6 Referral Marketing Rules You Need to Know

Referral marketing is an age-old strategy that leverages personal recommendations and word of mouth to drive new leads to a business while tapping into networks of its existing customer base.

Abdul Wahab

Abdul Wahab

· 11 min read
6 Referral Marketing Rules You Need to Know

Despite strong backing from facts and numbers and flourishing success stories, Referral Marketing is yet to take the podium as the dominant marketing strategy.

Call it ignorance or a lack of faith in word-of-mouth, for most marketers, a referral program is still an afterthought. Under the pretense of “what worked for others, may not work for you,” marketers figure the viral growth it brought to companies like Dropbox and Robinhood, may not work out for their startup - and this is where they go wrong.

Besides gaining access to audiences you wouldn’t reach otherwise, referral marketing lets you foster relationships with customers that traditional marketing often lacks. What strikes out the most, is the high ROI you receive in the form of customer inflows, limiting your budget spending exponentially.

But to work it all out according to your business goals, it’s best to go by the book. No matter what creative tactic you have in mind or referral example to imitate, there are some dead-set rules you must follow, or you’ll be outsmarted.

Referral Marketing 101: The Basics

Referral marketing is an age-old strategy that leverages personal recommendations and word of mouth to drive new leads to a business while tapping into networks of its existing customer base.

In essence, a customer referral program harnesses the power of social connections and personal relationships to promote a product or service. People who already had a positive experience with your brand and its products or services are likelier to endorse it to their peers.

Recommendations that are built on trust and social influence can shape prospects’ perception of your brand, compelling them to tilt their purchase decisions in the marketer’s favor.  Consumers have a natural inclination to trust referrals from their social circles compared to typical marketing channels. They are 4 times as likely to purchase a product or subscribe to services that are referred by their friends.

But to wait on customers to promote your brand of their own will is a losing deal. Businesses often need to incentivize customers with cash rewards, freebies, and discounts to build a buzz around their campaigns.

How Does a Referral Program Work?

Referrals have been ingrained into our social lives quite seamlessly but over time. People have always valued social sharing and recommendations from trusted people over outsiders.

However, with the advent of the internet and social media, referrals have become even more impactful and accessible. Online platforms have made it easier for businesses to track and incentivize referrals, leading to the rise of specialized referral programs.

The way referral marketing works is fairly simple:

When a satisfied customer refers a product or service to someone (the referee) and manages to bring them on board, they receive a reward from the business for generating a successful referral. The referee, in turn, becomes a new customer and is further encouraged to refer others, creating a cycle of referrals that can significantly expand a company's customer base.

  • Designing the Program: The business designs a referral program, outlining its goals, terms and conditions for participation, incentives, and target audience.
  • Referral Link Generation: Each customer (referrer) is assigned a unique referral link or code, which they can share with their friends and contacts, in exchange for a special reward.
  • Sharing the Referral: Referrers share their referral code with their social network through designated channels like social media, email, messaging apps, or in-person conversations.
  • Referral Tracking: The referral program's tracking system records and assigns the referrer, when someone clicks on the unique link.
  • Conversion and Reward: If the referee completes a desired action (e.g., making a purchase, signing up for a service, etc.), the referral is considered successful. Both the existing and referred-in customers get a reward, depending on the rules of the program.

Benefits of the Referral Marketing Program

Keeping a constant inflow of new leads and retaining existing customers is crucial for a business’s success but often hard to achieve. Sometimes spending hefty budgets and dedicating a workforce cannot initiate a spike in growth unless businesses put their loyal customers to the test.

While your counterparts are focused on paid media ads and pay-per-click strategies, referral programs can help you stand out from the crowd. Implementing a referral strategy can:

Standardize the sharing process, making it even simpler to refer you to others. Recommendations that rarely ever happen to help out a friend in need, can be leveraged by setting up a referral program.

With a promised reward for every lead, customers are more than happy to spread the word about your business. Referrers are only eligible for reward when their referred lead signs up or makes a purchase, limiting customer acquisition costs.

Surveys show that referred-in customers have a much higher likelihood of staying loyal to the brand, spending more money, and referring it to their social networks. Consequently, not only do you receive higher quality leads but also foster continued support and customer relationship.

6 Golden Rules of Referral Program

On the outlook, acquiring referrals on behalf of existing customers may seem the simplest form of brand promotion, but most companies rarely get it right.

Piquing customers’ attention and compelling them to join your program has become harder than ever. With lesser attention spans and never-ending options, customers barely have the time or patience to attend to your program and commit their efforts to do your bidding.

Plus with each passing day, competition becomes even fiercer, especially between new startups. If a rival brand has mastered an equally impressive product or service and have the means to promote it, you may have a hard luck convincing your audience otherwise - except for referral programs.

As a marketer that stays up to date with modern trends, you’d know the potential word of mouth carries in bringing a project up to scale. We at Prefinery, have identified 6 golden rules you need to consider to elevate your chances of success despite the competition.

Make Your Referral Program Visible

A referral program isn’t your typical update feature embedded on your landing page nor a promotion update to be tucked away at the bottom of your website. You won’t drive conversions if your customers don’t know if the program exists. Treat it as your prime marketing resource that greets visitors when they come across your brand.

Flaunt the referral program on your landing page, and social media profile, and promote it through sponsor ads to reach the masses. Your customers shouldn’t have to cram through web pages in search for your referral program, rather it should be embedded in plain sight.

Whether you’re devising a referral marketing strategy for a website or running a mobile app referral program, make use of prominent and eye-catching banners, buttons, or pop-ups to increase visibility for newcomers.

Set it up as a link to the main referral page, where customers can access information about the program and participate. Spruce it with proper SEO, so users can view it at first sight when searching for your product.

BeneFit, a cosmetic brand, promotes its referral program right on the homepage, attracting every incoming visitor. Instead of listing it as a “refer a friend program”, BeneFit outlines its referral strategy as a fundraiser, pledging to donate $5 for every successful sale.

BeneFit website homepage.
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If you operate via an app-oriented brand, Duolingo sets an effective referral example. The app offers access to a free premium package for referring friends on board. It’s an effective way to expose them to paid offerings.

Duolingo’s mobile app referral program.
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Don’t Be Shy of Asking for Referrals

While loyal customers are naturally driven to spell the gospel of your brand to their social networks, sometimes you got to ask for them personally - and there’s no shame in that. Marketers are tempted to seek referrals from new leads the moment they show an interest in your products, but it could backfire.

Timing is everything when interacting with your customers with a referral proposal. Sending referral requests a little too early would make a bad impression for your business and holding back for too long, entails the risk of being offended.

Target recurring customers or visitors that spend more time on your website with your proposal. Around 26% of buyers are willing to share their latest purchase on social media or in physical gatherings, capitalizing on their natural behavior.

If pop-up widgets failed to attract their attention, leverage email marketing as a reminder. Optimize the “confirmation” or “thank you” email with a compelling referral offer that goes something like:

  • Do you know anyone that might need this product?
  • Want to share your experience with your friends or family?
  • Is there anyone special you’d like to experience with our product or service?

Olipop’s “get what you give” serves as the perfect attention-grabbing headline that encourages people to share their experiences with loved ones. The idea is not to appear too salesy in your email to enroll customers as referrers.

Olipop’s referral email.
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By adding a limited-time offer you can instate a sense of urgency in the program, propelling them to take action fast. Nevertheless, it’s best not to bombard them with frequent updates or offers to keep the relationship simple.

Design a Seamless Referral Process

Visuals do matter in grabbing the audience’s attention firsthand, but for long-term engagement, you need the underlying mechanics to flow smoothly as well. Internet users don’t have time to wait around for results or trust what marketers bestow them with.

The best way to keep their interests cooking and foster trust is to develop a seamless referral process and an instate live dashboard that oversees that.

Ever thought about how Amazon managed to become a top-spot marketplace when its counterparts existed as well? The company revolutionized online shopping by instating a hassle-free experience with profound customer service. For its own good, Amazon carried the same approach for its referral program.

Amazon refer-a-friend webpage with an active dashboard.
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While most companies were still stuck on unnecessary hoops, clanky sharing processes, and manually written referral codes, Amazon set up program automation. Amazon’s referral landing page was imbued with several sharing options including emails, social media, and personalized link sharing to contacts.

With no signup forms to fill out or create dedicated accounts on the website, users could simply share the discount offers with their friends.

Never Limit Yourself to a Single Platform

Even if you run a single-product business geared towards a niche audience, one can’t know for sure what medium or channel will they use to interact with your brand. Unlike a decade ago, when most of the online traffic channeled in through desktop computers, the world has gone more mobile.

Over 55% of website traffic channels are through smartphones, 79% of which prefer the same medium for online purchases. With people going mobile, it’s best that business model their behavior to match the need. Keeping a multi-platform online presence is no longer a nice-to-have, it’s the bare minimum.

Customers appreciate the convenience of making referrals through their preferred platforms. A multi-platform approach makes it easier for customers to refer friends, leading to higher participation rates and more successful referrals. Extole’s research says that more than 18% of online referrals are sent through smartphones and 39% of them are converted via the same medium.

No matter which channels you expand your referral program to, create a centralized hub on your website, which serves as a landing page for the referral program. From this hub, customers can easily access and share their referral links or codes on various platforms. Take Uber for instance, being an app-focused company it sets its desktop website as the central hub.

Uber’s referral homepage.
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The Rewards Must Be Relative and Lucrative

Customer loyalty is often hard-earned. Instead of waiting for them to spread some positive notes about your brand, you can entice them with incentives too lucrative to ignore. Though $10 cash rewards are the biggest motivator for driving new leads, it might not be the right incentive for your audience.

Take your time to think about what incentive would truly encourage your customers. If your products or services are well-liked among your audience, introduce rewards that offer them a bit more of your offerings at a fraction of the original cost.

In case you’re running a subscription-based business model, perhaps a discount on existing packages or special access to premium services would drive their interests. Dropbox provides free storage space to referrers in exchange for every new referral.

Dropbox's referral program webpage displaying reward structure.
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To further solidify their interest and stake in your business, you can introduce loyalty points. Referrers get the chance to earn pre-determined loyalty points which can be redeemed for in-house purchases. Soylent’s referral program goes like:

Soylent’s referral program landing page.
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As an e-commerce enterprise or marketplace, cashback rewards or special discounts do take the lead. Prefer to tie the cashback rewards back to your business in the form of vouchers or discount coupons. Chase offers $50 per referral to its loyal customers.

Chase refer-a-friend webpage.
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Regardless of the type of referral program you run or the reward you choose, make sure it doesn’t expose your marketing budget and is worth every incoming referral.

Be Personal with Your Brand Message

Referral marketing is no secret anymore. With tons of companies trying out their luck with effective strategies, you need to stand apart to stand out. Perhaps initiating a personalized interaction with your audience would set the distinction and create a lasting impression that influences future purchases.

When customers feel understood and valued, they are more likely to form an emotional connection with the brand, leading to increased loyalty and advocacy. Emails develop the direct line of contact between customers and the brand if leveraged right.

Consumers are often bombarded with promotion emails left and right. To ensure yours doesn’t get lost in the ruffle or end up in the spam box, craft a compelling email subject line that sparks curiosity. Humanize your referral message to compel the recipient to take action.

A quick trick is to send your message via the email address of the advocate sharing the referral, so it automatically rises to the top of the recipient’s inbox. Besides using attractive imagery and strong visuals, use compelling copy that fuels their advocacy. Here’s a simple example:

Backcountry’s referral email.
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Is Referral Marketing Suitable for Your Business

With a proven track record for success, referral marketing programs have been a game-changer for SaaS and Fintech companies. Dropbox brought over 2.8 million signups through its referral program, marking a 3900% growth rate during the first 18 months of its launch. PayPal expanded its user base to 100 million with a 7 - 10% growth rate by offering cashback referral incentives.

The numbers don’t lie: referrals are not just lead boosters but also establish your credibility in the industry. To know whether your business has the potential to enlist customers as brand advocates, figure out your relationship with your audience.

If your business has built a strong reputation and enjoys a high level of trust among customers, referral marketing can amplify word-of-mouth recommendations. Assess your marketing budget to know whether you can offer rewards lucrative enough to inspire them to refer proactively.

Closing Note

No doubt, referral marketing has proven to be a powerful and cost-effective strategy for many businesses. But its potential doesn’t fade away when someone accepts a referral. Rather it creates a never-ending cycle of referrals, with every incoming lead signing up and promoting the brand further in hopes of ongoing rewards.

Referred customers advocate and drive leads to your brand at a 5X rate of typical customers skyrocketing your customer acquisition. In order to fully leverage the flywheel effect, it’s best to side with Prefinery.com that’s been leading companies to prosperity with the best referral programs.


Does referral marketing help customer acquisition?

Referral marketing is effective for customer acquisition because it leverages the power of word-of-mouth marketing. Since people are naturally inclined to trust their friends, their endorsements are likely to convert them into dedicated customers.

What is the right referral incentive or reward?

The right referral reward depends on your target audience and the industry you’re associated with. When creating a referral program include cash rewards, discounts on future purchases, gift cards, free products or services, exclusive access to premium features, and personalized rewards based on customer preferences.

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