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How to start a referral marketing program?

referral marketing program

Referral marketing is an excellent solution for SaaS businesses, eCommerce, and even for small companies that are searching for more newsletter subscribers. Recommendations can be the most important factors behind as many as 50% of consumers’ shopping decisions. So no matter in which industry you operate, or whether you are a small business or a well-developed one, referral marketing might be for you!

When somebody is looking for an item but has no idea where to start, one of the most popular options is to ask a friend. What if someone’s friend recommends your shop and they can both benefit from this recommendation? They will put more trust in your brand and encourage others to do the same. By using an effective referral program, the machine is able to drive itself. It is definitely worth establishing a relationship with your customers this way, especially since acquiring a new client can be up to five times more expensive than retaining an existing one.

To unlock the full potential of referral marketing, you need to create a well-tailored referral program. If you are wondering how to do that, we’ve prepared some guidelines to help you manage the whole process.

But let’s start from the beginning. What is a referral program?

What is a referral marketing program and why do you need one?

A referral program is an initiative that your clients can join, which works just like the loyalty schemes we are all familiar with. A given client shares their recommendations with friends or family and in return collects points that eventually amount to receiving rewards. The new customer who visits your website via the referral may also benefit, depending on the criteria that you set. 

Every new customer should be invited to join the program and they should also be notified about their progress in it, as well as if they win a prize. You can use all available communication channels to stay in touch with your clients. 

It is also a very trackable solution, since it will be clear as day who referred who and whether the referral was successful. You can also keep an eye on the most important KPIs.

Are you still wondering why you should invest in a referral program? First of all, it builds trust and loyalty, and as mentioned above, it is more efficient to retain existing clients than acquire new ones. Another pro of referral programs is that they are quite a low-cost solution, with the major outlay just being on rewards. Such programs don’t require big resources in terms of money nor knowledge.

What is more, it is easy to implement one and let it more-or-less manage itself. One client refers another and so on repeatedly – you just need to keep tracking the performance. of your program.

So now let’s move on to putting it into practice. How to start a referral program?

Think about your clients first

To make referral marketing effective, you need to put your clients first. They are your target audience after all. So what would they find attractive as a reward? Focus on who they are: their values, passions, and hobbies. Depending on demographic factors, the lifestyle and cultural incentives awarded should vary, especially if your product offer is quite broad. If the segments are very diverse, you’d better make your rewards diverse too. Sometimes coming up with a universal incentive may not deliver you what you expect because it won’t be sufficient for any segment. 

You can pick from one of the following incentive models:

  • One-side means that only one person is rewarded. They could be either the existing client or the new one who came thanks to the recommendation. If you decide that the former should get the reward, it will increase their motivation and possibly result in more referrals. If, on the other hand, you want to reward the new customer, the chances of them finalizing a transaction will increase. However, there is a risk that such clients will not get you as many referrals as your loyal customers.
  • Two-side. This type of incentive will definitely appeal to your audience the most, since here you reward both the referring customer and the new client. Nothing prevents both parties from receiving the same reward if that’s what you choose. This type of motivation will provide you with new recommendations, plus strengthen the bonds with and loyalty of your current clients.
  • No reward is also a solution. However, is it effective? People rarely spare their time totally unselfishly, but it cannot be assumed that it does not happen at all. As you might guess, this model will not bring you too many new customers nor build brand awareness very effectively.

It is also worth looking at the purchasing behavior of your recipients. Which products are bestsellers? Perhaps a good incentive would be a discount on them. Furthermore, you can use new releases as a limited reward in your program, if applicable. Maybe early access to these new products (for example, a brand new nail salon software) or the ability to purchase them at a reduced price would be a good solution. It is all up to you.

You can also ask your clients for feedback. Show them your suggestions, and they will help you with choosing the best one for themselves.

Do some research

What you should check at the very beginning are the prizes. Not only among customers but also among competitors. Rewards are crucial in referral marketing. First, do those you compete with have a referral program? If they don’t, good for you – you will already be one step ahead. If, on the other hand, the situation is completely different, take into account what your competitors offer as incentives and try to beat their offers.

It’s also good to know the reward structure of your competitors. You might opt for the same structure or choose one that you think will appeal to your customers better. You have a choice of three:

  • Standard structure the simplest model. In short, you offer the same reward for successful referrals to each of your clients. It is automatically sent when the referrer completes a transaction.
  • Tiered structure this method is about differentiation. You offer various rewards and incentives for different groups of customers. You could differentiate them based on the number of referrals, e.g. a 5% discount for the first and 10% for the next. Alternatively, you could set up referral levels so that the percentage discount increases after, say, 15 successful referrals.
  • Multi-step structure – this is the most complicated model. You offer your existing customers a variety of rewards depending on how much the new client interacts with your company. For example, offer a 5% discount for a client who purchases without creating an account, 10% discount if they create an account, and 15% discount if they become a subscriber.

Once you decide which structure would be the best (and the most competitive), you can start planning the creation of your program.

Set your goals

The starting point for creating a program should be figuring out what you want to achieve with it. Do you want to increase sales or do you want to strengthen the position of the brand? A lot depends on the initial goal. You should continually track the progress and analyze if you are on the right track to achieving your goal. Remember to be specific, i.e. how much and in what time.

Companies that track their performance and objectives are two times more likely to achieve their goals within a year.

Referral marketing programs are quite easy to track, so it won’t be a problem to follow the results. If you use a reliable platform to run your referral program, all KPIs should be clear as day. 

Speaking of tools, it is high time to cover this topic.  

Choose the right tool 

Implementing your referral program should be a piece of cake, and it will be if you invest in the right referral marketing software. Thanks to using the right solution, you will be able to create a program designed for your specific needs. It can also be a great time saver. The entire process will be automated, and the only thing you need to do is track the program’s performance and make any adjustments if necessary.

One of the best options is EarlyParrot. Why? Here are some of the main reasons:

Firstly, the installation process only takes about a quarter of an hour. You don’t need to have a PhD in computing either. The tool guides you through the whole process, so it will be a piece of cake.

Another great pro about EarlyParrot is that it takes care of your clients, both existing and new ones. Once you implement this tool to your page, you can import your current clients and EarlyParrot will send them an invitation to join your program. New customers will be notified about the option to join too. Notifications will also be sent when users meet the reward requirements.

But speaking of which, before you run the referral program, you should set the reward criteria. You may choose a different reward for your existing clients per each referral and another one as a welcome gift. Furthermore, you can choose whether you want customers to accumulate some kind of points to unlock prizes or if you only want to award the top referrers. You can also brand the referral links, which will be a positive step towards achieving your SEO goals. 

One of the best features of this tool is its communication. First, there is no EarlyParrot logo, so you can apply your own branding to all client-facing pages. And what is more, you can send inbox messages to all participants of your program just to strengthen your brand awareness and relationships with them. 

If you are not sure if you can manage running a referral program, don’t worry because the platform shows which aspects need more improvement. If you are still not fully convinced, there is a free demo available to give it a try first.

EarlyParrot integrates with many of the most popular platforms such as Magento, Shopify, Joomla, WordPress, AWeber, MailChimp, and many more. If it happens that your favorite provider is not currently on the list, you can contact this referral marketing software representatives who will try to address this.

Start your referral marketing program

A referral program can be an instrumental part of your marketing strategy. Regardless of whether you are just starting your business or have been on the market for some time, this type of solution can improve your brand image and strengthen your position. You will certainly become more memorable for your clients by starting a referral program, as well as gain their trust and loyalty.

If such a program is well-structured and the incentives are matched to the target audience, you can achieve not only image and marketing goals but also financial ones. The amount of sales, registered users, and newsletter subscribers can all increase thanks to a referral marketing program. Sounds worthwhile, right?

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