Guide to Creating Referral Program
By Jasmine Lee
Word of mouth is one of the most successful ways to market a product or service; simply compare and contrast the effectiveness between a salesman’s recommendation versus your best friend referring you to the product. However, it is also difficult to determine whether your customers are telling their social circle about your products. As a result, compared to other marketing methods, such as purchasing advertisements, the impact of word of mouth marketing is difficult to measure.
Therefore, how do we take advantage of such an important marketing strategy?
The answer is through creating a referral program. In this blog, we will outline the importance of referral marketing and how to create a strong referral program.
Why Create a Referral Program
Referral programs are powerful due to the following aspects: they are more trustworthy, are more likely to be directed at the right target audience and are much cheaper than other types of marketing strategies. Referral programs are programs that will benefit the current customers through rewards such as discounts or coupons if they successfully convince a noncustomer to purchase or engage with the business’ product.
An example would be Amazon’s referral program where Amazon Associates pay commission to websites that refer their customer directly to Amazon; in other words, store owners are able to earn additional money if the people they refer to Amazon make online purchases.
There is not only an incentive for your current customers to refer the product or service to a new potential buyer but also for you to gain additional customers. In order to purchase cheaply at your store, your current customers would be motivated to show others in their social networks about your products. Once they gain the referral rewards, they would most likely return back to your store which would strengthen your retention rate. On the other hand, if your current customers do engage with your referral program, then you know that you will gain new customers.
Wharton School of the University of Pennsylvania found that referral programs not only result in high margins but also low churn rate. As long as the customers who do the initial referring do not churn, the business tends to have lower churn rates because referral programs incentivize customers to continue purchasing at the store. Dropbox’s referral program is one of the reasons why the company became so successful. In just fifteen months, Dropbox’s registered users rose from 100,000 people to four million, according to Forbes.
When your current customers are referring your products to their circle of friends, you know that there is a higher chance that their friends would be interested in your products. This is because people tend to stick to others with similar interests and as a result, there tends to be a better fit between your products and the people your customers will be referring to.
However, if your referral program is difficult to gain rewards from or not user-friendly, then your current customer would rather purchase once from your store and never engage with the program. This defeats the purpose of the referral strategy and reveals the importance of creating a well-designed referral program.
How to Create a Referral Program
The first step when creating a referral program is to set up the rewards that those who conduct the referring will receive. This means that you must understand your marketing goals clearly. Additionally, the program should be easy to understand and navigate. For instance, headlines such as get 10 dollars for referring the product to a friend or get 15% off your next order for referring to a friend are highly used referral program phrases. They allow customers to catch attention and be aware about the opportunity for additional awards. This step will also determine the amount of money you are setting aside for referring marketing and provide your customers with a call to action (which, for most of the time, is to refer the product to a friend).
Next, you must know how your current customers will show their friends your product. Would it be via a sharing link or would you be sending your customers a referral code? Whichever decision you make, it is important to note that it should be easy for your customers to share your products.
The third step is to determine how your referral program’s success will be tracked and measured. Similar to how one would manage their social media accounts’ following to follower ratio, there should be a platform where you can see how many customers are engaged in your referral program and the effectiveness of their referrals.
Lastly, it is important to understand how you would spread words of the referral program. Some companies, especially those in the retail industry, publish announcements on their online websites so that shoppers can easily view the program. Others will announce the program on their social media accounts; companies with robust followers ratio should consider taking advantage of their social media to effectively spread awareness.
Resources for Creating Referral Program
At Blocklight, we are committed to helping your business bloom.
Through Blocklight, you can see the growth of your company. This not only helps with giving you a general idea of how well your business is doing, but also allows you to visually detect whether the referral program you have implemented was effective. For instance, if you see a burst of growth after implementing the program, then it is a sign that your marketing efforts paid off!
Additionally, Blocklight has our own referral program where users who refer Blocklight for others will gain two months premium membership for free!