How to Build an Optimal Referral Funnel?

Building a reliable referral funnel can help businesses gain valuable insights into their referral campaign and leverage real-time data to assess ROI and further optimize the loyalty program.

Abdul Wahab

Abdul Wahab

· 6 min read
How to Build an Optimal Referral Funnel?

A referral funnel is an essential part of post-launch activities. Once the referral program is up and running, the business needs something to tell them how it’s performing. This involves collecting data, organizing, interpreting it, and creating actionables to improve any inconsistencies.

Referral funnels are an effectual marketing concept to measure the success or failure at every stage of a referral program. Building a reliable referral funnel can help businesses gain valuable insights into their referral campaign and leverage real-time data to assess ROI and further optimize the loyalty program.

This is done by evaluating some key metrics making up a referral funnel and is followed by developing further strategies to vamp up the marketing efforts. We’re looking at how you can actively use a funnel, understand your customers better, optimize your marketing strategy, and establish a solid stream of new customers.

What is a Referral Funnel

A referral funnel is a tracking tool that businesses use to measure the performance of their referral program. Analysis of data collected and organized by the funnel helps to improve the referral program’s execution further and increase the number of referrals.

This is done by collecting data about three things:

  • How and when the audience is referring to others – referrals come from different sources; see which channel is getting more response, and think how you can leverage it.
  • The number of referred customers – this directly depends on how the referral system is designed and implemented, the communication between the business and the referral recipients, and how attractive is the referral offer.
  • The percentage of referrals that converted into a sale – the higher the percentage, the better.

This is called referral funnel analysis and creates an organized dashboard of data.

How to Create a Referral Funnel

A successful referral program brings in new customers using existing customers of a business. It might sound easy, but for this program to work, there needs to be a convincing product, attractive referral incentives, value for the customer, and the right tools and measures to track progress.

Referral funnels are used to track and measure the effectiveness of a referral program. The goal is to create a clear sequence of actions that starts with your customer, the referrer, and ends with a new sale from the referred-in friend. Here’s how you create an effective referral funnel:

Identify Referral Sources

The referral source could be anyone around you. It could be in anyone in your personal or professional capacity, people you follow on social media, business connections in your industry, and more.

Determine how your customers find the process of referring by asking for feedback. Most customers are happy to refer if they have a positive experience with the offering themselves. If the referring is too inconvenient, or tricky, or the reward is just not motivating enough for the customer to take action, the customer won’t refer.

So the referral source should match the referring process and incentive to bring results.

Select the Right Incentives

Once you know who your referral target is, use that information to determine the right incentive for them. The referral offer should bring value to the customer and the referred-in friend.

Find out what motivates your target audience and leverage that. For instance, if you’re targeting a business that generates revenue from advertising, you can offer them a percentage of the sale.

Devise a Funnel Strategy

Funnel strategy is basically setting up clear and actionable steps to convert a referral source into the referred lead. This involves creating multiple calls to action on the company’s website, and blog, and utilizing email campaigns.

The referral framework is simple, here’s a breakdown of steps for referral events:

  • The business creates a referral landing page. Each customer gets a unique URL for this.
  • A clear and attractive call to action prompt makes the customer send this special referral code or link to their friends and family. The unique referral link leads to the referral page for each person who opens this link.
  • When a referred friend clicks open the link and takes the desired action (make a purchase to avail of the referral reward), they enter the company’s sales conversion process.
  • The customer who referred your business gets rewards and recognition for their actions. Most of the time, referral systems use double rewards which award some benefits to both the referrer and the referee.

Spread the Word

The success of a referral marketing program depends on how it’s marketed. Identify the need for referral by studying your audiences and current customers. Create a referral marketing strategy and get the word out.

Track the Referrals

An important part of the referral funnel is to set up a robust system to track the progress of your referral program. Data collected at this stage also helps in post-launch campaign analysis later. There are several different ways to do so. The most common method is to utilize a tracking system such as Google Analytics.

Such tools help to gather numeric and authentic data about the number of people clicking through to your referral page from the referral website. They also track how many people are purchasing a referred link of the product and the number of people signing up for the email list.

Gathering these stats will tell you how effective the referral funnel is and if you need any improvements.

How to Optimize Your Referral Funnel

A smooth sales funnel can bring in new traffic at an impressive rate, that too with acquisition costs 50 to 70 percent less than traditional marketing channels. But this can only be achieved once you optimize the referral process in a manner that makes customers, referred-in people, and the company happy.

Optimizing Top of the Funnel – Marketing Referral Program

The most important part of your referral funnel is the top or the start. This is about adding entry points and making them appealing enough for customers to participate.

Optimize the top of the funnel by brainstorming entry points to the fullest. These simple questions can help:

  • Is there an existing referral going on? How do customers refer others right now?
  • What about your product or service makes customers feel happiest? It could be a particular stage in the referral, such as post-signup email prompts, etc.
  • What’s the best time to ask for the referral? The answer varies for different products, industries, and customer behaviors. Try to nudge the right moment with the right message.

Optimize the Middle of the Funnel – Work on The Referral Screen

Your referral screen should have three components:

Attention Grabbers: Incentive vs Non-Incentive

Typically, referrals are all about rewards. But you can use non-monetary attention tactics to drive your referral motive too.

Attracting customers using an incentive is usually done by offering a “give and get” kind of reward. Or, you can offer discounts for referring, store credit, gift cards, or cash rewards.

For non-incentive attractions, you need to be creative. Create scarcity by offering just a limited number of rewards or time for referring. Or, push on how the benefits of referring to a friend can improve the customer and their friend’s life. Maybe give exclusive access to specified content, club, group, etc.

The referral screen should have a prominent popup or indication to grab users’ attention mentioning the reward they’re getting or missing out on.

Who to Refer

Knowing who is receiving the referral is the most challenging part of referrals. You can have some control by suggesting it to specific people. To do this, research through qualitative and quantitative methods to understand who the referees are.

Accordingly, tweak the text, layout, input box, or anything that can get a response on the referral screen.

How to Refer

Think about what means your users can use to refer your offering. It could be:

  • Email: The biggest plus of using email in your referral program is that you can easily track the progress of your link. But sometimes users cannot recall their contact’s email address and may entirely skip referring through an email.
  • Text Message App or SMS: The easiest medium of referring is texting. It’s convenient and quick, and everyone uses it.
  • Social Media Apps: This is a hit or miss. For some industries, majorly ones with youngsters as a target audience, social media channels are a huge success. Social media posts, specifically on Facebook or Twitter, and dedicated landing pages can work best for your business in this case.  For others, only 2-3% of users share referrals on social apps.

Optimize the Bottom of the Funnel – Personalize the Landing Page

A personalized landing page increases the conversion rate. A few tips to do that include:

  • You can add the referrer’s first name or any more additional variables to the referral screen to connect better.
  • Offer personalized information to the referee.
  • Paint a picture of how it would be to use the referred product item.

Final Word

Referral campaigns are an excellent way to scale your business. If executed right, they can be the biggest channels for growth. Start from the top of the funnel and work your way to the bottom with research and careful execution.

Word-of-mouth marketing is all about encouraging people to refer more people so businesses can enjoy higher customer lifetime value. If you’re setting up a customer base, experts at can help you design every stage of the referral funnel according to your target audience and desired results.


What are the benefits of a referral funnel?

Referral funnels give you a clear sense of what you are doing and what more needs to be done to gain new customers via referrals. The funnel helps to streamline the customer journey and manipulate the customer’s decision-making process to enhance sales. Some additional advantages include:

  • Increased customer loyalty
  • More leads and customers – better revenues
  • Decreased customer acquisition costs
  • Boost in brand awareness

How do you create a referral source?

Here’s how you create a referral source:

  • Ask at the appropriate time
  • Thank and reward the sources plentifully
  • Offer multiple ways to recommend your business
  • Make it easy to refer

The essential element in your growth stack.

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