The Epic Beginner’s Guide to Building a Successful Referral Marketing Program

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Your customers are the lifeblood of your business. You can have a fantastic team, a great catalogue of products, and an amazing intended path forward, but none of it matters if you can’t keep your customers happy, engaged, and willing to tell their friends about you. In ecommerce, your customers are arguably the most important and effective sales tools you have at your disposal. Your customers talk, and their friends listen. You can spend your entire marketing budget on precisely targeted Facebook ads, compelling email campaigns, and clever CRO tests, and you’d still never get as good of results as you get when a loyal customer—a brand advocate—convinces a friend or family member that your products are worth buying.

 

The words your customers speak to their friends and family members can be extremely valuable to your business. Consider the following statistics compiled from a National Harris Poll Survey conducted in 2016:

  • 82% of Americans seek recommendations from friends and family when considering a purchase.
  • 67% are a little more likely to purchase a product after a friend or family member shared it via social media or email.
  • 92% of 18-34 year-olds look for recommendations from friends and family when considering a product purchase.

 

With these numbers in mind, the question is, what can you as a business owner do to drive more customers to spread the word about you? That’s where the customer referral program comes into play. The goal of any customer referral program is simple: to motivate and encourage your existing customers to drive their friends, colleagues, and family members to buy from you too. A well-engineered and well-executed referral program can drive significant business your way in a relatively short amount of time.

 

So, how do you go about building one? This guide will provide you with the actionable steps you need to take in order to get started.

 

Step 1: Decide If Your Business is Ready for a Referral Program

Before getting too far into developing a customer referral program for your business, you need to consider this:

“Is my business ready?” 

In some of our previous posts on referral marketing, we recommended considering a few points that can make the decision a lot easier for you. Here are the top 9 questions to ask yourself:

  1. Will your customers refer you? (or: Does your product inspire positive brand affiliation)?
    • Consumers may spend just as much on their allergy medication each year as they do on shoes, but fashion footwear tends to inspire them to share their love for their brands more than personal or “private” consumables – like their nasal spray. Ask yourself whether or not your product category is one that consumers will be proud and unembarrassed to share with others.
  2. Do you have an online digital presence that allows you to interact with your customers?
    • Are you actively participating on social media sites like Facebook, Twitter, and Instagram, engaging with your customers regularly on those platforms?
    • Do your customers already share your brand with others in positive ways via these channels?
    • A social media presence that invites and inspires your customers to share with you, and share your content, is an easy way to test for affiliation and advocacy.
  3. Do you have the ability to capture transactional data about your customers electronically?
    • Being able to analyze your customers’ transactional data (how much they spend with you, how frequently, and how long they remain customers) is key to understanding their loyalty, and their lifetime value to your business.
  4. Do you know what your customers think about your products, and have you seen what they say about your products when talking to other people online
  5. Are your products good? Like, really good? So good that people are willing to put their necks on the line to convince someone else to give you their money?
  6. Are you going above and beyond to create unforgettable experiences for customers. Are you delighting your customers whenever and as often as you can?

“My most actionable tip for building a successful customer “anything” is the hard work you can do every day creating a remarkable customer experience (Engage/Captivate… and make “Remarkable”) … doing what it takes to make every experience with your brand Remarkable: Dictionary.com… “worthy of notice or attention, being worthy of comment.” Publishing valuable content, syndicating that content, engaging, building relationships…and framing/extending your brand with every interaction.” — Ted Rubin @TedRubin, Author and Keynote Speaker, TedRubin.com

  1. Are you willing to put marketing dollars behind promoting your customer referral program AND consider offering attractive incentives and rewards where appropriate?
  2. Do you have the time, energy, and resources in place to scale your business once you launch your customer referral program and new orders come flooding in?
  3. Is your average transaction size large enough (or frequent enough) to warrant paying rewards or should you reward referrals in some other way?
    • If your transaction sizes are small and your profit margins narrow, you may not be able to payout discounts or cash-value rewards to your advocates, so you may need to consider alternative reward methods (like loyalty points, microrewards, or product upgrades in lieu.)

Answering yes to more than one of those questions means you can move on to Step 2.

 

Step 2: Educate Yourself: How do referrals work?

Your next step is to learn a little bit about how customer referral programs work. There are hundreds of blog posts, case studies, webinars, and influencers that can give you amazing insight into what makes a customer referral program successful.

Understanding more about how referrals work, and how they can positively impact your business, is key to getting the most out of a referral program.   Here are three things to learn right off the bat:

Which of your customers will refer their friends to you?

How can you encourage customers to refer you?

How will referrals grow your business?

One of the most important parts of your business is understanding what motivates your customers.  This helps you tune your product and service offering to align with your customer.   Any loyalty or reward program you implement goes by the same rules.

“Figure out what your customers actually want. It doesn’t matter what software you use, how many emails you send or notifications you “pop up” – if your offer sucks, people aren’t going to promote you.  More often than not, people want to be seen as “heroes”. Giving away a $5 coupon or a $50 Amazon gift card doesn’t have a terribly different response rate – what makes the difference is figuring out why your users talk about you already, and how talking about you can make them look better to their friends, family or business contacts.” — William Harris @wmharris101, Founder & Growth Marketer at Elumynt

And this:

“My #1 tip to succeed with customer referrals at any company is the value of the referral program has to be all about your customer. Your customer’s job is not to sell your services or product, but quite the contrary. Your service or product’s job is to provide value to your customer, hence why it has to be all about the customer. And this does not necessarily mean you give them money, even though that is often a strong motivating force and one of the methods we use. Another method is Dropbox, as they are the go-to example with their double-sided referral program where both the referrer and recipient were given additional storage, which is something everybody needs today. People like Ramit Sethi have given away free flights to travel around the world. Figure out what your customers really want — money, software, prizes, recognition — and reward them accordingly.” — Casey Armstrong @CaseyA, Director of Marketing at BigCommerce

Making it easy for your customers to send referrals is another way to remove roadblocks to the referral progress.

“Like most things, make your customer referral program easy and simple. If you can, automate the signup and login using SSO so that customers are already enrolled in your program as soon as they signup to your website or app. Give them their referral link instantly and make it easy to share via email, facebook, twitter etc. This enables your customers to refer your product without any friction which can dramatically boost success of the program.” — Adam Seabrook @adamseabrook, Co-founder at Betterteam

Other Helpful Resources Worth Exploring

Here are three final resources worth checking out before moving on to step 3:

This guide is a quick yet comprehensive read that you can complete in 10 minutes and learn pretty much everything you need to know before getting started:

 

Blog Post - Download our white paper: What every marketer should know about referral marketing.

 

Reading more about referral programs can help you learn from the mistakes of others, find ideas that you think can be applied to your business, and try to gain a better understanding on how to motivate your customers to spread the word about you.

 

Step 3: Identify Your Audience, Decide on Your Offer, Set Your Goals

After you’ve spent some time learning more from others about customer referral programs, it’s time to start formulating the strategy that will shape the program you eventually launch for your business and customers. There are three action items you need to focus on during this step:

 

Action Item #1: Identify Your Audience – Not every person who buys from you is going to want to refer you business. There are people who buy from you one time and never again, and then there are people who return time and time again to do business with you. As you work to develop your customer referral program, dig into your data and talk to your employees in order to compile a list of your most loyal and active customers. This is the group that you’ll want to reach out to first when you’re finally ready to launch your new program. You can also find advocates by saving positive mentions or interactions that you have with customers on social media sites, and by looking through recent reviews of your products on your own site and on third-party sites like Amazon.

Writing for Bluenose’s blog, Don MacLennan says that you can spot advocates by how sincerely they engage with your product and whether or not they provide sincere reviews.

 

Action Item #2: Decide on Your Offer(s) – This is one of the most important pieces of your referral program, so it’s important that you set aside a good amount of time to think it through.
Some percentage of your customers will need to be incentivized in order to refer their friends to you. It’s true that some will spread the word organically on their own, but if you want to leverage your customers as active sales tools, presenting them with an attractive offer will increase the incidence of referrals, and increase the number of customers who will refer you.

Your rewards don’t have to be monetary, and they don’t have to be huge. As our research shows, your customer base is split roughly evenly into three groups:

  • Those that will refer their friends to you without any reward.
  • Those that require a reward to refer their friends to you.
  • Those that will never refer their friends to you.

 

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The offer you incorporate into your referral program will completely depend upon your own individual business. Some companies offer discounts or special promo codes in exchange for referrals, some offer cash, and others offer other types of free goods. At the end of the day, you need to spend time figuring out what your customers want—what they would be motivated by.

If you’re not sure where to start, sometimes the best and easiest way to do it is to simply reach out to a handful of your most loyal customers, present them with a few scenarios and options, and gauge their interest

Make sure that you have a good sense of your average customer lifetime value (LTV) (how much they’ll spend with you and over what period), or at least a close approximation of it.  It’s also important to know what your customer acquisition cost is (how much you spend bringing new customers in the door).  Understanding both of those values will help you determine what you can afford to pay out in customer incentives.

 

Action Item #3: Set Initial Goals – you can’t identify successes or failures if you’re not working against specific goals. Before launching your referral program, think about what success would look like for you.

For example, in a previous blog post, we wrote that many of our customers focus on the following areas when developing goals:

  • Increasing the overall number of customers at a lower customer acquisition cost (CAC)
  • Attracting higher lifetime value customers
  • Increasing the average purchase value each customer makes
  • Increasing customer loyalty

There’s really no point in launching a customer referral program for your business unless you’re willing to set and work against goals. Keep in mind that your goals can (and likely will) change often as you continue to develop and optimize your referral program. Setting clear and realistic goals now will help you build a stronger and more effective program over time.

In addition to setting clear goals, you should also make sure you’re in the position to track performance and metrics from month-to-month. The best place to do this (aside from the referral marketing program you’ll be using) is in Google Analytics. If you’re new to Google Analytics, read this beginner’s guide from Shopify. It will help you understand how to set up tracking and reports for your ecommerce business.

 

Step 4: Choose Your Platform

With much of the strategic grunt work out of the way, your next step is to pick the tool you intend to use to manage your customer referral program. The tool you choose should offer the following:

  • Automation – the tool you use should allow you to automatically track, store, and respond to information about referrals.
  • Convenience – your customers will want to have the option to tell their friends about your company using a variety of different communication channels, such as email, social media, or via instant message. If the tool you ultimately use doesn’t make sharing unique referral links incredibly easy for customers, they won’t enjoy using it. You also want a tool that your customers can access across any device—computer, mobile, or tablet.
  • Integrations – the best tools are the ones that integrate seamlessly with the ecommerce platform you’re already using to sell products and interact with customers.
  • Support – you’ll likely have questions when building your customer referral program, so you want to make sure you pick a tool that offers highly-trained support staff to help you along the way.

 

Step 5: Prepare Your Team

Once you have your tool picked and you’ve started to work on setting up your referral program, you need to spend some time educating your team and preparing them for the launch of your new program. One of the primary reasons that referral programs fail is that staff are not properly trained on what the referral program is, how to promote it to customers, and what the benefits are to both the customer and your company.  Everyone at your company should be involved in the discussion, but you should spend the most time talking to the following departments:

  • Sales: If you have a sales team, make sure to arm them with all the information they need to answer questions and promote the new program when they’re talking to potential and existing customers. Your customers won’t inherently know about the referral program once it launches, so it’s up to your sales team to bring it up at the end of conversations or after a successful sale.
  • Customer Care: Newly launched referral programs often result in a lot of questions from existing customers who want to learn how to take advantage of the offers and receive the rewards you are promoting. As such, it’s important to bring your care team up to speed and help them craft the right answers to send to customers when they reach out wanting more information.
  • Marketing: You’ll need to work closely with your marketing team to design a launch plan that can be initiated as soon as your new program goes live. This may involve making updates to your website and product pages, incorporating new emails into your lifecycle marketing drip sequence, adding messages to your transactional emails, writing blog posts, and sharing the news on social media. You’ll also want to work with marketing to develop an ongoing plan for promoting your new program month-to-month. For many companies, marketing also has the responsibility of tracking data, evaluating performance, and optimizing the program based on results over time.

In this short post from our own Gillian Smith, we talk about how a retail store (in this case – a credit union) can prepare its staff to ensure the greatest success for its referral program.

 

Step 6: Launch and Promote

You’ve finally made it! It’s time to launch and promote your new customer referral program. In order to ensure a successful launch, you’ll want to plan well in advance. Work with your marketing team to develop a ‘go live’ strategy that gives you 4-6 weeks to:

  • Make changes across your website, email campaigns, and other marketing collateral. Ensure the referral program can be discovered in these top five locations:

 

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  1. Your top navigation bar.
  2. Your sitemap (bottom nav).
  3. Your checkout process (ideally right after the purchase when the dopamine is running high).
  4. In your emailed receipts and/or invoices.
  5. In all your email footers.
  • Build buzz with your most loyal customers by telling them about the program before it goes live.
  • Test the functionality of the tool and the readiness of your team to respond to inquiries and a general uptick in activity (sales, traffic, support tickets, etc.).
  • Create new marketing material to promote your new program (blog posts, press releases, social media updates, any physical marketing collateral that can be packaged and sent with products.

When you finally reach the day that you’re going live with the announcement of your new customer referral program, you should consider trying to incorporate as many of these tactics as possible into your launch day strategy:

  • Send an email to everyone who has purchased from you in the past 30-60 days.
  • Send personalized emails to your most loyal customers letting them know about the program.
  • Launch Facebook ads that promote the new referral program.
  • Publish a blog post that offers specific details about the program and helps people understand how to use the customer referral tool you chose.
  • Launch a contest and offer a special prize to the customer who can successfully refer the most people in the first week.
  • Add information about the customer referral program to your email signatures.
  • Feature the news prominently on your homepage and within your product pages.
  • Interact in real-time on social media as messages of support and questions come in from customers and followers.
  • Launch a contest among your sales team to see who can get the most customers to sign up for the referral program in the first 48 hours.

 

Step 7: Test and Optimize

After you launch your customer referral program, the final (ongoing) step is to test and optimize your program in order to make it even more effective and attractive to your customer base. If you’re not sure where to start, remember to read through the blog post from Optimizely mentioned above. It includes a number of simple ideas you can try in order to optimize and improve the overall performance of your program.

After the first 30 days, review the metrics and compare against the goals you originally set. Adjust your goals accordingly and work for another 30-60 days before taking time to evaluate again.

It can also be beneficial to circle back with customers to ask them what they think about the program. Use their qualitative feedback to make adjustments to your incentives, your marketing, and your referral program as a whole.

 

Have you launched a customer referral program at your business? What is the #1 tip you can give other business owners who are gearing up to launch a program at their business? Leave a comment below.