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Customer Referral Program

A Referral Program is a word-of-mouth marketing tactic that encourages customers to advocate on behalf of your brand. Rather than writing reviews online or submitting customer feedback surveys, referral programs let customers share their brand experience with partners, colleagues, and friends.



Customer referrals are highly valuable because they don't cost much — if anything — to acquire. The exact value of a referral varies across different businesses, but it's roughly the lifetime value (LTV) of a customer, plus the cost of customer acquisition (CAC), which you can then use to acquire additional customers.

Data tells the tale: Companies found that referred customers have a 30% higher conversion rate, a 16% higher lifetime value rate, and a 37% higher retention rate than leads generated from other marketing channels.

A customer referral program simply works by incentivizing the existing customer with rewards when they refer you to new customers. Most businesses use lead generation software to track their referral through the referral links.


When the new customer uses this link or a code to complete the purchase, the existing customer receives an incentive in the form of a discount, gift card, or promo code. The subsequent flow of referrals can drive more conversions for businesses without spending on their marketing campaigns.

Airbnb, for example, offers a $25 credit to the existing customer as well as the referred customer, increasing the likelihood of sign-ups. The referral program is a win-win situation for the business, existing, and even new customers.



However, the referral program should not be confused with the affiliate program. While the affiliate program relies on third-party brand advocates, referral programs are for existing customers who wish to spread the word to their social circle.

Benefits of Customer Referral Programs

As I mentioned in the previous section, customer referral programs are a win-win situation for all three parties involved. While existing customers are rewarded for their loyalty, customer referral programs are the most lucrative for businesses.


Attracts Warm Leads Through Trust

With a plethora of brands competing for the same customer segments, it’s hard to earn their trust and convert them into potential leads. Online reviews are less credible than they used to be, probably because of the fake reviews.

That’s when customers turn to more credible word-of-mouth marketing from friends or family. Recommendations from a known person earn a higher grade of trust as compared to the online forums or online ads.

For example, a person would recommend an automobile service that they have already used and know about what they have to offer. This way, a qualified lead has already been sent your way rather than spending on converting the cold leads.


Lowers Customer Acquisition Cost

Referral marketing is a low-cost acquisition strategy that barely involves any marketing expenditures. The only costs associated with the customer referral programs are kicking off the program and rewards to referrers for brand advocacy.

In return, you get warm leads who are more likely to bring you new customers through referrals. Popular cloud storage service, Dropbox, gained a whopping 4 million users in just 15 months, with 35 percent of all sign ups coming from the referral program.

And what do they have to offer? A storage of up to 500 MB for two. In my opinion, that’s a great deal in exchange for a new paying customer.


Evident from the research by The Wharton School, referred customers generate 25% higher profit margins as compared to leads generated by other channels. So, the lower acquisition cost will likely bring more profit margins and better ROIs.


Higher Customer Lifetime Value

Customer referral programs encourage your existing customers to stay longer as they are rewarded with bonuses and discounts. Even the referred customers have a 16% higher retention rates, and 18% lower churn rates as compared to customers gained from other channels.

The retained customers are worth ten times more valuable than their first-time purchase. For example, Super Hair Pieces used a reward program on their website to incentivize repeat customers through referrals. The brand witnessed a higher CLV (customer lifetime value) because of the loyalty program. Referral programs contribute to an increase in the loyal customer base.


How To Start A Referral Program

1.  Start with customer referral templates.

2.  Set your goals.

3.  Research how referrals are coming to your business.

4.  Determine what a 'good fit' is for your company.

5.  List possible customer referral sources.

6.  Identify channels to host your referral program.

7.  Identify your referral incentives.

8.  Create resources to alert your customers.

9. Set up tracking and say Thank You

10. Follow up on your referrals quickly

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Referral Program Ideas

September 2, 2024
1. Contests or Giveaways Contests or giveaways can incentivize customers to refer new leads. For example, you can host a contest where customers are only entered if they refer a certain number of leads to your business. This can mean providing a list of emails or getting signups for a free trial or membership. The one risk that you run with contests is the quality of leads. If customers are randomly selecting their peers, you might not obtain leads who are interested in your business. This will cost your marketing and sales team time as they sort contacts who aren't a good fit for your company. Be sure to create contests that encourage customers to refer high-quality leads. You can do this by basing your entry fees on conversions rather than referrals. If a customer wants to be entered into the contest, they need to get people to sign up for or purchase your product, rather than simply providing an email. This will ensure that you're rewarding customers for providing high-quality leads to your business. For example, this Gold's Gym giveaway included a host of physical prizes, such as dumbbells and workout benches in exchange for referrals.

5 More Referral Ideas

September 1, 2024
6. Exclusive Events Customers like to feel like they‘re a part of a community, especially if it’s exclusive. By hosting events that are reserved for members of your customer loyalty program, you can capitalize on customer advocacy and attract new leads. For example, you can provide extra tickets to an event so customers can invite their peers and introduce them to your brand through a casual setting. Rather than bringing them into one of your stores, leads can attend a company outing or event where there's no pressure to close a deal. Why It's Effective Messaging from companies will never equal the impact of recommendations from friends and family. If you can provide customers with unique experiences that introduce your brand without making it the focus of the entire event, loyal customers won't feel strange about sharing invites with their social circle. Who It's Best For This is often a great approach for B2B companies to help expand their current corporate network connections. If you can carve out a reputation as a company that hosts great events, it's even easier for current customers to convince friends and family to tag along. How to Measure the Program's Success Compare your spending on the event to the number of referrals received and the number of conversions related to these referrals. Expect to take a loss the first few times as potential customers become familiar with your events, but if low numbers persist, consider changing your approach. When to Implement It Implement this strategy when calendars are fairly clear. For example, just after the holiday season is a good time — prospective referrals are often feeling a bit down and looking for an excuse to have a good time.
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