Customer referrals are a powerful marketing tool for businesses to gain new customers, increase sales, and build brand loyalty in today's competitive business environment. In this article, we will dive into the world of customer referrals, discussing their value and expert advice for creating a successful referral programme that encourages brand loyalty.
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Before we explore tips for building a successful referral programme, let's discuss what they are and how they work.
What are Customer Referrals?
Customer referrals are recommendations for a company's products or services made by satisfied customers to their networks of friends, family, and coworkers. Offering a memorable customer experience is a great way to get referrals. Indeed, 94% of customers will recommend a company with "very good" service.
These referrals from trusted sources can transform your business with the value they deliver.
According to a recent study referred clients have a better conversion rate (30%), lifetime value (16%), and customer retention rate (37%).
What is a Customer Referral Programme?
Customer referral programmes, also called word-of-mouth or refer-a-friend marketing programmes, use an incentive-based strategy to get existing customers to recommend the company to their friends, family, and coworkers.
Brands create unique “referral links” for each customer to share within their social circles. Referrers earn incentives like discounts and cash prizes when their referred leads use the link to make purchases or become customers.
How Do Customer Referral Programmes Work?
Basic reward programmes
This is the standard programme where the referrer receives a reward when the referred customer makes a purchase. In some reward programmes, both the referrer and the referred customer receive the same reward. However, it’s not uncommon for both parties to get different rewards.
Programmes with tiers offer rewards of increasing value as customers progress to higher levels. Progression will often depend on the number of referrals generated. For instance, if a customer successfully refers 10 people who become paying customers, they might receive a £100 incentive and £20 for subsequent referrals.
In this setup, referrers only earn rewards after the referred customer has completed several actions or steps. For example, a referrer might earn £10 when the referred customer books a demo, another £10 when they book a consultation, and £20 when they pay for the product or service.
Similar to the tiered system, a multi-step programme delivers different incentives at various stages of the referral's journey. However, multi-step programmes focus on actions completed along the sales funnel, while tiered programmes reward customers based on the number of referrals they make.
The gamified system adds fun and competition to the referral process. It usually involves using game elements such as time-limited events to drive engagement in referral campaigns. For instance, customers can earn high-value rewards if they refer more customers than other existing customers.
This can be done in the form of contests, which can be exciting for your customers and endear them to your brand.
What are the Benefits of Customer Referral Programmes?
Better customer acquisition and higher sales
Referral programmes leverage your organisation's current clientele to find new leads who are likely to become paying customers. Word of mouth is so effective at generating business that it outperforms traditional advertising techniques.
Increased brand loyalty and retention
Customers who actively recommend a company are its most loyal and enthusiastic supporters. customers generated from referrals tend to to be more loyal
Enhanced brand credibility
Referrals directly influence your reputation, boosting public opinion of your brand and inspiring trust in new clients.
Referred customers not only spend 25% more but are also three times more likely to recommend your business.
This increases the likelihood that your referral programme will continue to produce a steady stream of customers.
The only costs will come from any paid advertising you do to launch the programme and any incentives you provide to participants. This makes the customer acquisition cost for referral programmes significantly lower than other forms of digital marketing.
Building & Launching an Effective Customer Referral Programme
1. Set clear programme goals and objectives
What are you hoping to achieve with your referral programme?
Are you looking to expand, boost retention, or explore new revenue opportunities? Do you work in an industry where establishing credibility is crucial? If you take the time to carefully consider and define your objectives, the path forward should become clear.
Some typical objectives include:
- Achieving a target quantity of leads or impressions.
- Increasing your email subscriber base or amount of social media followers
- Increasing sales or lead conversion.
To get new consumers through your referral programme, you must first identify rewards that will encourage your existing customers to recommend your brand.
Before choosing these rewards, study your customers and their preferences. The more you understand their needs, the better your choice of rewards.
Some of these rewards could include:
Cashback or redeemable referral points
Giveaways or complimentary service upgrades
Free monthly trials
Gift cards (Amazon, eBay, or Apple)
Contributions to preferred charities
Decide who gets the reward
Once you choose the reward, the next step is deciding who gets it. You can adopt a one-sided or double-sided reward system.
The first option is to choose to reward only the referrer. Taking this route likely means you can offer a high-value incentive that will encourage existing customers to recommend your brand. However, this approach does little to incentivise the new customer to join or remain loyal to your brand.
The second option is to reward both. Many businesses recognise the value of taking this approach.
A recent report revealed that over 90% of referral programmes reward the referrer and the new customer.
Since each party receives a reward, engagement is often high when using this approach. The reward can be the same for both the referrer and the new customer, or it can be tailored for each group separately.
3. Designing a referral programme that converts
After selecting incentives, you can move on to creating your referral programme. Your brand's approach to customer service and the tone of your campaign go hand in hand. That’s because these recommendations are often a new customer’s first impression of your business.
Make sure the message behind your referral programme is crystal clear and that the programme's aesthetics, including how it looks and works, are consistent with your brand.
Attention-grabbing headlines are a great way to create a referral programme that converts. The first step in getting customers to refer others is to get their attention. This holds true for all forms of marketing. Headlines play a significant role in convincing customers to sign up for referral programmes.
A compelling headline should sum up the entire programme in a few words. It must describe how it works and its advantages. Here are some examples of catchy headlines:
Invite a friend and earn £20
Get £15 for every friend you recommend!
Invite a friend and get free delivery for a year
Design a simple and straightforward referral process that encourages customers to make referrals. They are less likely to engage in the referral programme if it’s too complicated or doesn’t consider their preferences. Ensure that customers have several options available to spread the word about your brand.
Several channels, including email, social media, and text messaging, are viable choices to consider. Choose an option that reflects your customers’ preference for sharing information within their social circles. For example, if younger generations make up the bulk of your customer base, social media might be the ideal option.
5. Consider the software and tools required
Referral marketing software streamlines the referral process and boosts brand advocacy. With the right tools, you can easily keep tabs on who referred your brand and reward these devoted customers appropriately.
Track referral activities and programme performance by monitoring key metrics like customer LTV and conversion rates. This will help you optimise your referral programme and identify potential areas for improvement.
Keep in mind that not all programmes that reward repeat customers are the same. Other strategies, like affiliate and partnership programmes (more on these later), also help maintain a strong customer base. However, referral programmes are unique among marketing strategies since they reward existing consumers for bringing in new ones. So, ensure that the software you choose was developed specifically for monitoring referrals.
6. Promote your referral programme
Once your referral programme is operational, advertise it through all contact channels your business has with its target audience.
Promote the referral programme on your website’s homepage and other "high-traffic" landing pages. The referral programme should also have a dedicated page. You can also write a blog article about it and promote it across your network.
Leverage social channels to promote your referral programme. Direct traffic to its landing page by posting about it on Facebook, Instagram, TikTok, Twitter, and LinkedIn. You can also design an email campaign outlining the programme's benefits and how people can participate.
Additional strategies for promoting and amplifying referrals
Everyone loves freebies. Give out overstocked and unsold items as rewards for customer referrals. If you run a service-based business, you can offer a surprise service package or add-on to encourage referrals.
Tapping into humans’ love of sport and competition can transform your referral strategy. This could mean using strategies like contests and sweepstakes to engage customers. For instance, you could start a social media contest giving existing customers the opportunity to win a cash prize by generating the highest number of referrals. This strategy boosts public perception of your brand while helping you attract new customers.
Another highly effective strategy to increase referrals is to launch an affiliate programme.
83% of marketers use affiliate marketing to boost brand recognition.
These programmes are not the same as referral programmes, but they do operate on similar principles.
Affiliate programmes are a great way to expand your marketing reach. It involves enlisting the help of marketers, publishers, and influencers to generate leads. Partners that are considered "influencers" use their status to promote your business to their existing followers via blogs, social media posts, and other forms of content distribution.
It spares you the effort of reaching and converting new audiences by leveraging the confidence and trust that affiliates have built with their audiences to drive qualified traffic to your business. It is a highly effective form of targeted marketing.
Real-World Examples of Successful Customer Referral Programmes
This London-based fintech business is a trendsetter in the financial services industry. In 2018 and 2019..
Revolut's referral programme delivered 700% growth in customer acquisition.
The referral programme’s success comes down to its creativity and innovation. Revolut offers one-off, time-sensitive referral offers and supports that sense of urgency with email and in-app reminders, triggering a fear of missing out (FOMO) response among its clients.
Customers can earn as much as £50 for referring new customers, who can also earn a cash reward themselves when they order a physical card and complete three card payments.
Google is another industry giant that has a referral programme that offers prizes for bringing in new customers. To invite their friends and coworkers to try Google Workspace, current users need only sign up and obtain a unique referral link.
Google's programme is unique in that it does not offer discounts or freebies to participants; instead, those who bring in new customers via referral links receive a cash reward paid into their bank account.
T-Mobile, a "wireless un-carrier," decided to shake up the standard referral programme structure by offering stock in exchange for customer referrals. However, T-Mobile has since ended the service and gone back to giving a more typical reward: a $50 MasterCard.
Nevertheless, T-Mobile received extensive media coverage thanks to its innovative approach, which highlighted the company's referral programme as an original model for the cellular industry.
At the time, up to 100 T-Mobile shares were offered to referrers. In addition, T-Mobile offered two shares of stock per referral to referrers who had been with the company for more than five years.
Best Practices and Tips for Maximising Referral Programme Success
1. Prioritise your most valuable clients
Invite your most valuable clients to participate in your referral programme. They are the people who care the most about your brand and are most likely to get engaged and spread the word.
Frequent purchases, social media activity, and favourable reviews posted on external sites are all good indicators of a customer who is likely to become an advocate.
To determine which customers are most likely to refer their friends to your business, you can start by sending out an NPS (Net Promoter Score) survey.
2. Encourage self-motivated advocates
Do you have clients who are willing to promote your offerings at no cost? Since they're already recommending you, why not invite them directly to participate in your referral programme? You can even ask them to be your brand ambassador if they have an engaged following and have demonstrated social media expertise.
3. Optimise your referral programme
To make sure your referral programme is effective and relevant, you should analyse data and consumer feedback regularly to make any required adjustments. This helps you give your audience’s needs the attention they deserve.
Integrate Partnerships into Your Referral Programmes to Drive Customer Advocacy
A robust partnership programme is exactly what you need to drive customer advocacy alongside referrals. While a referral programme encourages existing customers to recommend your services to others, a partner programme uses strategic partnerships with complementary brands to increase exposure for your brand. In essence, customers of your partners are referred to your brand.
Similar to referral programmes, partner programmes provide incentives to participants. It is a powerful strategy for encouraging advocacy and driving growth.
Over 54% of businesses agree that brand partnerships contribute 20% of their overall revenue.
Here's how a partnership programme can encourage customer advocacy:
Collaboration with other companies allows you to gain exposure to a wider audience and tap into their existing customer base. This kind of visibility can boost brand awareness and bring in new customers.
Forming alliances with other brand lets you offer your customers a wider range of unique services and product bundles. This improves the overall customer experience and increases the likelihood that customers will advocate for your brand beyond simple word-of-mouth.
Partnership programmes allow you to multiply your marketing impact by capitalising on your partners' existing marketing infrastructure and touchpoints. Collaboration in marketing can take the form of cross-promotion on social media or joint campaigns, supercharging your marketing strategy and driving brand advocacy.
Establishing a partnership programme brings together complementary brands that share a common goal of gaining brand advocates. You can expand beyond word-of-mouth marketing and create an army of loyal customers who will speak highly of your company, share their positive experiences with others, and support your company's growth.
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