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What Is A Referral Program and Why Your Business Needs One

November 29, 2022

Referral program

Potential customers always ask their friends and family for recommendations before buying a product or service.

Brands with an army of satisfied and loyal customers use this word-of-mouth strategy to fuel cost-effective customer acquisition. Existing customers often receive incentives like free products, gift cards, discounts, or swag in return for their referrals.

In this article, discover what it takes to build a successful referral program, whether you’re building one from scratch or want to leverage customer advocacy software to gather referrals.

A dedicated customer referral program, aka refer-a-friend program, drives profits while keeping costs low. Brands willing to track the new customer base often create referral landing pages to track referred customers. A dedicated referral page makes it easy for happy customers to share new referral links with potential buyers.

An employee referral program might seem like a new-age offering to some. But it's actually the most underutilized part of any compensation and benefits program. In fact, numerous studies prove that referrals are the most trusted form of advertisement. To add to the pros list, referrals are created by happy customers, who are usually willing to spread word-of-mouth about your business for free.

It’s pretty clear to see why referrals rock. But how can you prime your new business to be a referral machine? The easiest way is to encourage referrals to happen by implementing a referral program software.

In order to get referrals, you must offer a product or service people want, as well as provide great customer service. You have to make your customers happy enough to want to refer you.


consumers trust referrals or recommendations from people they personally know.

Source: FinancesOnline

Listening to your customer's questions and concerns is a simple way to make them happy. Authentic reviews help you leave behind a trail of crumbs that could lead you to even happier customers after you take action.

However, this can only do so much because even happy customers won't always use word-of-mouth to talk about you organically. This is where a referral program comes into play.

For instance, a management software user may refer some other businesses to you if they are incentivized. A good incentive in this instance would be a discount or money off of their monthly bill. To get their referrals even more interested, you may offer the new customer a similar discount.

Benefits of a successful referral marketing program

A strong customer referral program helps you in many ways:

  • Streamlines customer invitation and referral rewards processing. Even the strongest brand advocates may forget to recommend your brand unless they see someone in need. A referral marketing platform helps you get their attention by creating n easy-to-understand referral process and policy.
  • Lowers customer acquisition cost. A referral program costs you nothing but a fixed incentive per referral, often lower than what you typically spend to get a lead via advertising.
  • Boosts customer retention rate. Referral programs reward both existing and new customers. While existing happy customers get an incentive to recommend more top-tier buyers, new customers receive discounts on their first purchase. Those new customers can also earn referral bonuses by bringing in more new customers. You see, it’s a win-win for both of them and you as well. 

Why do you need a referral program?

In today’s age of social media, businesses know how important word-of-mouth marketing is. However, many do not know how to measure their word-of-mouth or prompt it to happen.

When you add a referral program to a strong foundation, word-of-mouth has the potential to skyrocket and be tracked. This is because a referral program encourages sharing and makes it easy. In fact, many referral marketing platforms provide easy share buttons for customers and allow businesses to set up messaging, thus making it easy and convenient to share.

Lastly, a referral program makes word-of-mouth trackable. Referral program systems track each of these encounters, meaning you have a convenient way to measure your referral analytics, leading to an easy way to figure out what works best for getting leads to your business.

How does a referral program work?

Even the most loyal customers or influencers don’t always end up recommending your brand for different reasons. You need to give them a reason to refer you more often; that’s where a referral program with tangible rewards comes in.

A referral program software lets you track referrals with referral codes, rewards cards, unique referral links, and store credits. You can also automate rewards payout depending on how you set up a referral campaign. A robust platform with a pleasant user experience improves your brand's word-of-mouth marketing, thus increasing conversion rate, revenue, and retention.

Moreover, referral programs often create a viral loop or never-ending word-of-mouth marketing cycle which keeps bringing happy customers. 

Now that you know how referral programs work and how they benefit you, let’s look at how you can create one. 

How to create a customer referral program

Creating a customer referral program becomes easier when laying the foundations correctly. Follow the steps below to get started.

  • Offer great products. Even a great referral program won’t stand the test of time unless you offer exceptional products or services. That’s why conducting a competitor analysis is important to make your offerings stand out.
  • Create a positive customer experience. Take time to build good relationships with customers, as your referral program targets similar customers. Get their feedback periodically to understand where you stand in their choice of brands.
  • Set clear referral program objectives. Besides driving sales, referral programs can also help you create brand awareness, boost customer loyalty, and fuel acquisition. Setting these goals early on helps you measure the results better.
  • Decide referral rewards. Customers will always ask ‘what’s in it for me’ before they send another customer your way. Offering them the right incentive is key to building a successful referral program. Common referral incentives include discounts, giveaways, coupons, store credits, freebies, service upgrades, or free subscriptions for subscribers.
  • Answer who’ll receive the rewards. You’ll come across two types of referral incentives: one-sided and two-sided. One-sided incentives reward the referrer but not the referred customers, meaning the new customers may not purchase right away. Two-sided incentives reward both the new and existing customers, making it a win-win situation for both.
  • Choose a referral structure. A standard reward structure offers the same reward for every referral. On the other hand, a tiered reward structure offers different rewards based on how many customers you refer.
  • Design a compelling referral program. Clear messaging with referral rewards and process details will help current customers understand the nuances of your program. Also, make it easy for the best customers to spread the word on social networking platforms and attract new users.
  • Collect reviews. If you aren’t already collecting customer reviews, check out these customer review statistics to understand why reviews are all the rage.

Referral marketing ideas and tips

Running a referral rewards program doesn’t have to be difficult. And there are no secret tricks to making it work. However, here are three referral program ideas you can use to make it run smoothly:

1. Use referral program software

Though not necessary, it does make your life a lot easier. You’re setting yourself up using software for repeatable processes and easy integration. Not to mention, automation will be a breeze. Software is going to be your best bet for creating a consistent look and feel for your program. Plus, you’ll be collecting referrals fairly quickly with a plug-and-play option.

2. Pick the right reward

Your customers may not be motivated by everything. You may need to test out a few options before you find something that sticks, but that’s okay. If you take the time to pin down the perfect reward, you have the potential to motivate a lot of referrals. Even if you have an awesome business, the reward you offer may be the driving factor in bringing customers via affiliate programs.

3. Always promote the referral program

A referral program is a marketing campaign. So, just like any other marketing campaign, you must promote it on different marketing channels. A referral is a great growth driver, but if you hide your referral program, you won’t be able to see that growth occur.

Best referral program examples

Let’s take a look at a few referral programs in action. If you’re creating your own referral program, you’ll want to explore a variety of different programs to get ideas of your own. Each program is great for a different reason. So, we’ll be highlighting specific points about each.


Dropbox has one of the most well-known referral programs out there. When it comes to referral marketing, it’s actually one of the most talked about programs.

Why is this so? after implementation, Dropbox was able to double its users every three months, almost exclusively from its program.

Its program was an integral part of its success, but it wasn’t the only player in the game. The brand also listened to its customers’ suggestions and continually worked at improving its product. Lastly, it has a large market and provides a service that most people both want and need.

Dropbox provides an incentive that people want. Plus, the brand makes it incredibly easy to get. The offer compels people to share because, if they do, they will gain access to more storage space.

Plus, it offers a two-sided incentive, meaning both parties earn extra space. To top it off, Dropbox makes sharing incredibly easy by offering sharing options right from the user dashboard. 

Trendy Butler

The Trendy Butler Ambassador Program plays off of exclusivity. It is a subscription service, and this invite-only program seems to work well. The program doesn’t make users jump through hoops and is a fairly straightforward program. It also incentivizes both sides, making the program appealing to all.

Trendy Butler also uses an excellent promotion strategy for its referral program. The brand reminds users to refer their friends through customer emails and newsletters.

Trendy Butler offers a reward amount that fits really well with the overall price point of its subscription, meaning it’s just enough to get people excited and refer. The brand's program also looks great.

Another reason it works well is Trendy Butler has mastered its program imagery. Its landing pages look neat and professional, and it does a great job at showcasing what the e-commerce business is all about, making referrals, even more, intrigued to sign up.

Best referral marketing software

Referral marketing or customer advocacy software solutions enable customers to promote products or services via word-of-mouth. Sales, marketing, and customer success teams use these products to attract customer advocates and manage referral programs. 

To be included in the customer advocacy software category, a product must:

  • Feature solutions for creating and managing referral programs
  • Offer engagement tools for personalizing communication
  • Enable marketers to share information with customer advocates
  • Track and monitor interactions with advocates and their activities

Let your customers speak for you

A good referral program can help you produce a notable return on investment (ROI). Plus, referral programs don’t only bring in new leads; they create loyal customers. If you are yet to partner with customers to help you deliver social proof, it's time to get started. 

Check out how advocacy marketing aids you in delivering social proof across channels and creating viral loops for your products or services. 

customer advocacy software Create viral loops for your brand

Reach more customers with word-of-mouth marketing.

customer advocacy software Create viral loops for your brand

Reach more customers with word-of-mouth marketing.

What Is A Referral Program and Why Your Business Needs One A referral program attracts new customers by offering happy clients incentives to spread their experiences with others. Learn what it is and how it works.
Megan Mosley This is a guest post written by Megan Mosley, marketing specialist at Referral Rock. At Referral Rock, they believe every business has the potential to increase their word-of-mouth. When she’s not working, she enjoys sipping on coffee and exploring new things.

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