas
There are many types of referral programs that your online business can make use of – each one has a slightly different focus. Some are fast rewards, others require more commitment from your customers. You can even combine them, the choice is yours.
Here are some of the strongest referral program ideas you can utilize for your store:
1. Offer two-way discounts
What’s a better way to get both the referrer and the referred customer to hop on board with you then to give them both a reward for getting involved? We’ll wait…
While you try to think of something better, consider this: two-way discounts give your current customers a reason to come back for another purchase and make more referrals, plus they give new customers a reason to make at least one purchase. Ideally, you’ll provide them with great products and services, that way they’ll become repeat customers and join the referral program as well to keep the wheel turning.
One example of a company using this tactic is Harry’s Shave Club, which offers a $5 discount for both existing and new customers when a referral link is used. Harry’s listened to their customers and decided the best way to make them happy is to ‘go with the grain’. Smooth moves!
Image source: https://www.harrys.com/
2. Customize future orders
Say ‘thank you’ to customer referral program members by gifting them with a reward made especially for them. Whether it’s an item that literally has the customer’s name on it or a product you know they’ll love to get for free based on their previous orders – personalization is bound to put a smile on your customers’ faces.
Believe it or not, data actually shows that consumers are more willing to share their personal information with businesses that then provide them with personalized offers. More than 60% of those surveyed said they’d share their email address, roughly 50% agree to share ‘basic information’, and another third said yes to sharing their shopping history.
Beyond that, online shoppers also express such a strong desire to receive a personalized experience that 44% of them are willing to switch to give their business to “brands that did personalization better”.
3. Turn customers into ‘ambassadors’
A one-time referral is nice, but a constant stream of referrals from a single customer is pretty close to a dream come true. By creating an ambassador program, your customers will no longer be just a customer who recommended your business for a prize – they’ll be one step away from a fully fledged affiliate.
As an ambassador your customer will feel a closer personal connection to your business, get VIP recognition and treatment, and gain the perks and gifts to go along with it all. Take a look at Chubbies for a great example of a fun and enticing ambassador program that customers will want to join. After we got a glimpse of their referral program, we started ‘longing’ for their shorts!
And, yes, our pun game is on point today. Thank you for noticing.
4. Start a points program
Speaking of being on ‘point’ – that brings us to our next referral program idea. By creating a points program you give your customers an incentive to spend even more money at your online store.
Think about it: instead of giving your referrers a quick reward and letting them run off quickly, you can use the principle of delayed gratification to keep them coming back and purchasing more, knowing that in the end they’ll be rewarded handsomely for their patronage.
The online retail giant Zappo’s incorporates a points system into their broader VIP program, rewarding their VIP customers with 1 point for every dollar spent as well as bonus points that they can earn in other ways. They even give 5 points just for logging in – a super creative way to get their customers hooked!
Image source: https://www.zappos.com/
5. Give ‘em cash
Not in the mood to think too hard about a creative approach to your referral program? That’s okay! Just throw cash at your customers, they love that stuff!
Did you crack a smile at that? Or did your eyes open wide? Either way, it’s true that sometimes the easy and simple solution can get the job done just fine. Cash rewards in the form of vouchers are an ideal way to bring your customers back to spend more at your store – and they also stick to the principle of keeping it simple which we touched on above.
Help customers help you – with a referral program!
It’s cost-effective, it’s easy to implement, and it keeps your customers happy. What’ve you got to lose? Get started by taking another look over the referral program examples we listed here today – they can serve as inspiration so you don’t need to come up with your own referral program ideas from scratch.
Regardless of how you get started with a referral program, one thing is for sure: you’ll be happy when you do!