How to Build a Strong Customer Referral rogram

Customer success involves creating advocates for your business through your service - and a customer referral program can help.

A recent study shows that 94% of customers will recommend a company whose service they rate as very good. This means an army of satisfied customers can do a lot of legwork for you.

Are you unsure how to create the conditions for these consumer connections? The following is what you need to know about building, expanding, and managing a referral program.

How valuable is a referral?

A customer referral is highly valuable because it doesn't cost much to acquire. Referrals vary depending on the business, but they are generally valued at the lifetime value (LTV) of a customer plus the cost of customer acquisition (CAC), which can then be used to acquire more customers.

Data tells the tale: Companies found that referred customers have a 30% higher conversion rate, a 16% higher lifetime value rate, and a 37% higher retention rate than leads generated from other marketing channels.

Essentially, you are asking your customers to stand in for your marketing and sales departments.

Referrals are the backbone of generating new business, so operating with tact, consistency, and patience is crucial.

What is a referral program?

A referral program encourages customers to advocate for your brand through word-of-mouth marketing. Referral programs allow customers to share their brand experience with friends, colleagues, and colleagues instead of submitting reviews online.

Referral programs help businesses attract new leads. It's not just anyone you're bringing in.

Customers will refer leads that are a good fit for your brand when you ask them to consider someone who would benefit from your product or service.

As a result, your marketing and sales teams will have an easier time nurturing and engaging leads, since not only are these leads a good fit for your business, but they're also familiar with your company.

Having been referred by someone they trust, they know your company is trustworthy and produces positive customer experiences.

Read on for tips on how to create a customer referral program if you're ready to leverage word-of-mouth at your business.

How to Create a Customer Referral Program

1. Start with customer referral templates

Whether you're a one-person referral machine or part of a multi-person referral team, templates are invaluable.

It is possible to customize them to fit the voice and tone of your brand, and anyone in the company can use them.

You can use these free customer referral templates to create a bank of:

• - Referral request emails.
• - Referral follow-up emails.
• - Social copy about the business's referral program.
• And more.

Alternatively, take a look at Referral Factory's step-by-step guide.

2. Set your goals

Ask yourself: what do you hope to get out of this referral program?

What are your goals in terms of growth and revenue? Would you like to add retention to that mix? Do you work in an industry that requires a great deal of trust-building?

It will be much easier for you to take action once you have decided what your goals are - and have explicitly defined them.

3. Research how referrals are coming to your business

Assessing how and where referrals come to your business - or if they come at all - is a good place to start.

You should involve marketing, sales management, and support in this process and assess how they have traditionally handled referrals.

It will give you an idea of where you are at the moment.

It is also important to know how much an existing customer is worth. How many referrals do you need to break even compared to time spent monitoring and managing onboarding programs?

Consider how much referrals could generate and adjust your marketing spend accordingly.

4. Determine what a 'Good Fit' customer is for your company

It is important to define what an ideal customer looks like before telling them to seek out referrals.

As a result, your existing customers will refer leads that actually buy from your business, rather than simply listing names to collect incentives.

In your customer referral program, these descriptions should be prominently displayed. When a customer fills out a form, you should describe what a "good fit" customer is right at the top.

Participants will be reminded that you're looking for people who need your product - not just friends who might be interested.

5. List your possible referral sources

We'll call them advocates, and they can be anyone you're already connected to, or have been connected to in the past. Begin listing them out. There may be current customers, past customers, leads that haven't closed, industry leaders, vendors, etc. on this list.

As a result, you will have a solid foundation to build upon.

6. Identify channels to host your referral program

To make your referral program successful, you'll need a communication platform that notifies both your business and the referred customer when a referral is submitted.

Using WhatsApp, Messages, or another available method, a customer can share a referral code from Uber Eats with a friend or family member.

As soon as an invite is sent, Uber Eats does not only notify the referred customer, it also knows who referred them. As soon as the referred customer signs up using the ride credit, Uber can reach out to its marketing and sales teams.

Your business should offer customers a way to share referrals, even if you don't offer a $20 discount. By doing so, a trusted peer introduces your company rather than a cold caller.

7. Make a plan to reach out

Now, refine. Identify "inner circle" contacts from the list of advocates and sources.

There are people who know the value of your business and will refer you without any incentive. Identifying your inner circle is not a process that can be automated - you will get better results if you pull and segment these contacts manually.

Two things need to be considered once you have segmented out your inner circle.

First of all, timing is everything. Decide when to ask these inner circle advocates to participate in your referral program. It's easier to work with people you've worked with before, since they're familiar with you.

Consider the relationship when you're working with people who will need an incentive (which we discuss below). Depending on the product or service, some companies need to ask for referrals late in the relationship. For others, it may be upon their first sale (think apps, digital interface services).

Then, once you've asked, wait some more. To remind them about the referral program again, you might have to wait months or even a year.

You should also be picky about your advocates (even those in your inner circle). Find people who can market your brand in the way you think it should be marketed. Which of your inner circle members do you hold a stellar, standout relationship with? Do you have an existing customer who came from a referral?

Make sure you don't overburden your contacts and watch out for referral fatigue.

8. Identify your incentives

Referral programs can be either incentive-based or non-incentive-based.

The next step is to break out your contacts into levels and decide which ones can receive which offers.

Make sure the referrer also gets something from the deal.

In our Uber Eats example, when a customer refers a friend, they get $15 credit - and when a customer signs up, they get $20 credit.

9. Create resources to alert your customers

If you have a referral program, create resources your customers will find useful, and inform them about it. Then, promote, promote, promote.

To remind your customers about the program, consider multiple avenues of promotion beyond the time-limited email campaign.

Those might look like:

• - Newsletters
• - Blogs
• - CTAs & email signatures
• - Product updates

After you outline the referral programs, you'll know what resources you'll need for each.

Below are a few resources you might need:

• - Emails for each type of contact telling them about your referral program.
• - A message explaining what types of customers fit well with your business. You need to paint a picture in their minds of your ideal customer.
• - A workflow that leads your contacts through the program and alerts your sales team when to call.
• - A landing page that provides a place for your contacts to give you their friend's information.
• - Scripts for your sales and customer support teams to follow when explaining your referral programs.
• - A referral kit filled with resources for your contacts to share with their friends: this can include case studies, testimonials, eBooks, videos, anything that gives insight into working with your business.

Regardless of the medium you choose, make sure it's consistent, persistent (but not excessive), and aligned with your program's revenue, growth, and retention goals.

10. Set up tracking

No matter how big or small your company is (though this is especially relevant if you have a large client base), tracking is essential.

As a result, you will ensure that no detail is missed - especially when it comes to referred accounts.

You should be tracking:

• - Who was referred and who referred them
• - When they were referred
• - Whether or not they converted or were sold
• - How you're going to nurture and follow up with them, etc.

Consider investing in a CRM (customer relationship management) system if you haven't already.

Keeping track of customer relationships is a huge component of customer success — the ability to individualize each account or relationship makes each customer feel like they're a unique part of your base.

11. Say "Thank You"

The referrer should be thanked for helping you out (incentives might work here, but you may also want to consider messaging that thanks them specifically) and the referred should be thanked for joining.

Get to work - you have happy customers to prove your point.

12. Follow up on your referrals quickly

Be sure to take advantage of solid leads as soon as you get them.

You might miss the chance to secure these new customers if you let your referrals sit around too long.

While your customer may have referred this person to your business, they may have also referred them to another business.

Additionally, you don't know what research the referred customer has done independently, and you may have to convince them to go with you instead of a competitor they've been considering.

Ultimately, the sooner you make an impression, the more likely you are to close the deal.

13. Improve your referral program

There is no universal blueprint for creating a perfect customer referral program, as we mentioned earlier.

Based on how you assess customer needs and preferences, the best program for your business will be unique and potentially quite different from your competitors.

It may take some time to figure out what works and what doesn't - and that's perfectly normal. Regularly test your program to see what's working and what needs to be improved.

Send your customers feedback surveys to get their opinions about your program, and be sure to apply that feedback in the future.

The better your referral program, the more leads your marketing and sales teams will generate.

After we've explained how to create a referral program, let's look at how you can implement it.

Customer Referral Program Ideas

1. Contests or Giveaways

Customers can refer new leads by entering contests or giving away prizes.

You can, for instance, host a contest in which customers are only entered if they refer a certain number of leads. Providing an email list or getting signups for a free trial or membership can accomplish this.

Contests come with one risk: the quality of leads. It is possible that you won't get leads that are interested in your business if customers are randomly selecting their peers.

Your marketing and sales teams will spend time sorting out contacts who aren't a good fit.

Create contests that encourage customers to refer high-quality leads. Instead of relying on referrals, you can base your entry fees on conversions.

If a customer wants to be entered into the contest, they need to sign up or purchase your product rather than simply provide an email address. In this way, you'll ensure that your customers are rewarded for providing high-quality leads.

For example, this Gold's Gym giveaway included a host of physical prizes such as dumbbells and workout benches in exchange for referrals.

Why It's Effective

It works because it appeals to our innate desire to win. It could be a free product, a subscription to a service, or even cash.

Businesses can target their target market by giving away something customers want in exchange for their help in finding quality referrals.

Who It's Best For

As long as you have something worth giving away, this approach works for any business. The retailer could give away a high-quality, high-value item, while the service provider could cover the cost of services for a month, six months, or a year.

How to Measure the Program's Success

It is important to measure success by ensuring that customer referrals result in quality referrals and conversions. Therefore, it is important to track the amount spent on contest prizes versus referred customers' spending.

When to Implement It

When referral numbers start to dip, this strategy is worth implementing. The caveat? To keep interest high, run it for a set period of time, such as two weeks or 30 days.

2. Social Gifting

Keeping customers motivated is easier if they don't feel manipulated.

A coupon that says, "refer five people and get 25% off," gives customers the impression that you're trying to get something from them.

To encourage referrals without directly asking, you can use social gifting.

Here's an example.

As opposed to rewarding customers for providing a certain number of referrals, this offer rewards them for sharing a coupon.

In this way, customers not only get to give a gift to a friend, but also receive rewards when their referrals redeem the coupon.

As a result, they are more motivated to reach out to as many people as possible.

Why It's Effective

Through social sharing, existing customers can give and receive something - something they will actually use. Make sure that your social gift is worth the effort of your customers, however, since they are doing the legwork.

In the example above, both the referrer and the referee receive a $15 off coupon; numbers lower than that, such as $5 off, are less likely to motivate referrals.

Who It's Best For

Brands with products that benefit from a specific or percentage discount often benefit from social sharing. The opportunity to get items at a lower price is especially valuable for brands that don't usually run sales events.

How to Measure the Program's Success

Track the use of your discounts by using unique coupon codes or other methods - one for existing customers and one for new referrals.

When to Implement It

Retail brands or eCommerce brands can use this approach at any time of year. Could you give me one piece of advice? You should ensure that your giving is two-sided; both the referrer and the referee should benefit.

3. Fundraisers

You can connect with your customers' values through fundraising in a way that doesn't involve your product or service.

You demonstrate your understanding of your customers' buying habits by getting involved with a cause that they care about.You understand their personal values as well as what they want from your business.

Furthermore, fundraisers provide an opportunity for referrals. As more people donate and participate in fundraisers, your company will build a database of leads who share the same values as your company.

Your business can then follow up with these new leads and shift the conversation to your products and services.

Why It's Effective

Fundraisers put the focus on a worthy cause rather than your brand. While your brand is associated with the effort and can gain some goodwill as a result, the best fundraising efforts ensure that the cause comes first.

Who It's Best For

Fundraising can be used as a referral program by any company. Create a fundraiser for a cause your customers care about, and ask them to tell their family and friends about it.

How to Measure the Program's Success

Direct referrals can bring in new customers when fundraisers are done well. It isn't the primary purpose: Instead, you want to build goodwill and reputation within the community.

When customers recognize your company name and engage with your social media channels or make a purchase, you may see downstream effects.To find out how effective your fundraising campaign was, ask them where they heard about your company.

When to Implement It

It may be worth aligning fundraisers with local holidays or festivals that encourage customers to give generously.

4. Customer Loyalty Tiers

Referral program ideas that encourage one-time referrals have been discussed so far. While these are effective, it's hard to hold a contest every day or hold a fundraiser every two weeks.

It's more efficient to have a referral program that rewards customers for referring multiple people over time.

By creating customer loyalty tiers, you can reward people for referring leads. After referring a certain number of leads, customers are promoted to the next loyalty tier.

Even if you aren't running a contest or promotion, customers are constantly motivated to refer new leads.

Why It's Effective

Discounts or rewards can be a significant driver for some customers, especially if they spend a lot of money.

Due to their loyalty, these customers are more likely to recommend you to friends and family regardless of any rewards offered.

Tiered referral options simply add motivation.

Who It's Best For

This approach is useful for companies that sell a wide range of products at different price points. A lower tier may offer discounts on lower-priced items, while a higher tier could offer both money off and early access to new products.

How to Measure the Program's Success

By linking new referrals and conversions to existing, high-tier customers, you can measure success. Consider adding a new tier or phasing out the program altogether when the number of high-tier members exceeds the number of conversions.

When to Implement It

Implement this program just prior to a new product launch or social media campaign to help drive interest and engagement with your brand.

5. Seasonal Campaigns

A seasonal campaign is always a good way to attract new customers.

Offer holiday discounts, annual sales, and long-term deals that can be used year after year.If you execute these campaigns consistently, your customers will look forward to them all year long.

Why It's Effective

The holidays are a great time to offer a great deal or discount to capture customer attention. If you do it right, your customers will look forward to your seasonal campaigns all year long - and they'll also tell others about them.

Who It's Best For

Any product or service brand can benefit from seasonal marketing, as long as your messaging is clear and you advertise the upcoming event prior to the season or holiday.

How to Measure the Program's Success

In these campaigns, success is measured by comparing referrals and conversions generated during the seasonal period with those generated previously.

When to Implement It

You should begin your implementation about a month before the event itself to give customers time to think about what they want to buy and who they want to refer.

6. Exclusive Events

It's important to make customers feel like they're part of a community, especially if it's exclusive.

You can attract new leads and capitalize on customer advocacy by hosting events for loyalty program members.

You can, for example, offer extra tickets to an event so customers can invite their friends and introduce them to your brand.

Instead of bringing leads into your store, invite them to a company outing or event.

Why It's Effective

A company's message will never be as effective as a friend's or family's recommendation.

Customers won't feel strange about sharing invitations if you provide them with unique experiences that introduce your brand without making it the focus of the whole event.

Who It's Best For

It is often a great way for B2B companies to expand their corporate networks. Having a reputation for hosting great events will make it easier for current customers to convince their friends and family to attend.

How to Measure the Program's Success

You should compare your event spending to the number of referrals received and the conversions that resulted from these referrals.

When potential customers become familiar with your events, you can expect to lose money the first few times, but if low numbers persist, consider changing your strategy.

When to Implement It

This strategy should be implemented when the calendar is fairly clear. Just after the holiday season is a good time - prospective referrals are often feeling down and looking for an excuse to party.

7. Referral Discounts

You can also offer your customers discounts based on how many leads they generate for your company if they are looking for a more direct return.

It is much more expensive to acquire a new customer than to retain an existing one, so the money you lose on the discount will be made up by the leads you convert.

Why It's Effective

A large enough discount on products people want can encourage them to refer their social connections and help promote your brand. The caveat? Make sure the discount you're offering is substantial enough to motivate customers to take action.

Who It's Best For

Brands with high-value products, such as electronics, jewelry, or clothing, can benefit from this method. Your chances of success increase if you can offer a significant discount for referrals.

How to Measure the Program's Success

When it comes to referral programs, what you lose on discounts, you make up for with new customers. For example, track sales from customer referrals over a six-month period to see if discounts are paying off.

When to Implement It

Run this type of campaign when you launch a new and more expensive version of your product, or when you debut an entirely new product line.

8. Product or Service Upgrades

The upgrade of your product or service is an excellent incentive for customer referral programs because they both attract new leads and encourage existing customers to stick with your brand.

It is possible to offer beta features, products, and services that the rest of your customer base isn't aware of if you don't have an upgraded product or service to offer.

In addition to impressing customers with what your product development team has been working on, this will also make them feel like part of an exclusive group.

As a result, you're not just rewarding new leads with an incentive.

As a result, you're encouraging customers to share positive feedback and improving their customer experience over time.

Why It's Effective

Having access to new services or features is always nice when you're part of the "in" group. Make your customers happy by creating a stand-out experience.

Who It's Best For

Services-based companies and software developers may benefit from this approach. Repeat customers feel appreciated when you give them early access to new features and functions.

How to Measure the Program's Success

As you aren't currently marketing these features to customers, having access to them is extremely cost-effective. Consequently, any sales that result from referrals can be considered successful.

When to Implement It

Whenever you launch a new product or service, implement this type of program. Customers are happy to participate in free beta testing, and you benefit from it.

9. Charity Connections

By helping your community, you are helping yourself.

You partner with a local charity organization and make a donation every time an existing customer refers a new lead instead of rewarding them with discounts or exclusive events.

Consumers now put a high priority on building brand reputations and trustworthiness over time.

Why It's Effective

Customer retention depends on reputation. In addition to discounts and free gifts, if you're willing to offer a donation for every new referral, you'll improve your brand perception and encourage them to share your campaign.

Who It's Best For

There is widespread appeal to this approach. The caveat? Make sure the charity you're donating to is one that your current customers care about.

How to Measure the Program's Success

Rather than focusing on direct revenue, focus on social media shares and positive online interactions with your brand. Your campaign worked, and conversions should follow naturally.

When to Implement It

The impact of charitable giving may increase during or just after a crisis or high-profile event that has people looking for ways to help.

10. Mystery Gifts

Who doesn't love a gift?

It's great to pick your own present from a list, but sometimes getting a surprise is even better.

When current customers refer potential customers, you send them a mystery gift. It doesn't have to be anything extravagant, just something that shows your appreciation.

Why It's Effective

Gifts that are mysterious are just that - mysterious. Potential referrals are offered a surprise to encourage them to sign up for your emails, follow your page, or make a purchase. In this case, the goal is to make something useful, not expensive.

Who It's Best For

The mystery gift idea can be implemented by any company, but retail and eCommerce brands that sell physical products tend to see more success with this approach.

Software design companies, for example, could offer free gifts to potential clients, but it's hard to connect this type of referral to their services.

How to Measure the Program's Success

Spending versus revenue is the best way to measure mystery gift success.

Don't stop giving gifts to current customers and their referral prospects if they result in enough business to offset the cost of your gift program.Consider another approach if costs consistently exceed revenue.

When to Implement It

Free gifts are loved by everyone - use this approach wherever and whenever you can.

Let's look at a few companies that have successfully implemented these customer referral strategies.

Customer Referral Program Examples

1. Dropbox

You can earn more cloud storage space if you refer a friend to Dropbox. You can earn free products or services by referring new users to Dropbox.

How to Make It Work For You

• - Offer something that makes existing customer accounts or services more valuable.
• - Not sure? Ask customers what they'd like before spending on a referral program.

2. Acorns

You receive $5 when you refer a friend to Acorns, an online micro-investing service.

Acorns is all about investing small amounts of money to accumulate wealth, so $5 goes a long way.

People sometimes just want money - especially if they already use a money management app.

How to Make It Work For You

• - If you're opting for money as your referral award, make sure the process from referral to deposit is clear and easy to follow.
• - Make sure to highlight any restrictions, such as the number of friends that customers can refer.

3. Stitch Fix

Refer a friend to Stitch Fix, and you'll get a credit on your next order.

To find out how much credit you can earn, check your account's Referrals page.

It's easy to go from telling someone where you got your outfit to sending them a link to try it out themselves, so this program works well when paired with a credit or discount.

How to Make It Work For You

• - If any of your services are fee-based, waiving them is a great starting point. The caveat? Make sure it's enough to cover something for customers so they feel like they're coming out ahead.
• - Keep it simple, especially if your program has several components. Consider creating a referral program website that explains the process in detail.

4. T-Mobile

Customers who refer cellular carrier T-Mobile to their friends can earn up to $50 per friend who purchases a T-Mobile plan and up to $500 per year.

Friends, meanwhile, enjoy discounts on their new plans to help encourage the referral process.

How to Make It Work For You

• - T-Mobile's referral program depends on the quality of service. If you have a service-based business, make sure you make current customer satisfaction a priority before branching out into referrals.
• - Opting for a multi-referral process lets current customers earn substantive rewards — this often drives better results than a single, large-payout referral.

5. Healthy Paws

Healthy Paws pet insurance has a referral program that donates $25 to homeless pets on behalf of referrers when referrals are completed.

It's a smart choice to offer this type of referral for an animal-focused insurance business — the compassionate nature of the reward is likely to attract both current clients and new customers alike.

How to Make It Work For You

• - This type of program is great to help encourage referrals and gain social capital for compassionate giving. The caveat? Carefully select charities or nonprofits to ensure they're legitimate.
• - Be upfront about what charities do and the amounts they've raised - feature them on your website and regularly review them to make sure money is spent responsibly.

6. MeUndies

Online underwear company MeUndies offers a win-win situation for customers who like their product: New buyers get 20% off their first order, and existing customers get $20 off their next order.

Here's how it works: Customers with an active account and at least one purchase can generate a referral link and send it to friends.

When friends use the link to make a purchase the 20% discount is automatically applied and existing customers get a $20 credit on their account.

Simple? You bet. Effective? Absolutely.

How to Make It Work For You

• - In the case of more niche products like underwear, your referral program depends on the quality of your product, so it's worth cultivating a loyal customer base before rolling out a widespread referral campaign.
• - Companies like MeUndies also charge a premium price for their product — for similar brands, it's critical to offer a substantive discount, such as 20% or more on the first order, to capture new customer attention.

7. Google Workspace

Search giant Google also has a referral program that offers cold, hard cash for bringing new users into the fold.

Existing Google Workspace customers simply sign up and get their referral link which they send to friends or colleagues.

Unlike many other programs, however, Google doesn't bother with discounts or free gifts — if new customers use referral links, referring customers get a monetary reward deposited directly into their bank account.

How to Make It Work For You

• - This program targets workers and their colleagues, which makes function the key connector: Since employees are less likely to rave about productivity software or business apps to their co-workers, your product needs to stand out from the crowd.
• - Consider a tiered reward model; Google offers differing cash amounts depending on the type of product referred.

8. DoorDash

Food delivery company Doordash is always looking for new drivers, and their referral program is designed to target areas where demand is highest.

Current drivers can check their app to see if drivers are needed in their area — if so, they'll see a "Refer Friends" banner at the top of their screen.

They can then send referral links to friends looking to become DoorDash drivers — when these new drivers complete the required number of deliveries, both referrer and referee can earn cash bonuses.

Worth noting? The amount earned scales with current demand. In high-demand areas, new "Dashers" and those who refer them could earn up to $1,000.

Current drivers can also refer up to 15 new drivers.

How to Make It Work For You

• - The DoorDash program is based on demand. If you're a service-driven business, this is a great way to generate interest. The key to success? Aligning your rewards with local needs to drive growth where you need it.
• - DoorDash also encourages referees to work quickly — if targets aren't met before bonuses change, they don't receive the full amount. This can be a great way to drive interest, but make sure you're up-front about how the program works.

Overall, a customer referral program is a great way to retain customers and drive word-of-mouth marketing. Creating advocates for your company will keep the flywheel spinning.