Finding the right method to acquire new, valuable customers for your business is hard work. Financially speaking, it can cost even five times more than retaining your existing ones. Still, new buyers are essential for business to grow. But what if you could reduce the cost of acquiring new customers while also increasing revenue from your current customers?
Brands like Dropbox and PayPal have already done that and managed to grow 3900% in just 15 months or achieve an impressive 10% daily growth, respectively. The key to their success is a well-built referral program made up of robust reward structure that ultimately leads to an increased customer base and happy customers.
I’m about to show you how your organization could benefit from starting its very own referral program; list a few examples of successful referral programs, and give you five actionable tips to make your referral marketing engine equally successful.
What is a referral program?
A referral program, often referred to as word-of-mouth marketing, is a type of marketing strategy that rewards existing customers for introducing your product or services to people in their network. Referral programs are increasingly becoming a crucial part of growth for industries characterized by rare and high-value purchases like the automotive industry, banking, retail, and many others.
A successful referral program is a proven way to boost your customer loyalty and ensure customer retention. According to HBR, customers referred by a friend are 18% more likely to stay with your company and subsequently generate more revenue.
As far as referral marketing goes, it really does take two to tango, as referral campaigns are based on relationships between friends, family, or even colleagues. Usually, the referring customer is called the referrer, while the referee is the person receiving the recommendation via your referral marketing platform.
There are various types of referral programs. Simple ones where only the referred customer receives a reward when a new customer registers, and complex ones where both parties receive rewards, and the reward is given upon each referral purchase or achieving a specific achievement. For example, a small reward for referring to the first person and a large reward for bringing in 10 others.
Worldwide, referral programs have brought in thousands of users and generated immense revenue. One of many referral program success stories is PayPal, the world-famous online payments system, which has chosen the referral program route as their prime growth engine, thus achieving an impressive 10% daily growth.
Effective referral programs have also been shown to reduce customer acquisition costs, foster positive customer relationships and thus motivate customers to invest more in your product or service.
What's more, Nielsen's survey of trust and advertising found that referral marketing ranked highest across all demographics, ahead of daily advertisements, editorial content, and sponsored campaigns. It makes it the most cost-effective marketing strategy for companies.
Successful referral program examples to learn from
Below, we take a look at some of the best referral program examples, which have utilized referral marketing software and created a reward structure that has resulted in loyal customers, lower customer acquisition costs and very impressive business results.
Tesla’s referral program
Tesla, Inc. is an electric vehicle and clean energy company that designs and manufactures electric cars, battery energy storage, solar panels and solar roof tiles, and related products and services. With a market value of $20 billion, the company has become one of the world's twenty most valuable companies in 2021. To make it even more remarkable, Tesla has a marketing budget of $0. Instead of advertising, Tesla bets on referrals and word-of-mouth marketing.
Tesla's referral program is a prime example of how a customer-centric referral program can generate a 40x ROI. While referrals were already coming in before Tesla launched its referral marketing program, the company took the entire referral process a step further and consequently yielded great results.
Tesla proved that the best referral programs empower customer behaviors. By designing referral programs that reward referrers and referees with a $1000 discount or free services, Tesla boosted and standardized their most valuable marketing channel. This generous referral program also meant that Tesla's happy customers brought in more customers, making the referral program engine a very profitable venture.
Tesla spent a great deal of time experimenting with different referral schemes right from the start. In recent years, the company has introduced as many as 6 iterations of its program.
Changes to the Tesla program were well analyzed by Georgette Mikhael from Loyalty & Rewards. From the two-sided program, rewarding both the referrer and referee with cash rewards, to offering free Tesla Supercharging or the latest program iteration offering discounts for Solar Roofs.
The Tesla customer referral program is a great example of the need to iterate your campaigns in order to make it profitable for both customers and the business.
Here’s how the Tesla’s Free Supercharger Miles referral marketing program could be done using referral program software:
- Trigger: Referee’s purchase of the new Tesla car.
- Rule for referrer: After the referred customer purchases the car, both the referrer and referee get free Tesla Supercharging.
Dropbox's referral program
Thanks to the well-designed customer referral program, Dropbox, the online storage service business, grew from 10K registered users in September 2008 to a staggering 33.9M by September 2019. Dropbox's referral program ultimately became their main growth engine and was responsible for 35% daily signups.
Dropbox implemented a two-sided referral program as the final part of their six-step onboarding process. It used its product as a reward. To make it even easier, the company made sharing as user-friendly as it could be. Happy customers could refer friends via email, by sharing a unique referral link, or through social media apps.
The referral process ultimately increased signups by 60% and generated more than 2.8 million direct referral leads in the first 18 months.
Referral campaign configuration
- Trigger: Referee’s account registration via unique referral link.
- Rule for Referrer: After the new customer activates their account and downloads the app, the referrer gets 500 MB for each successful referral. The referrer can get up to 16GB for all referrals.
- Rule for Referee: Referee gets 500 MB free storage after signing up using the referral link.
Harry’s referral program
Harry's, a direct-to-customer brand that sells shaving equipment and men's personal care products, is another great example of an effective referral program in action; bringing in 100k (sic!) new subscribers and 65k referrals in the week following its launch.
Harry’s entered a saturated market back in 2012 to compete with behemoths like Gillette and Venus. However, they identified customer pain points, i.e. the high price of quality razors and addressed them, by making their own for a much better price.
As of today, Harry's employs 40 domestic employees, has an online store and a barbershop in New York City, as well as an online magazine.
Harry’s also made referring easy. It only took a few steps for referrers to send a referral link. The core part of their referral program was a two-page micro-site that collected email addresses and email communication. After submitting their email, the user was redirected to the referral landing page, where a gamified referral program awaited them. To boost the program, Harry’s ran paid advertising campaigns on Facebook and Instagram.
The referral program implemented a milestone rewards system based on how many customers were brought in by the referrer.
Referral campaign configuration:
- Trigger: First purchase of the referee.
- Rule for Referrer: The referrer gets various rewards after reaching a specific number of successful referrals:
- Referred 5 friends - free shave cream.
- Referred 10 friends - free razor.
- Referred 25 friends - free shave set.
- Referred 50 friends - free blades for the whole year.
MSI’s Rewards Program
MSI is a world leader in gaming, content creation, and business and productivity solutions. MSI has a wide-ranging global presence spanning over 120 countries, and it recently introduced its new referral program called MSI’s Rewards Program. The program seeks to maintain contact with their end customers, build an engaged community, and increase cross and up-selling of their products.
Buying gaming gear isn't something that happens very often, so MSI implemented a referral loyalty program to acquire new customers. MSI Rewards Program members can earn points for referring friends, so every time a friend registers for MSI hardware, points will be credited right away.
Members of the MSI Rewards Program can invite friends via email. They can then check the invitation status directly from the customer portal. By maintaining transparency, members are more likely to engage with the program.
Referral campaign configuration:
- Tigger: The referee registered and activated their account.
- Effect: The referrer gets 50 points.
- Trigger: The referee has registered and purchased an MSI product.
- Effect: The referrer gets 100 points.
5 best practices to make a successful customer referral program
Customer referral programs can be simple, involving a small number of users; or complex referral marketing programs run by a powerful referral marketing software. Before starting your own referral program, there are a certain number of things you need to consider. Here’s a list of business-proven practices to ensure your referral program succeeds.
1. Set a clear goal for your referral program.
What is your focus going to be? Advocates, referrals, or both? Let's assume you want your number of referrals to grow by 5% per month . To hit your goal, how many advocates must share referrals per month? Set a specific goal so that you can track whether or not you're on the right trajectory. Here are a few examples:
- Decrease the Customer Acquisition Cost (CAC) by xx%
- Comparing referees vs. non-referees in terms of CLV, revenue or average purchase value by xx%
- Get xx new customers monthly from referrals (and comparing changes week by week)
Setting goals for a referral program is crucial. Fail to do so, and evaluating the success of your program will become very difficult. While developing and optimizing a referral program, keep in mind that at times, goals may change. By setting realistic goals at the beginning, you can build a valuable loyalty program over time without the added stress of missed targets. Slow and steady really does win the race.
2. Choose the right referral incentives for your audience
The referral incentives, also known as referral rewards, are an essential part of any successful referral marketing program. They help motivate your customers to be brand ambassadors for your products or services. The success of your referral program depends on knowing your target audience and choosing the right set of incentives and rewards accordingly.
Well-thought incentives serve both the referring customer and the referee. It will be easier for new customers to commit to handing over their money with the right set of incentives motivating them. The combination of a discount and a friend's recommendation makes an offer not many will pass up. Before choosing incentives for your referral process, consider the following:
- What motivates your customers to refer companies to their family and friends? Referral rewards increase the referral likelihood by 5x. Do the research, speak to your existing customers, and make a data-motivated decision.
- Who receives the reward? Your referral program can be one-sided, where only the referrer gets a reward, or two-sided, where you reward both the referrer and the referee. Two-sided programs are typically signs of exceptional customer service.
- How should the mechanics of the refer-a-friend program look?
A) Two-sided referral campaign: The referrer gets a reward after a new member signs up while the referee gets extra points after joining via the recommendation.
B) Earn when a referee buys something: Referrer gets points every time the new member buys something.
C) Referral milestones campaign: Referrer gets reward A after inviting 3 members and reward B after referring a total of 10 new customers.
3. Choose a loyalty program that meets your needs
The referral program software is a tool allowing businesses to run referral programs. Modern software can easily automate your campaigns for different segments of your customers, and significantly increase engagement rate. As there is a wide variety of referral software, you should keep in mind that the one you choose should go along with your present and future business needs.
Planning ahead may future-proof your referral programs. Before choosing a referral software consider following:
- Consider your strategy and think about what the program looks like right now and how it might change in the future. As customer behavior changes, you should be prepared to change your program accordingly.
- Asses loyalty software API capabilities. It’s a crucial part if you want to introduce a dedicated referral program UX and frontend. If so, you need a flexible API that will allow you to implement any shape of a referral program in various channels like an online store, mobile applications or POS.
- Ensure the software can handle your referral programs' unique needs like one or two-sided referral campaigns, rewarding on the basis of a purchase event (first purchase, each purchase), non-purchase events (e.g. registration and activation of a new account, application download, driving 100 kilometers), and many more.
To make it easier, ask yourself a few questions:
- What is the growth rate of your referral program?
- What capabilities will you need in the future?
- How will the new software handle future needs?
4. Use the best methods of managing loyalty programs
Any company can create a referral program, but the real challenge is managing one. It always depends on the size of your referral program. The smaller it is, the easier it is to get a grasp of. To manage a complex customer referral program, you need a multidisciplinary team. To make it easier, we’ve prepared eight proven practices for loyalty program management which you can successfully apply in this case too.
Here are some of the general good practice for any kind of loyalty program:
- Understand your customers. This can make or break any referral program. To create a successful one, you need to collect and analyze customer data such as demographics, motivational factors, preferences, and trends. Use those insights to design an irresistible program for your audience.
- Start small, and build up as you go. Break your loyalty program idea up into smaller pieces. Your loyalty campaign should be tested, iterated, and gradually evolved while considering customer preferences and business requirements.
- Make it simple and realistic. Make sure your programs are not too complicated and don’t require too much time to earn rewards. This will turn customers off. Consider using easy to earn, small rewards that offer ongoing and long-lasting customer satisfaction.
- Craft a conscious marketing strategy. Even with the best referral program in the world, without effective marketing, all your hard work is likely to go unnoticed. Make sure to include information about your referral program in all of your marketing assets, and promote it via channels relevant to your audience.
5. Make it easy to share.
The best way to raise customer referrals and increase your referral sales is to spread the word. That being said, you need to promote your referral program. Below are 8 examples to consider when promoting your referral program.
- Use email marketing to regularly promote your referral program among existing customers.
- Create a referral landing page which will concentrate the referral traffic from all campaigns.
- Automate promotion with referral management software to keep your users engaged by making referring as enjoyable as possible - automatically send welcome emails, reminders, and unique referral links to your users when they need it.
- Build social sharing into the referral program to access huge lookalike audiences like your customers.
- Make your program visible by including it in your main menus, navigation bars, and stores. It’s also a good idea to craft a referral program page containing all the information.
- Run a paid social media campaign if needed - remarketing can boost the number of referrals in a much more cost-effective way than your run-of-the-mill paid ads.
Keep in mind that you should promote customer referral programs exactly where your loyal customers are. Hopefully, the practices and examples I have collected will help you develop a great referral program! If you’re looking for more information you can drop me a line on Twitter or Linkedin.