TL; DR
Referral programs are marketing strategies employed by businesses to increase sales. It is the incentives like cash, gift cards, or discounts offered to customers when they promote the company's products to others.
With referral programs, each customer is given a link they can share with their contacts. When their contact makes a purchase, the business rewards the referring customer as promised.
To set up a referral program, first, define your goal, choose the product you want to incentivize, and decide what rewards you will give away. You can even build your referral program with software like Referral Factory and InviteReferrals.
Promote your referral program with the help of different resources and analyze the progress. Make any adjustments you see necessary to get the most out of your referral program.
A lot of companies have employed the referral program method to increase their sales but one company that stands out in creating a flawless referral program is Airbnb. Their well-planned program allowed them to increase their bookings by 25%.
The ultimate goal of any business is to increase customers and generate sales. Effective referral programs help them achieve that goal. You might be asking yourself what exactly referral programs are and why they are so important.
Well, referral programs are strategies designed by companies that reward individuals when they bring in new customers. This allows your loyal customers to become your brand's ambassadors and market your business.
Leveraging your customer base through referral programs is a smart choice as referred customers have a higher conversion rate and arevalued at 16% higher than non-referred customers.
In this article, we will take an in-depth look at referral programs and offer a step-by-step guide to creating a powerful program. Read along to find out more.
What Are Referral Programs?
A referral program is a form of marketing strategy. It encourages customers to recommend your products and services to other people.
It is also referred to as word-of-mouth marketing but the only difference is that it comes with customer rewards.
A referral program is a carefully designed strategy that utilizes the existing customer base and offers them discounts or rewards in exchange for bringing in more customers.
How Do Referral Programs Work?
Referral programs work when companies offer incentives like cash, gift cards, or discounts to their customers when they bring in more customers. Usually, each customer is given a unique code that they can share with their friends and family.
When the new customer uses the link to purchase anything, the business validates the referral and rewards the referring customer as promised.
How To Create a Referral Program In 6 Easy Steps?
Creating a referral program is a cost-effective way to market your business. Here is a step-by-step detailed guide to creating a successful and impactful referral program:
1. Establish Your Goals
Ask yourself this question: Why am I setting up a referral program?
A business can set up a referral program if it wants to acquire new customers and increase sales.
When new customers are given discounts, they believe they are saving money and are compelled to try your products.
If they like your product, they are more likely to buy it again and recommend it to others as well.
Another popular reason why brands do referral programs is to establish a relationship with their buyer. By rewarding their customers, entrepreneurs can build a loyal community and encourage customer retention.
2. Choose a Product
Once you have set your goal, choose a product that you want to incentivize. This is a significant step as choosing a low-quality product can tarnish your reputation as a business. Therefore, you may need to pick a popular product.
Make sure you do an adequate market search and do a deep quality check of your product before dispatching it.
3. Choose Incentives
Decide what rewards you will give away. Is it going to be a gift card, cash reward, discount, or something else?
You also need to decide whether the reward will only be given to the referral or the new customer as well. This will avoid confusion and maintain transparency.
Also make sure to provide every detail about this referral program like eligibility, rules, and reward distribution.
4. Build and Maintain Your Referral Program
Now that you have fulfilled the prerequisites, it is time to build a referral program. To make a successful referral program make sure that it is seamless and easy to follow.
Design your program such that people can refer you to others with a click of a button.
You need a referral marketing tool to build and manage your program. These tools help create unique referral codes and monitor the progress of your program.
Here are some of the best tools that can help make the best out of your campaign:
1. Referral Factory
Referral Factory is a software that helps you build a referral program without any developer.
You can customize your referral program from scratch or select from the templates offered by Referral Factory.
Once the program is running you can integrate it into your business tools and with its powerful tracking tool you can easily monitor the progress of your program.
Many businesses use this tool because:
- It is cost-effective.
- Has a built-in fraud alert.
- Available in 21 languages.
- Provides support from referral marketing experts.
Referral Factory offers Starter, Basic, and Pro options at $95, $200, and $300 per month respectively. Each plan offers a free trial.
2. InviteReferrals
InviteReferrals is another powerful tool that helps to design and implement referral programs.
You can select multiple campaign types like "reward top referrer contest” and "invite to unlock campaign."
Your customers can participate in such campaigns and send invites to their friends and family.
This software is used by entrepreneurs as it:
- Identifies top referrers.
- Integrates flawlessly with third-party applications.
- Gives a detailed report about the referral program performance.
- Offers a wide range of campaigns and types of rewards.
Invite Referrals has a basic, standard, and enterprise plan. The basic plan costs $99 per month or $79 per month if billed annually. They also offer a free trial, but the drawback is that there is no mobile version.
3. ReferralMagic
This tool can create multiple referral programs simultaneously and you can check the progress like the number of pending rewards, sign-ups, and visits.
This software is useful as it offers:
- 30-day money-back guarantee.
- Integrates with third-party services like Webhook and MailChimp
- Offers one-time, monthly, and yearly options.
- Has a knowledgeable and friendly customer support team.
ReferralMagic's monthly offer costs $245 per month while its yearly offer costs $2205 per annum (15% discount). Its on-premises offer runs on your server and has a one-time fee of $9700.
5. Promote your referral program
Now that you have created the referral program, it is time to promote it. You can use various channels like social media, SMS, your website, and email.
You can also develop engaging content like videos to explain your program in an easy-to-understand and visually appealing way.
6. Analyze and adjust
Monitor the progress of your referral program and check its impact on your business.
Look at particulars like the number of referrals, revenue generated, and the lifetime value of customers acquired through referrals. Take customers' feedback and implement it where necessary.
If you feel like your referral program has failed at achieving its goal, try fine-tuning the program by increasing the reward or offering a different type of incentive.
Example Of a Successful Referral Program: Airbnb
A lot of companies have employed the referral program method to increase their sales but one company that stands out in creating a flawless referral program is Airbnb.
Airbnb offered US$18 per qualifying stay and US$10 per qualifying experience to the referrer and up to US$46 account credit to the referer. This reward was so appealing to the customers that it increased Airbnb's bookings by 25%.
Their program hit the target as it kept in mind the crucial elements needed to create a successful referral program.
They made sure their incentives were intriguing and they rewarded both the referrer and referee. The users were also allowed to personalize the referral links and were encouraged to share them on social media to increase reach.