Neil Patel

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How to Build a Referral Program into Your Online Business

You know the power of word-of-mouth advertising. In fact, you swear by it. But what marketers usually miss is that word-of-mouth advertising isn’t something that always has to happen completely organically. With a little strategy, you can encourage customers to spread the word.

Online businesses that create referral programs can track their brand advocates, incentivize happy customers to promote their product, and increase both customer acquisition and retention.

But how do you take an idea like “word of mouth” and turn it into a successful, manageable program that includes dashboards, analytics, and real-time results? In this post, we’ll explore how and why you should build a referral program into your online business.

The Benefits of a Formal Referral Program

What’s so great about referrals? Why not focus on leads? Leads, after all, are the lifeblood of any business that needs to make direct sales.

For starters, referrals and word-of-mouth are the most trusted form of advertising, according to a Nielsen study, and the second most trusted form doesn’t come close.

Second, referral programs still help with lead generation: you’re rewarding people for doing the work of finding leads for you. A referral program is a way to generate leads—and not just any leads, but highly-qualified, niche-specific leads that are more likely to result in sales.

That’s not just speculation. When researchers at the Harvard Business Review looked at some 10,000 accounts at a German bank over the course of three years, they saw that “customers obtained through referrals are both more loyal and valuable than other customers.”

The research controlled for such factors as age and sex and found that referred customers were some 18% more likely to stay with the bank, earning 16% more in profits thanks to the referral program.

What are we left to conclude about the benefits of a formal referral program?

  • The leads you acquire will trust you more.
  • The leads you acquire are more likely to buy from you.
  • The leads you acquire are more likely to remain loyal customers.

The bank earned some 60% profit from their initial referral investment. If you knew of a way to get trusting, loyal customers that generate 60% profit on your marketing dollar, you’d at least consider it, wouldn’t you?

How to Integrate a Referral Program into Your Business

A referral program is a great way to find qualified leads in your specific niche. But how do you go about integrating a referral program into a highly sophisticated sales funnel?

Decide on Your Offer

In the world of referral programs, there is no getting without giving. You first have to come up with an offer that works for your brand.

Put yourself in the shoes of your customer. What are they looking for? What kind of incentive will actually get them moving on the possibility of showing off your product to a friend or confidant? Some businesses create contests, while others simply announce that if customers refer a friend, they get a flat payment.

When it comes to the retail industry, most customers want deals. Stitch Fix, a subscription-based clothing service, capitalized on this desire by implementing a referral program that would give customers $25 in store credit.


Implement a System that Puts the Customer in Charge

If there’s anything you’ve learned in building a business already, it’s this: never make things difficult on the customer. That’s as true for purchases as it should be for referrals. Your goal is to make the process of referring new customers and earning their rewards as easy as possible.

You’ll find some tools for implementing ease-of-use later on in this post, but for now, focus on a few key items:

Social sharing. This is the digital age, so you want to make sure your program is shareable. If you’ve created a substantial incentive to customers, you’ll give them reason to spread the word. Make sure that your referral tool makes it easy for them to share. Stitch Fix makes it easy for customers to refer their friends by including a social sharing widget right in the dashboard.

Seamless integration. The fewer hoops your customer has to jump through, the better. Even the most loyal of customers won’t want to participate if they sign up for your referral program and then find out there are three more steps they have to complete before collecting their referral reward.

Promote Your Program

It’s not enough to create a program. Like the product itself, you have to get the word out before you can expect anyone to participate. One of the most common ways to do this is through triggered or time-based email campaigns. A few days after someone makes a purchase, you can encourage them to share a referral link to give them and a friend further discounts.

The tools recommended at the end of this post will feature some ways to do this, including creating contests through social media, posting directly to social media, or creating emails so you can announce to your list that the referral program is in place.

Make sure to integrate your referral program with new purchases of the product itself. I recommend including a mention of the referral program on your post-purchase confirmation page. This is an ideal time to capture your customer when they’re feeling good about their purchase and want to spread the word.

3 Examples of Referral Programs from Online Businesses

1. Budsies’ Compelling Offer

Budsies creates customized stuffed animals for kids. The product is personalized and immediately loveable. Who can go wrong recommending that to a friend?

Even though the product may naturally generate referrals, Alex Furmansky, Founder and CEO, wants to take advantage of the excitement around the product. That’s why he’s implemented a referral program that offers 20% off to people who make referrals, as well as 20% off to those who get referred from friends.

Furmansky understands that virality doesn’t happen on it’s own, and that a referral program is part of a larger marketing strategy. “Lots of entrepreneurs put a lot of weight on virality of things, but that’s not how it works,” he said in an interview with Referral Rock. “A referral program is one piece of the much bigger marketing strategy, but it’s a necessary piece.”

Furmansky believes that a good referral program isn’t just a fun add-on. Instead, it contributes to the overall customer experience, rewarding loyal customers for their support.

2. HubSpot’s “Refer-a-Dev” Page

Traditionally, companies use referral programs to encourage customers to refer products and services, but HubSpot doesn’t just apply a referral program to pure marketing purposes. Instead, they use it to refer employees.

HubSpot has seen explosive growth in the past few years, and in 2013, they needed software developers to support their efforts. So, the company extended its recruitment efforts by creating a referral program that offered $10,000 to any employee who referred a developer.

$10,000 is a big, round number that is not only memorable, but inspires people to work for the cause. The offer got people talking about HubSpot, thereby increasing buzz and overall visibility.


3. Dollar Shave Club’s Integrated Program

Everybody and their well-groomed grandpa uses Dollar Shave Club, and for good reason: they know how to promote themselves.

Dollar Shave Club goes out of their way to remind customers that referrals are a possibility, visually embedding their program into the user dashboard. Dollar Shave Club’s simple and intuitive setup makes signing up for the referral program a breeze.

If participating in the referral program isn’t simple and intuitive, users won’t do it. Dollar Shave Club uses FriendBuy to make it easy as pie to join the program.

Tools to Make a Referral Program a Reality

Granted, all of this ambition sounds very complicated, particularly if you’re not a web developer and have no talent for online marketing. Fortunately, there are a number of tools that already exist on the market for taking the complicated and making it intuitive:

  • – One of the most popular and well-reviewed tools for referral programs online, Ambassador makes enrolling, tracking, and rewarding all easy to manage from a single, simple dashboard. You’ll particularly like the intuitive analytics that show you exactly where you’re having the most success.
  • Referral Rock – Here you can create, track, and expand upon referral programs to boost word-of-mouth sales. There are plenty of options here, including creating referral rewards, customizing the “friend offer,” and links to help you share information about your referral program on social media.
  • – If you’re looking for more social media engagement, WishPond helps you create landing pages, contests, promotions, and automation for leading platforms like Facebook and Twitter.
  • – Easy, simple, and intuitive—the exact kind of program you want if your focus is to make the process as navigable for your customer as possible.

What’s Next?

Now you have the tools, the know-how, and the examples to create an epic referral program that incentivizes users to get on your team. What’s next? Implement!

Do you have a successful referral program? Let us know about it in the comments.

About the Author: Emma Siemasko is a freelance writer and content strategist who helps SaaS and mobile tech companies share their stories. She’s the founder of Stories by Emma, and you can connect with her on Twitter.

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