There are multiple clear benefits to starting a referral program for your brand. Referral programs offer steady growth and maximum ROI with minimal investment. With word-of-mouth marketing and allowing your network of happy customers to spread the word, there’s no question as to why so many brands seek out referral rewards programs.
What can be harder to pin down, however, is what type of incentive to offer. Good referral incentives draw in the customer and entice them to get others to sign up. A good referral incentive should also not take from the business financially while remaining relevant to the brand.
With so many industries and types of business plans, the incentive options are practically endless. The key is to narrow down your options to find the best fit for your particular brand and market. In other words: we can help you find an incentive that your customers will truly want.
Different types of referral incentive options include:
- Cash payouts
- Discounts or store credit
- Percentage off
- One-sided incentive (the referring party or new customer)
- Two-sided incentive (win-win-win!)
Take a look at various referral reward options in order to determine what would be the best fit for your brand.
Why do you need referral program incentives, anyway?
If you’re new to referral marketing, you might be wondering why you’re offering an incentive at all. Why do customers get rewarded for bringing new leads? How does the company avoid taking a loss in this situation? And what are the benefits?
Referral rewards offer current customers a clear motivation to tell their friends about your brand. While your services might be brought up naturally, the mentions will be far less frequent in that case. But by offering a reward for their referral, you’re incentivizing them to sing your praises more often, to more people, and enthusiastically enough to close the deal. When customers benefit, they will market on your behalf.
An added benefit of referral rewards is that they are paid for with new business. Rewards are doled out only when new customers have signed up, therefore it’s more money for your business. Referral reward fees are only a drop in the bucket of what you’ll be bringing in. Besides, you can cut down on marketing fees, which further increases ROI. New customers sign up, then refer their own network, allowing you to continue to grow.
Word-of-mouth marketing is an effective way to grow your brand, all while letting customers do the work on your behalf. Meanwhile, a referral reward can ensure more leads on a larger scale.
What gives: common concerns on referral rewards
One of the biggest concerns about referral rewards are the fees associated with these types of programs. Companies might be apprehensive to start a referral program due to the perceived fees of paying existing customers for their time.
There are a few things we need to debunk.
- Referral rewards don’t have to be expensive. You should offer a reward that aligns with the price of your brand’s services. If you sell big-ticket items, you can give big-ticket rewards. But if you’re on the smaller end of the spectrum, your rewards will be smaller, too. This ensures that new business pays for the reward and that additional fees aren’t coming out of pocket.
- Rewards are only paid when a new customer has signed up for your service. No outside fees, just dollars coming in.
- Yes, customers can cheat the system. But by using the right referral program software, you can detect fraudulent activity such as fake referrals. Referral software is designed to track irregular movements, duplicate addresses, etc., so there’s no need to worry about paying customers for fake leads.
- Referral software is effective and maximizes your efforts at closing new leads, so your monetary investment will be low for high returns.
How to decide on your referral rewards
One of the first things you will want to decide is who you want to motivate with your referral rewards program. Who will provide the biggest benefit to your brand’s growth and profitability? The answer to this question is who you should offer the referral incentive to.
Deciding this key step helps lay the groundwork for your entire rewards program. When you know who you’re targeting, you can better plan how to reach them with pointed rewards and incentives. You’ll also know how to create key messaging and your program structure.
Referral rewards usually come through three main styles of incentive programs: one-sided, two-sided or no incentives.
One-sided referral incentives
This reward program lands with one side of the program — either the current customer is rewarded, or the new customer is. Let’s look at both types of one-sided rewards.
The current customer gains
When promoting to the current customer, they are very motivated to share with others. With an incentive on the line, customers will be more likely to share the news of your company and sing your praises. This leads to many warm leads, increases customer retention, and brand loyalty.
However, without an incentive to join themselves, new customers are less likely to close the deal. It can also look less than authentic when current customers stand to gain, but not the new customer.
One-sided incentives for the current customer are best for companies looking to grow brand awareness, or for companies selling budget items. Without a larger budget to reward both parties, companies can save with a one-sided incentive program.
Example: Google’s email system, G Suite offers a one-sided referral. Existing customers gain $15 to $30 for new customers who sign up (Business and Enterprise plans, respectively), capping the reward at $3,000. Or Dropbox, which provides additional storage space for incoming leads.
The new customer gains
When the new customer is the party that earns the incentive, they are extremely likely to sign up for your services. This scenario strongly entices the new lead with a promise of a free item, service, or dollars off. If they’ve already been wanting to try out your services, now they can do so at a discounted price. Less risk, more reward.
However, if you reward only the new customer for signing up, the existing customer probably won’t be as motivated to make referrals, as they’ll wonder why there’s nothing in it for them.
Offering the new customer an incentive is best for subscription model brands. When landing frequent sales or luxury items, offering a reward to the buyer can close a deal that would have otherwise left open-ended. It can also create a good rapport, leading to repeat customers.
Example: Boost Mobile offers a variety of freebies or deals for new customers. Those who switch their phone service can receive a free phone or free year of use on a more expensive phone.
Double-sided referral rewards (AKA two-sided rewards)
When both parties have something to gain, you can really increase the traction of your referral program, whether you’re in e-commerce or another type of industry. In these types of programs, it’s win-win-win, both customers have something to gain — the current customer and the new lead — and you earn a new sale. All-around, these types of programs see the most success, bring in the most dollars, and gain the most new business. Current customers refer more people, and more leads sign up with something to gain.
However, some companies aren’t able or willing to give out this many rewards. This can be due to financial reasons, or if they don’t want to look into software that tracks and doles out rewards for more recipients. The threat of more work can be daunting.
Double-sided rewards are great for all industries, especially for businesses that have the resources to implement this type of plan. It’s also best for brands that utilize referral software that can track and implement rewards on their behalf.
Example: Meal kit delivery service, HelloFresh, has a double-sided reward program, offering credit to both parties. Referrers get $20 off, with the successful referral receiving $40 in HelloFresh credit.
No referral rewards
You can also create a rewards program that does not offer any rewards to customers. This might be due to many reasons, such as additional costs, or simply not wanting to provide extra items to patrons. Instead, brands with this approach focus on more traditional marketing options and rely on word-of-mouth exposure to happen on its own.
One benefit of this method is that it ensures that referrals are genuine. Without a reward, people who are inclined to share do so willingly, expressing that they have true positive feelings about the brand. However, there is a much smaller chance that customers who refer a friend will do so, and those that do are unlikely to convert leads into new customers. It’s also difficult, if not impossible, to track referrals and who came in because of a warm lead. So, referral programs with rewards fare much better than this option.
No-reward referral programs are best for companies that don’t have a budget to offer incentives. They can also be used to establish a rapport with new audiences. Luxury brands might be less likely to offer rewards, too, as it may seem off-brand for their market.
Choosing the best style of referral rewards
We’ve established that referral rewards can be great for all types of businesses, but it’s also important to find the right type of reward to meet your brand’s needs. What will most entice your customer base? How will they be the most motivated to refer friends to your services?
Look at these examples of how key brands have found the most success with their referral programs:
Companies where purchases are big or infrequent offer referral rewards of cash, swag, gift cards, or charitable donations.
Companies where purchases are regular or repeated offer referral rewards of store credit, discount codes, upgrades, a free month of service or free item.
Now, let’s take a look at each incentive style in detail.
Store credit as a referral reward can be an effective way to pump funds back into your business. By giving customers credit to use at your company, they’re more likely to purchase from your company again. It can also be a way to save on your referrals — because you’re offering up credit, not cash, it comes at a discounted cost.
This is the method of choice by many top businesses in their referral program. For instance, Uber Eats sends $5 credit toward a future order once referring a customer who orders through their app. Airbnb offers a similar store credit system with tiers of rewards when referrals are booked.
These types of rewards can be especially beneficial for brands that have repeat customers and services that are purchased multiple times over. This is also known as a “pay per use” system.
Another referral type are discounts, where customers earn a percentage off their next service or order. It’s a great way to entice past customers to buy again and to earn their loyalty by offering discounted goods. You can even offer tiers, so better discounts for more referrals, etc. Discounts can also be offered as a static amount, for instance, $20 off your next purchase or 40% off a future order.
Discounts may not be the best fit for items that have a long cycle or are more expensive. As customers will be unlikely to purchase again soon, this won’t be a good motivation for them to bring in new referral leads.
Who doesn’t love free cash? The chance to earn cash is one of the most popular customer referral rewards to date. Cash speaks to folks where it matters — right in their wallets. In some cases, cash doesn’t align with a brand’s identity. But in other cases, it hits close to home, and then some. For instance, Paypal previously rolled out an incentive program where they offered $20 to new account holders. Meanwhile, Leesa, a mattress company, sent $75 to users’ accounts once purchasing a new bed, tracking through a referral link.
In both cases, these rewards aligned with the company. Paypal is made to receive and send cash, so providing funds straight to the consumer was right on brand. While with Leesa, folks are unlikely to purchase a bed for many years, so offering cash makes more sense in getting customers to follow through. However, it’s a great way to increase your conversion rate with referred friends.
Besides, cash is alluring. It’s exciting and people can spend it on whatever they choose. It’s a great way to create marketing buzz and to further entice referrals that convert.
Free products serve as another reward incentive to excite customers. You can choose from a wide variety of items that can be handed to consumers. Give them a free item that your company makes or sells. Or, you can give away more expensive pieces, like luxury items. If your company sells more expensive goods, the latter will likely be a better fit. Meanwhile, if you sell more affordable pieces, free products can also be more affordable, such as t-shirts or branded swag. Even better when receivers share their stuff on social media.
This is also a great way to get customers interested in new releases or under-utilized sections of your company. For instance, when health food company, Hungry Root was attracting new customers, they offered a deal with free chickpea cookie dough to new subscribers. While this might not have been a hot-ticket item originally, it allowed consumers to try something new, then re-subscribe as paying shoppers after the unique cookie dough.
Another alternative to cash is that of gift cards. Uses can receive a gift card to a place of their choice, such as Amazon or a universal gift card like Visa. Oftentimes you can get them at a deal, so fewer funds are spent without lowering the customer reward.
Gift cards can also be customized for your industry. For instance, if you sell artisan cheeses, perhaps you could offer a gift card for cutlery or custom cutting boards. Meanwhile, gift cards come with a use-by date. Customers will have to use their card by X date, allowing you to track key data that will help you to better understand your customer base. This also helps create and maintain loyal customers.
If your business offers a subscription service, you can entice customers with a free or upgraded month of service. This is another key way to introduce customers to new tiers that you have to offer. And if it’s a service they already enjoy, they’ll be glad to earn it for free. Weekly subscriptions can also be provided, depending on your business model.
For instance, meal delivery options like Hello Fresh allow consumers to order by the week. While music subscription is billed monthly, like Spotify. In either scenario, providing a free period gives newbies a taste of what you have to offer, bettering the chance that they’ll turn into a long-term subscriber with a discount on their next order. While referring customers get a deal for their troubles. It’s a win-win.
Donations to charity
Another route that referral rewards can take is to donate to charity on their customers’ behalf. If you can’t provide the options above or aren’t interested, charitable donations are another way to reward new business. It grabs the consumer by reaching them at their heartstrings and has the added benefit of being a tax-free donation.
Rewards can be given in cash, or brands can provide products to those in need. For instance, look at TOMS, which donates a pair of shoes for every pair that’s sold. Referral programs can also give the customer the choice, allowing them to take a cash reward, or donate the funds to a charity of their choice.
The chance to help folks feel good and to help a cause does much for morale and advancing new referrals.
How to frame your rewards structure: how much? And when?
Next, it’s time to create the framework for your referral rewards. Determine what you will offer for closed referrals, and when you will dole them out to your customers. Looking at these next details can help make this plan easier, and to create a plan that’s pointed toward your customer base.
When will you give the referral reward?
There is one obvious answer to this question: once an action has been met. Referrals can be rewarded once a sale is final, once a customer clicks a link and fills out a form, etc. Decide what this action will be so that you can implement it into your referral program. Keep in mind that you can have different triggers for different types of rewards, if/when applicable.
Will you use reciprocal rewards?
Reciprocal rewards take place when the referring customer and the new customer receive the same reward. For instance, when a customer signs up, both parties receive $30. However, you could also sway rewards so that one party earns more than the other. For instance, allowing the new customer to earn more in value, such as a free week of meals from Hello Fresh, while the referrer gets a smaller amount.
Will you use a tiered reward structure?
A tiered reward structure allows customers to earn different amounts based on how many referrals they draw in. Some brands offer a bigger reward for the first time a customer refers a friend, then smaller rewards going forward — such as $50 for the first referral, then $20 for all subsequent leads. The shock factor gets customers excited to share the good word, while the process excites them and creates loyalty, causing them to keep referring, even with smaller rewards.
Another option is to increase rewards with more referrals. A customer who brings in 1-5 leads can earn $40, then $60 with leads 6-10, and so on. These types of tiered programs often have an earning cap so that customers have a limit as to how much they can earn. However, it’s not required, and so long as more dollars are coming into your business, rewards can keep on enticing.
Will you give a reward for every single referral?
Decide if you want to provide a reward for every referral that comes in. Brands can choose to reward only first referrals, or once people have reached a certain number. If choosing the latter, remember that customers are unlikely to put in work for a small reward, so it should be something that’s worth their time and efforts (AKA a bigger incentive).
Will you use a different reward structure?
There are different options you can take with your referral rewards in order to get it up and running. And why not have some fun? Stir the pot and grow your business through these alternative ideas, such as:
See who can bring in the most referrals. Offer a prize to the winner and watch customers flock in with their new leads. This can be done as a short-term event, or regularly, whether every month or every few months to keep it fresh. This can be more cost-effective, too, as you only have to doll out a single prize.
A great example is retail company Huckberry, which uses seasonal contests to boost interest about their brand. The rest of the year they offer $20 rewards for new leads, but during contests, the big winner earns $1,000 in Huckberry cash. Second and third place earners get a prize too.
Advocate of the month program
Nothing sparks customer loyalty like a little recognition. That’s also one of the biggest reasons referral programs are successful — people like to be appreciated for a job well done. With an advocate of the month program, you do just that: recognize folks for all they’ve done.
You can create gamification and have folks put their best skills to work. Rank competitors by the number of referrals they’ve brought in, or pull from a hat (a virtual hat that is), and let the winner be picked by fate.
Let people have fun while they earn through gamification. Gamification allows customers to earn points, play games, and earn through various activities. You make the rules, but by creating a game, you’ve made a fun and competitive environment in which your best referrals can duke it out. No matter who wins, however, your brand profits. Don’t be afraid to pull in this structure to add a little incentive to your referral rewards.
Breaking the referral process into stages
Your referral program doesn’t have to be a one-and-done situation. Many times, purchasing is drawn out into many steps. For instance, initial consultations, demonstrations, and trial periods before a customer completes the actual process. However, if the referrer has to wait too long before they earn their reward, they might lose motivation to keep marketing your brand.
In cases like these, it’s helpful to break the rewards system into steps. This means the referrer can get a different reward for each step the new customer completes. For instance, $5 for the consultation process, $10 if they reach the trial period, and $20 more if the new lead signs up with your brand.
Referral program examples and incentives
Take a look at these referral reward examples for a better idea of what you can do with your own referral program, as well as a look at how successful programs have helped customers profit multiple times over.
Morning Brew is a free newsletter that’s made to reach young professionals. Their key phrase, “Share the Brew” is used in their referral campaign, encouraging current subscribers to get their friends and co-workers to sign up.
Morning Brew is a one-sided referral program, rewarding the current subscriber for their referred customer. Rewards vary but include swag, a premium membership upgrade, or even travel rewards, like a trip to their headquarters. Customers earn higher rewards for bringing in more subscribers.
Daily Harvest is a superfood delivery service where consumers can earn fresh foods delivered to their door. Users can refer their friends to earn extra credits to use toward future boxes. Once a referral signs up, they earn $25 off, as does the previous customer. The referral reward stays the same across the board, and users earn the same amount, no matter how many new folks they draw in. Daily Harvest also offers points for customers based on their spend rate, where points can be cashed in for store credit once reaching 100 points — every dollar = a point. The program also reduces customer acquisition costs.
Customers at Primary can earn 20% off with a referral code while the referring customer earns $10 cash. Selling children’s clothing, Primary offers a great example of switching up referrals between the existing and new customer. Primary’s rewards don’t cap out either, so customers can keep sharing their unique code in order to earn more cashback every time they reach out.
There are many ways to structure a referral reward program for your business, this is true whether you’re a retailer, e-commerce store, or a service-based company. Brands that utilize their industry and market interests will see the highest levels of success in this marketing strategy. When formatting your referral rewards, it’s important to look at your price point, what entices your customers most, and a program that makes sense for your brand. Key in these features for a referral program (and a referral offer) that allows you to profit and grow your customer base, all while reaching your customers where it matters most — through word-of-mouth marketing.