How to start a successful referrals program - Complete guide for e-commerce marketers
Aleksandra Velkova on April 14, 2021
People talk in detail about their latest purchase, the experience they had at the new fitness club, the food they tasted in the newly opened restaurant and the service they received from the staff.
And that talk influences our shopping choices big time.
How often do you go to check out a new restaurant once a friend tells you about their mouth-drooling food?
Or hurry to buy that new pair of jeans once a friend tells you the store offers free shipping and an awesome discount?
I do quite often.
That’s what referrals do; they have the power to shift people’s choices and preferences when coming from someone we trust.
Introducing referral marketing for your e-business isn’t hard; you need a proper strategy and a solid referral software in place to deploy your program and watch it do all the work for you.
In this guide we analyze what is referral marketing, when and how to start your program and how to measure and improve its performance.
Enjoy.
In this article:
What is referral marketing?
Why is it effective?
When is a good time to start a referral program?
Elements of a successful referral strategy
Examples of B2C e-commerce referral programs
What is referral marketing?
Referral marketing is a form of promotion of products and services to new customers through word of mouth, using the existing customer base. It involves a strategically designed incentives offer for both sides of the process and it’s a performance-based approach.
Essentially, you’re incentivizing your biggest fans to spread the word about your business and help you generate new customers while earning valuable rewards.
Why is referral marketing effective?
Decreases your customer-acquisition costs
Digital advertising costs have been on the steady rise for several years now causing businesses to spend a small fortune and not get a proper return on their investment. While digital advertising is far better than traditional advertising regarding return, there’s still the fact that only 33% of consumers trust online ads, whereas a whooping 93% of consumers trust referrals from people they know.
Referral marketing is performance-based, and as such leaves no room for guessing; your true cost happens only when you gain a new customer.
Increases sales
People are 4x more likely to buy something when referred by a friend and will likely spend 2x more when being referred to a business.
A carefully crafted referral strategy not only brings in new customers, but also increases the average order value.
Creates brand advocates
When people like a product, they will tell their friends and family. When they’re incentivized to do so, they will advocate about your business even more. They eventually become your salesforce; a win-win scenario!
Builds brand awareness
People like to share a positive experience, a product they love and use religiously. This is a form of social currency; we share with others what makes us look good and unique. When you have an awesome product and an interesting story behind it, you can easily build a community of like-minded people, and referrals facilitate this process.
When is a good time to start a referral program?
One thing is for sure; it’s never too early to launch a referrals program.
You want to establish few things before you consider launching your program:
Are you selling products with high buying frequency?
Do people love your product, are there raving reviews and other social proof?
Can you set a solid margin to support the incentives you’ll offer without causing a hit on your finances?
The phase your business is at is also important; not much for whether or not to launch a program, but more of how you structure it and the strategy you’ll deploy. For example, if you’re just launching your business, you may want to deploy a more aggressive referral strategy than if you had an established, loyal customer base.
Before we dive into the different approaches you can take at various stages of your business, let's explore the elements that make a complete referrals program.
Elements of a successful referrals strategy
A successful referral is based on incentives given to both your customer and your prospective customer to make a purchase with you and join your community.
For e-commerce businesses, this process has to be:
Easy to understand and use - you have to provide the most seamless user experience for customers on your website;
Easy to track - so you can see and know how are referrals processed;
Automated - you want to use a tool like a referrals program software to help you organize, deploy, run and measure the referrals program.
Let's break down the individual elements of a referrals program.
Rewards
When it comes to choosing the right reward for a referral, you want to know what your customers find most valuable from your business offer.
Is it store credit?
A percentage discount?
Maybe you can offer your best seller as a free product?
There are a lot of ways you can determine what is the best reward you can offer for a referral, like analyzing which product has the highest buying frequency, or which one is most loved by your customers.
You can also ask them; run a survey/poll and see what option wins the most votes.
Next thing you want to consider is your margin.
Don’t try to trick your customers; if you’re offering something with a huge profit margin for you but of super low value to your customers you won’t see results.
Find the win-win balance.
Gamified vs. Standard referral program
I like to think of these as 2 separate approaches to a referral program.
The standard referral program is best deployed at a stage when you already have an established loyal base and you wish to reward them for advocating for your brand.
It’s a steady, long-term referral program based on one incentive your customers love and are happy to do a referral for.
The gamified approach is best suited for businesses at their starting stage, when they need to grow their customer base and they want to acquire highly qualified leads who would eventually become part of the advocates community.
With this approach, you can offer several different incentives (making sure you follow the above principles) and create referral goals.
For example: refer 3 friends, get $10,
refer 5 friends, get 10% off your next order etc.
The better the rewards, the more people will be incentivized to refer to your business.
Customize the message
Now that you’ve defined the rewards, what is your story?
What message do you want to send to the people who receive the referral?
It’s important to offer pre-filled messages so customers don’t actually have to make them up. It saves time and makes sure your brand is communicated properly.
Source: I love Linen
Structure your message to be on point:
Use catchy, but clear headlines - make sure your offer is immediately clear and appealing to customers and website visitors;
State the benefits from your offer - make this super short and on-point. Don’t risk losing people to details.
Add a clear CTA
Make sure you ask for the minimum amount of information to successfully process the referral - you know the golden rule: people’s attention online is very short and fragile. This is not the place to gather information about your prospective customers.
Add appealing visuals - people are attracted to good visuals and often influenced by it. So make sure you add good imagery and of course, your logo.
Present your program creatively and strategically
Now that you know what story you wish your referral program to tell, the next step is to put it in front of the right customers, at the right time and in the right place.
Various display options
What is the best way to present the program to your customers?
There are different factors that should be considered when deciding on this matter, but as a starting point you can analyze 2 aspects:
Are you running an aggressive, full-blown referral program to drive more awareness and acquisition?
Are you offering a program to an established customer base who is familiar with your website and accustomed to using it?
Depending on the situation you’re in, you can choose to present the program through various display methods.
If you’re using a referral program software such as Lootly, you can take advantage of the advanced referral suite which includes 4 different referral display methods, such as an in-widget method, a referral tab, referral popup and a referral embed form.
Which method you use and how you deploy it will be based on how customers use your site and your insights on where your website visitors convert the most. For example, if you know that your “thank-you” page will be the best place to ask for a referral, you can present your program there through a strategically deployed referral popup.
Source: Lights For Fun
Strategic display options
Not all of your customers will be eligible to make a referral in your program. For example, if you have wholesale customers, you may want to prevent them from participating in your referral program.
You want to make sure the right people see your referral offer at the right time and in the right place on your website.
Such audience targeting is super helpful for brands who want to fully control their program, break into new, niche markets through their staple customers and most importantly, efficiently deploy a program on their website without spending too much resources.
Ways to share referrals
Which sharing options you offer to your customers will depend on your knowledge of their communication habits.
Which channels are they using to share news with friends and family?
Social media is the obvious choice, but not all channels will fit your target audience’s description. Don’t offer every channel; focus on the ones that you know are used often by your customers.
Mobile apps referral sharing is highly recommended. People spend most of their time on their phones; reading reviews, browsing sites, communicating with other people and shopping.
Provide a seamless referral process on mobile apps: offer sharing on SMS, WhatsApp or Facebook Messenger.
Referral tracking, monitoring and improvement
It is imperative to know who refers to your business and to attribute sales properly, as this is the only way you know who to send a reward to.
This process can be very messy if you don’t have a referral tracking system in place, as each of your customers must have their unique referral link.
For this it’s best that you use a referral program software which provides you a complete suite of functionalities to run referral marketing effectively.
You also want to be able to monitor the entire process, from sharing the referral to clicking the link and placing the order.
This gives you insights into how smoothly the entire acquisition process goes and whether customers experience roadblocks that essentially cause them to disappear. For example, if you notice a pattern of people who only reach the stage of verifying their email address, maybe there’s some roadblock on the store account creation process that causes them to leave your website.
Finally, you want to know which sharing channel performs the best. This type of report can give you so much insights into the potential audience you can reach.
For example, if there is a significant number of shares on Facebook, it can mean that your audience uses Facebook as their main communication channel for their friends and family. Additionally, if there are a lot of clicks on the referral links shared here, it means your potential audience is communicating there, on Facebook. So you may want to focus your other acquisition efforts to this channel as well.
Examples of B2C e-commerce referral programs
If you’re thinking about introducing your own referral program, check out some examples of how other merchants do it.
Always keep in mind though; the right rewards depend solely on what your customers find valuable.
Sephora Stars - gamified referrals program
Sephora is probably the staple example in running loyalty and referral programs. What is interesting about them is that they treat their programs like separate entities inside their business: the Sephora Insider and the Sephora Stars (available in their Singapore and Hong Kong), both with their own dedicated pages, branding and stories.
The Sephora Stars Referral program is gamified; they’re offering additional prizes for referrers who enter the top 10:
Source: Sephora Singapore
Steal this idea with Lootly:
If you’re using Lootly to run your referrals program, you can use Sephora’s approach and gamify your program.
What do you need:
Choose the rewards for each successful referral + the special gift for the top X referrers;
Define the campaign’s time period
Pro tip:
Make sure you state clearly in your rewards page that the top X referrers in your program will receive an additional gift ( this would be something you can fulfill at the backend of your business or a discount code or points in the program) and clarify the time period of the campaign - Y months, weeks, days.
Once you launch your program and start your promotion efforts, simply track the referrals activity in the leaderboard inside your advanced reports:
You can filter by time period and see who are the winners of your campaign.
Then depending on the reward you’re offering, you can manually give them a discount code or points in your program, or simply contact them if you need to mail them a gift.
Tesla’s Referral Program
Tesla is another example of a gamified referral program, offering goal referrals rewards.
For their solar products, Tesla offers solar referral rewards. Each customer gets a $400 reward for a successful referral and after 10 successful referrals customers receive a Powerwall battery.
Source: Tesla
Steal this idea with Lootly:
You can create your own gamified referrals program in Lootly.
Simply choose the Goal Referrals reward type when setting the reward for your referrers and create your goals.
You can add multiple goals.
When customers log in, in the widget they see their referral activity progress and how close they are to their reward.
You can then choose to offer them discounts or points as their reward.
Pro tip: Promote the goal referrals in your rewards page, so customers and prospective customers know what they stand to win for spreading the word for your business.
Crate and Barrel - simple and clean UI design
Crate and Barrel’s approach to referrals is different from the previous examples, and their program is suited to cater to the large customer base and the audience that is familiar with the brand and their offer.
Their referral program offers: Give 15%. Get $20, and the receiver’s qualifying purchase has to be over $100.
What is super cool about their program is their display strategy; a super clean, on-brand design, spot-on messaging and easy user experience:
Source: Crate and Barrel
The referrals interface is deployed on a dedicated page making it easy to find and super easy to convert.
Steal this idea with Lootly:
Design your own referral program interface within Lootly and use the embed option to deploy the interface on a dedicated page on your website.
Add your images, your brand logo and message; choose the popular communications channels used by your customers for sharing and even attach your Terms and Conditions and Privacy policy documents.
Pro tip: Add the “refer-a-friend” reference in the url of the dedicated page. That way your page is easily found in search engines.
Wrap up
Referral marketing is probably the most powerful and reliable growth strategy for e-commerce businesses. People are more prone to try something out when someone they trust describes their experience and their satisfaction with your product.
So, craft your story and create your strategy today to grow your business!
Aleksandra Velkova
Aleksandra is the Customer Success Manager at Lootly
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