How to Build a Referral Program into your Online Business

How to Build a Referral Program into your Online Business

Most successful eCommerce businesses understand that advertising, whether a social media post or TV ad, isn’t as effective as a personal recommendation from a friend, relative, or influencer. That’s why most marketers use word of mouth, celebrity endorsements, and referral programs to sell products and services.

Whenever customers want to purchase a product or service, they look for recommendations. Of course, they’re most likely to turn to their friend or family member for a recommendation. Or even they might scroll down some online customer reviews.

A referral happens whenever one person recommends a brand to another person. Today, word of mouth can be a great help to businesses of all sizes and industries. 

Now, let’s move forward and understand what a referral program is.

What is a referral program?

If you wish to get referrals for your business, you need to make sure that you give excellent products and services. If you are exceptional, then customers will be happy to refer you to others.

A referral program is a compelling marketing tool that helps you efficiently boost sales, expand your customer base, and collect emails from potential clients. If you still haven’t launched a referral program for your eCommerce business, it’s the right time to consider doing so.

Also, Keep in mind that your most satisfied customers may not always spread the word about your business. Thus, by launching a formal referral program – with clear and appealing rewards – you can improve the odds of your business getting word of mouth.

Referral Programs: Metrics To Track

To implement a referral program that’ll support you to achieve your goals (boost sales, grow a customer email base, get more website traffic, and so on), you have to recognize the right metrics. Remember that every referral campaign is unique, so draft your goals with metrics. Usually, marketers point out several key metrics that can assist you in measuring the progress of your referral program:

  • Participation ‒ the number of users who engage in your program (send shares) in a specific period (for example, 30 or 60 days)
  • Clicks per link ‒ no. of clicks on shared referral links
  • Referral conversion rate – the percentage of users who complete the desired action (sign up for service, book an accommodation, take a taxi ride, etc.) after they’ve been referred. To assess the referral conversion rate, divide the number of referral actions (purchases, bookings, etc.) by the total number of purchases and multiply by 100.

Why do you need a referral program?

Sadly, not many companies are taking advantage of referral programs. A study reveals that 71% of startups don’t have a referral marketing program in place.

A referral program can be a great benefit to any business. For one, it allows you to draw new customers at a very low price. Second, referral programs boost your current customers to spread the word about your business with the assurance of a reward. 

The value of these rewards is not only fixed (per referral); they’re also only rewarded for performance. The result is a much lower customer acquisition cost (CAC) than most types of advertising.

Plus, referred customers are likely to spend 25% more, are more determined to purchase repeatedly, and are three times more likely to refer to someone else.

Why is referral marketing an effective tool for eCommerce?

Ecommerce businesses strive to expand visibility by more and more people every day. The more visibility, the higher the sales, and the higher the referrals! Well, let us discuss why referrals are important for eCommerce businesses. Below are a few points that may show why it can be an effective tool for eCommerce:

  • It improves customer loyalty: When you reward customers for referring to the products, both the referrers and the referred customers feel confident about investing their money in the right place. Both sorts of customers would then continue buying from your store rather than your competitors. It eventually increases the customers’ loyalty to your business, and with such continuous efforts, you gain loyal customers in the long run.
  • It is easy to set up: Several online referral marketing ready-to-use tools are available in the market, and once you install the program and connect the right widgets, you are ready to go. Your customers get everything they require to spread the word! Moreover, they run automatically once you set them up.
  • It allows you to determine the CAC: Although you may have outlined a few ways to assess your CAC or Customer Acquisition Costs, you might still not grasp the exact value for the same. With referral marketing, you can add every penny you spent for getting customers as you are the one who sets the rewards for the referral!

How to build a Successful Referral Program

Referral programs are a great way to engage customers, so noteworthy experience and beneficial referral marketing campaigns are at hand. Below are a few tips you can follow to make sure of the success of your referral program.

1. Design Simple Rules

When people find a referral program, a promotional event, or anything similar, they demand to see strings attached. To verify your customers’ negative expectations, create simple rules that can easily be found along with other relevant information.

Interact with your customers in simple language, avoid vague statements, and choose words that will interest your audience. Furthermore, you can apply video and images (illustrations and infographics) to give handy descriptions and examples.

2. Make it Simple to Participate

People don’t wish to work hard to achieve their goals, especially when it comes to filling in lengthy forms, proceeding to multiple landing pages, approving accounts, etc.

To get active participation in your program, apply UX design best practices to analyze the signup process. For instance, allow email and social media invites, implement invitations via address book and decrease sign-up steps.

3. Present Meaningful Rewards

To rouse people’s attention in your program, make sure you give compelling and relevant rewards. People aren’t likely to share mediocre products and services just because a social factor comes into play: nobody desires to look incompetent before their friends.

Therefore, you have to make sure that the reward corresponds with the service or product you sell. For instance, a $5 discount coupon isn’t likely to attract people if the average bill is $1000.

Also, provide a reward that matches your product. For example, allowing a discount voucher for a makeup store would be odd for a website that trades motorcycles. Finally, consider choosing rewards that complement your main offerings.

4. Make it Profitable for Both Participants.

Apart from compelling rewards, make your referral program profitable for each participant, not just a referrer. Such two-sided programs are useful when you’re striving to delight new customers rather than existing ones.

For example, when PayPal launched, the company gave $20 for signing up and another $20 for referring the service to a friend. These conditions were engaging enough to spark people’s interest, and it continues to be one of the most quoted referral programs ever.

5. Implement an Instant Reward

People are enthusiastic about getting what they desire as soon as possible, and all people involved in devising a product ‒ from marketers to UX designers ‒ understand that well. There’s even a word for that phenomenon – instant gratification – indicating a desire to get fulfillment without delay.

When it comes to referral programs, think of rewarding your customers in the short term, for instance, by giving a discount on the next order or sending a voucher to an email right away after a user refers to your product. On the other hand, avoid rewards that ask users to accumulate bonuses and money (for instance, iHerb customers can cash out their rewards only after the sum reaches $300).

Referral Program

Wrap up

Referral marketing programs are recognized to be one of the most powerful ways to grow your eCommerce business. With the right use of your current customers and loved ones, you can increase your sales and customer base by countless folds. Your monetary investments in achieving a referral program will be useful if you follow all the above-mentioned points. Furthermore, you may even get more than what you spent if your referral programs reach the skies. If you have now been in the eCommerce industry for a while, you might have understood that referral marketing is one of the quickest ways to increase your website traffic as well as your sales. It is one such successful marketing strategy used by many eCommerce giants, including PayPal. However, make sure that you are not just building one and leaving it aside. Put your energies into monitoring your referral programs, and the rewards will be much more than the incentives you spend for the same.