How to Know if You Need a Referral Program? And What’s Stopping You….

I assume you’re fully aware of how many of the great businesses you know and love, like Uber, Slack, Tesla, Airbnb and DropBox, were built on the back of successful referral programs that channeled customer love into customer acquisition. Hopefully, you’ve also seen the recent academic research that proved that referred-in customers are worth more than any other customers, as they stay longer, spend more and refer new customers in turn, creating a viral loop of added value. And, with luck, you may have even seen Buyapowa’s own Referral Myth Debunked research that proved that referrals drive incremental new customers rather than cannibalizing other channels.

So if you know all that, and you still don’t have a referral program, we have to ask you why not? You must be a very difficult person to persuade. Or maybe there’s something, or someone, stopping you from launching a program?

So we decided to list the reasons why you should know that your business needs a referral program. And then we’ve looked at what might be stopping you and how you might overcome the barrier or barriers.

How to Know You Need a Referral Program

1. Your other marketing channels cost too much or don’t work as well any more

We kind of feel like we’ve written enough on this subject to fill a wing of the Watsonian Library over the years. But simply put, the costs of paid search, paid social, affiliates and banners keep rising inexorably and keep driving diminishing returns to the point that it’s no longer sustainable. Organic social has long been dead and Google Gemini and Chat GPT seems to be finishing off organic search, meanwhile consumers arm themselves with increasingly efficient ad blockers and spam filters or pay for premium ‘ad free’ service on Spotify, YouTube and Netflix.

Meanwhile, as noted above, referred-in customers cost less and are worth more, staying longer and spending more than customers acquired through any other channel.

But this isn’t anything new, it’s been the case for the last decade at least, and if this argument hasn’t convinced you so far, let’s look at the other indicators.

Hear from Ollie Moore, AVP, Product & Member Marketing at Delta Community Credit Union, why when you already get a decent amount of referrals from natural word of mouth, this is why you should look at a referral program to track, incentivize and grow referrals:

2. You already get lots of natural word of mouth

While word of mouth is a notoriously hard channel to track, as many of the conversations happen offline, at a family barbecue or in a bar or cafe, or, increasingly happen online in Dark Social, hopefully you can get some feel for the level of organic referrals you’re getting. One simple way to do this is to survey a sample of customers, asking how they heard about you. Or have staff ask customers at each customer touch point, whether in-store, via a call center or chat conversation.

Finding out that you already have a decent amount of customer acquisition from organic word of mouth is a green light saying you should accelerate this with a referral program and appetizing rewards and incentives.

“Years before we started a proper referral program, we found that we had a lot of referrals happening organically. The challenge was how could we track it? How could we then capitalize on that or incentivize folks for their their organic referrals, and then how could we grow it? How could we really just make that a formal program in which members felt even more inclined to share what they loved? So it just made sense when we had the opportunity to formalize it.”
Ollie Moore, AVP, Product & Member Marketing at Delta Community Credit Union

3. Customers tell you that they want to refer you

A common way many of our clients learned that their customers wanted a referral program was that they told them, either through voice of customer research, surveys, focus groups or interactions with customer support staff. This isn’t surprising given that our own Referral Codebreakers research found that eight out of ten customers said that they wanted to be able to refer friends and family to their favorite brands.

4. You have high scores on NPS or on other measures of customer satisfaction

When you have high NPS or analogous customer feedback scores from customers, they are literally telling you ‘yes I would be willing to refer you’. This should literally be screaming at you that you need a referral program.

5. You have other indicators of high customer satisfaction

Other indicators of customer satisfaction can tell you that you need a customer referral program. These can be long customer lifetimes with your product or service, high repeat purchase rates, low levels of complaints or customers engaging in positive behavior on customer forums, customer self help programs and in social media, for example defending you or setting out why your product is great etc. All of these are indicators that you have a healthy basis of customer advocates ready and willing to go and bat for you, if only you’d give them the chance.

6. Your competitors or industry disruptors have successful referral programs

Finally, if your competitors and/or the new entrants disrupting your industry have successful referral programs, then this is a huge sign that you too should get in on the game and, more so, that you can’t delay as you risk losing your market share through inaction.

So What’s Stopping You?

Assuming that you can answer yes to all, or most of the above, the next question is what’s stopping you from starting a referral program? These are some of the common barriers or excuses we see:

1. You have a poor quality product or service

You’ll have seen that all the factors above suggest you do actually have a great service or product. Without this, referrals are unlikely to work for you, because they are all about happy customers recommending you to people that they know, like friends and family, where the successful outcome of the referral is important for them. This is in comparison to affiliates or influencers, where often the affiliate or influencer is marketing to people unknown to him or her and the marketing is conducted solely for monetary reasons. So if you have a poor service or product, you’ll be unlikely to have many advocates and you’d probably have to offer high value rewards that would likely attract the wrong kind of referrer and the wrong kind of new customer. So, we’d recommend that you first look at improving your product or service before embarking on referral marketing.

Hear from Michael Goodbody, Former VP, Head of Marketing & Comms at Robinhood, as to why you need to have a great product or service to get referrals at an economic cost that makes sense:

However, if you believe that you have a poor quality product or service, but you were able to answer yes to all or most of the questions above, perhaps you have a misconception as to the value your customers see in what you offer. In which case, you should do some more customer research to better understand your potential for referrals.

“The way that you think about referrals, for the most part, if you want it to be affordable and economical, and a good part of your marketing mix, is you have to have an incredible product that people want to talk about. And then you’re just giving them a little bit more of an incentive to tell their friends and family about it.”
Michael Goodbody, Former VP, Head of Marketing & Comms at Robinhood

2. You have other things to do that seem more important

This is perhaps one of the most common excuses we hear. We have too many other things to do, your product pipeline is too full, you’ll look at this tomorrow. This is perhaps the saddest state of affairs, partly because tomorrow almost never comes and when you look at the evidence mentioned above, can you think of anything more important than getting more and better customers at a lower cost than other marketing channels? Perhaps this comes from a misconception as to how much work is required to get a referral program up and running. At least I’d recommend you talk to an industry leading expert like Buyapowa to understand just how easily we can get you up and running and understand what the opportunity cost of not acting now is likely to be for you.

Hear from David Hixon, Executive Director – Head of Product & Lifecycle Marketing at Ally Bank, as to why, for at least five years, they felt that referral marketing was too hard and they had too many other other things to do. However, after a quick brainstorming, they launched a test that quickly developed into a referral program that delivers north of 10-15% of all customer acquisition :

3. You tried referral before and it didn’t work well

This can be a difficult barrier to overcome, particularly when the failure, whether with an in-house program or with another supplier, was recent and high profile. We understand that some colleagues may have taken a hit to their credibility and may be less than willing to repeat the experience. But we would argue that the main reasons a referral program fails is often due to a lack of promotion and/or a lack of exciting rewards and incentives, as well as its overall positioning with the brand in the context of other marketing and promotions carried out. The good news is that these are all the kinds of problems we solve for clients every day. Each and every referral program is different, but that only serves to underline the benefit of a SaaS plus Service offering backed up by experts who have driven success for hundreds of programs across different industries and territories. At least, we’d love to speak with you about the perceived reasons for that failure.

4. You think it’s too difficult

An interesting reason is often that referral marketing is perceived as being too difficult to set up and get to work well. Perhaps this is due to the high level of failure in programs, particularly those developed in-house. Again, this underlines the advantage of partnering with a leading Saas plus Services provider like Buyapowa, that will be able to take away the complexity for you and provide you with expert advice and recommendations to get the best from your program.

We talk[ed] about it [a lot]… And it was candidly..one of those things that was like: ‘man, that just feels really hard and complicated, and I’ll worry about that tomorrow. Today, I have to do this thing’….[But]..a small group of my team and I were at a conference, and we had a break…And we were talking about.. refer a friend…I don’t remember if we had a little notebook or a something, and we started we just started brainstorming and literally within those 30 minutes of taking a break we kind of figured out ‘hey I think we could do this’. We put it together and then we took a very small segment of our customers and communicated the program to them. And we communicated it as a test. We didn’t promote it as ‘hey the program’s live’. We basically said, “You’re part of a test to see see if this thing will work.” And we saw great response. It’s now… north of 10 to 15% of our customer volume.”
David Hixon, Executive Director, Head of Product & Lifecycle Marketing – Ally Bank

5. You’re in a regulated industry and you’re worried about incentivization rules

We understand the nervousness around all types of regulated industries, particularly with the concept of incentivized marketing, as the consequences of getting it wrong can be all too brutal. Which is why you need to speak to an expert like Buyapowa that has successfully set up and run hundreds of referral programs across all types of regulated industries from telecommunications, insurance, banking, credit unions, fintech, energy and sports betting, casino and casual gaming.

6. Referrals don’t fit with your brand

Some high end or luxury brands shy away from any type of incentivization for fear of damaging the brand. However, we’ve found that this is probably only true of the very top of the luxury market and often some form of referral can work that strengthens the brand, with rewards and incentives being fan based (priority invites to new releases or behind the scenes tours) or with rewards being donated to charities. To get an idea of what might work, it’s worth taking a look at how Tesla has developed experiential or status prizes to appeal to its wealthy customer base without damaging the brand.

7. Your margins are too low to pay out rewards

On the other end of the scale, we often hear that where a brand has very low margins there’s little scope to pay out rewards and incentives. However, we would argue that the opportunity here is often not to reward every referral, but only reward purchases that drive long term and higher value behavior, such as taking out subscriptions or downloading and configuring an app. In any event, we’d be happy to discuss the options with you.

8. You think referral just cannibalizes other sales that would have happened anyway

As with many marketing channels, such as paid search and social, voucher codes and coupons and banner retargeting, there’s always a discussion about cannibalization and whether referred-in customers are incremental. However, Buypowa’s recent research showed that, while there will probably be some cannibalization, this is outweighed by net new customers who were either first introduced to a brand by a referral or were actually only convinced to become a customer because a friend recommended the brand. We’d be happy to talk through this research with you.

9. You think referral is only for up and coming brands

This is a common pushback. The belief that referral is only for new brands that people haven’t heard of before and referral won’t work for an established brand. This is a fallacy. We’d love to show the large number of established household names we work with and then there’s the ability to use referral for new products or new product lines for which your brand isn’t known. We go into more detail here in our blog ‘No Brand’s Too Big for Referral’.

10. You have a build in-house policy and you haven’t been able to get prioritization

Some businesses have a policy of building everything in-house, which is great if you can get the product time to build and maintain your referral program. But often, the problem is that you just can’t get it prioritized with all the other work going on. In which case, we’d love to talk to you about the options we can offer for a proof of concept.

11. You can’t get senior management buy-in

Maybe for one or all of the reasons above, while you’d love to get a referral program off the ground, senior management is not convinced this is what your brand needs. We recently wrote a blog about how to get buy-in from your Buying Committee. But if this is your case, we’d love to speak with you about how we can help you convince your colleagues on the basis of facts, case studies, business plans and whatever else is needed.

Next Steps

If the above blog has hit home with you, we’d love to talk with you about how we can help you set up a referral program. Reach out and we can find a time to talk.