Referral marketing is one of the most powerful marketing tools, especially for ecommerce businesses.
If you’re wondering just how powerful it is, think about how the biggest brands in the world have become household names because of it. Brands such as Airbnb, Uber and Tesla have all created some of the best examples of referral programs over the years.
So, what exactly makes referral programs great for business?
The answer is simple: They keep the customer lifecycle turning. This means your new customer turns into a loyal customer, who becomes an advocate for your business and then brings in more customers...
And so the cycle continues.
But, here’s the thing: While it might sound simple, not enough businesses are taking advantage of referral marketing. Studies have revealed that although 83% of happy customers are willing to recommend their favorite brands, only 29% do. These numbers mean that referral marketing doesn’t just “happen.” There’s a very deliberate method to it.
This method is what we refer to as the three ins and three outs of referral programs.
The 3 Ins and 3 Outs of Referral Campaigns
In a nutshell, these are the three pillars of every strong referral marketing campaign.
- The Offer: It all starts with your referral offer. The incentive is what lures your new customers IN and what you want your current customers to hand OUT.
- The Customer Experience: This helps clue IN your current customers about the referral program — all the digital material that you’re putting OUT.
- The Backbone: The software, which holds your whole program together. There’s a lot to consider when choosing referral marketing software. The right one will help you get the marketing content you need INto the program and also remind your customers to go OUT and refer their friends.
These are the essential ins and outs of setting up a successful ecommerce referral program. In this post, we’ll break them down even further to help you approach your next referral campaign with confidence.
Ready? Let’s dive in!
The Ins and Outs of Referral Programs: Referral Offer
Sometimes companies make the mistake of thinking about only one party for the referral offer. However, it’s important to consider both the referrer and the new customer. Ask yourself these two questions:
- What will the referrer’s reward be for speaking positively about my business?
- What will the new customer gain by becoming a user?
This is the first step when developing the ins and outs of your referral program.
The IN: For the New Customer
Make an attractive welcome offer that they can’t resist. Think, store discount or store value offers. Both the purchase and the reward must be simple to get.
The OUT: The Reward for the Current Customer
Here’s something to consider — you’re not just trying to get your loyal customer to refer one friend. Your loyal customer likely has several friends who would also appreciate your product or service.
With this in mind, the idea is to build a program that encourages them to refer as many of their friends as possible to you. How do you do that?
Well, the way your business is set up can help determine what incentive will work best. For instance, if your products are one-off purchases, the incentive can be cash. On the other hand, if your product allows for repeat purchases, the incentive can be store discounts.
An excellent example of this is Loot Crate, a monthly subscription box that caters to fans of gaming, sports, movies and pop culture.
Since the company offers a subscription box (repeat service), it rewards its loyal customers with store credit. This works out to one month free if the customer refers at least three friends. Do you think its customers refer just one friend? Of course not!
Leesa, an ecommerce mattress and bedroom accessories brand, is another great example. The company offers its loyal customers cash for every friend referral. This makes sense since it can take years for people to buy new mattresses.
Companies can get creative with their offers. Besides cash, you can also offer discounts, coupons or points for a big reward.
Ultimately, it’s important to consider what your customers will find most valuable. Determine that, and you’ll be on your way to a successful referral marketing program.
The Ins and Outs of Referral Programs: The Customer Experience
After deciding on the perfect referral offer, you'll need to ensure the customer experience makes it worthwhile.
In a nutshell, this involves deciding on how your loyal customers IN the program will learn about it, and what your referred customers will see from the OUTside.
How to Encourage Loyal Customers to Enroll INto the Program
- The most practical way to achieve this is to automatically enroll your old customers and any new customers IN once they buy from you. This allows you to maximize the number of potential referrers.
- The next step is to send them reminders about the program. This can be after they’ve completed a purchase and after the item has been shipped. Remember to also send a reminder for them to collect their rewards.
How to Encourage New Customers From OUTside the Program
- Since this is their first encounter with your business, it’s important to make the process as simple as possible. The first step: Allow your customers to share the program through a link.
- You can also pre-write all the copy for the program so your current customers don’t have to think much before sending the link.
- While you’re at it, produce fresh and new images that will appeal to new users.
- Include relevant referral links in your landing pages and emails as well.
Remember the most important factor of the customer experience: Make sure both the referrer and the referred feel like the program is effortless to participate in.
The Ins and Outs of Referral Programs: The Backbone
As highlighted above, the backbone of your program is the software you use. Ultimately, referral programs are marketing programs. So, some setup and maintenance should be involved to make sure they run as smoothly as possible.
There are several considerations to take into account when you decide on software.
What You Should Look for IN a Referral Marketing Software
- The ability to set offers for both new and old customers.
- The ability to customize and brand landing pages, and share images, emails and other content around the campaign.
- The ability to automatically fulfill transactions and rewards. In other words, when a referring customer has fulfilled their end of a referral program, they should be able to access the reward almost immediately.
Costs and Concerns: What Referral Programs Take OUT
This is the “fine print” part of referral program software. In a nutshell, you’ll need to:
- Know the fees and limits of the software. For instance, some programs only allow a limited number of customers to enroll in the referral offers.
- Unfortunately, fraud can take place within referral programs. To protect your business, ensure that the software you decide on has a system in place to help prevent fraudulent activities, like self-referrals.
- Look into the costs of the offers: Are they good for business?
We mentioned Leesa offers $150 for a new-friend referral. The company can afford this because its mattresses are $500+. Similarly, Tesla can afford to give out $1,000 because its cheapest cars are still in the five-digit range.
These big numbers shouldn’t put you under pressure to give away big rewards. Ultimately, only you can determine how much you can afford. And while you’re deciding, don’t underestimate the value of $10 cash!
There’s no denying the impact that referral marketing can have on a business’s growth. However, it doesn’t happen without effort. Customers don’t just wake up eager to refer your business.
You need to put systems in place that encourage them to refer their friends and encourage their friends to buy from you. These systems are the three ins and three outs of referral marketing.
Armed with this knowledge, we hope you approach your next referral marketing program with more clarity and a greater understanding of what it takes to make it work.