How to Create a Customer Referral Program for Ecommerce


How to Create a Customer Referral Program for Ecommerce

“How do I reach new customers” is a thought on every ecommerce shop owner's mind. With privacy changes in Apple’s IDFA and Facebook targeting greatly affecting reach, ecommerce stores have felt the effect on their finances, seeing much lower returns than a year or two previously. New strategies, particularly those that rely on existing customers and first-party data are more valuable than ever for ecommerce stores as a sure-fire way to reach new customers while keeping CAC (customer acquisition costs) low.


Potential customers rely on word of mouth more than paid media. In fact, 74% of consumers say recommendations from people that they know are the key driver of their purchasing decision. Your DTC ecommerce store can take advantage of this by launching a customer referral program. To read more about the benefits of a referral marketing program for your Shopify store, check out last week’s blog here. To learn how to launch one successfully, keep reading.


Are Referred Customers More Valuable Than Non-Referred Customers?


From a 2020 study, referred customers are not only more loyal, but also have a higher LTV (lifetime value), and also spend more. Referred customers are also more likely to buy, about 30% more likely, so you save time and money.


One of the best parts about referred customers is that because they came from a referral, they are 4x more likely to refer the brand themselves if they are satisfied with their purchase. This exponential growth is the reason so many brands have started their own referral programs.


How Can I Start a Customer Referral Program?


People like to make recommendations, it’s in our nature. About 70% of customers who had a positive experience with a company would recommend that brand to other people so it’s not hard to activate your customer base if your product and customer experience are good.


There are different types of referral programs you can create, the structure for programs can be different, and so can the incentives. Incentives are key - 41% of Gen Zers will refer a friend to a product just to qualify for a reward, and because Gen Z and young millennials are much more sensitive to price and hold lower brand loyalty than previous generations, this is a key tactic for your product to have reach across different generations.


1. Have Good Products and Customer Service


Okay so this one is sort of a pre-step but if you don’t have satisfied customers, you won’t have enough of a base to activate your referral program. A person’s referral of your product is a stamp of approval of your brand and their personal endorsement so you need to live up to expectations and provide a product that is either unique or blows competitors out of the water in one way or another.


Similarly, people like to know that a brand continues to be there for them, even after the purchase has been made. Ensure your customer support team is well trained on the technical aspects of your product and know how to service your specific customers’ needs. Lastly, timely and polite communication is imperative to build a rep worth repping.


2. Establish Your Marketing Goals

Why are you setting up a referral program? Do you have a new product launching you want to get people talking about? Do you want to drive awareness of your brand in a highly competitive market? Do you want to get people to sign up for a free trial? Whatever your goals for this program, be sure they are specific and measurable.


Increasing sales can be a goal but you need parameters to know when your campaign is successful. Setting your goal to be more specific and measurable, for example, selling 25% more monthly subscriptions than the previous quarter, gives you a number to aspire to and measure so you can track your progress.


Specific goals are also important because they help keep your work focused on one thing at a time. Yes, increasing all sales would be great, but by choosing to focus on one type of product or area, you are able to actually see the return on your investment instead of trying to guess what worked and why.


3. Choose Your Incentive Type


How will you motivate your customers to participate in your referral program? As a rule incentives should be both desirable and achievable in order to garner the most participation.


  • No incentives- The no incentive program has the lowest rate of participation as neither your current or potential customers see the benefit in opting in. The only time this type of program works is if the service you are offering is invite-only and while there’s no physical incentive, the referrer gets to feel cool that they are an early adopter who gets to invite others.

  • One-sided incentives- One-sided incentives means only one party gets a reward for the referral, whether it be the referrer or the referee. If you reward only those who refer, the referred friend is less likely to sign up right away, there’s no call to action. Likewise, if you only offer rewards to the new customer and not the person referring, you may get the referral but there will not be as many of them.

  • Two-sided incentives- Two-sided, or double-sided incentives return the highest level of engagement as both the referrer and the referee see the value in participating. The reward can be the same on both sides (both parties get $10 in credit when a referee signs up), or can be different (get a friend to make a purchase and they get 10% off while you earn a free item, points, or cash bonus for the referral).


4. Choose Your Incentive(s)


The type of business and product you have will most likely influence the type of rewards that make the most sense for you to use in your incentive program. While monetary rewards are often everyone’s first thought, products and other incentives can also be just as enticing and that can be a benefit to you since your COGS (cost of goods sold) for a product would be lower than the product’s price tag.


Some types of rewards that are the most popular:


  • Cash or Store Credit - This can be a straight amount - earn $10 for each person that signs up, or commission based - earn 10% of the purchase price for your referrals

  • Discounts- Discounts are a great way to incentivize purchases, especially if you include an expiration. If you don’t normally offer free shipping or returns, you can also offer these for free to lower the barrier of purchase for a new shopper and reward your best customers to keep shopping with you

  • Product- As mentioned, a product is a great incentive for your business because the value to the receiver is higher than the cost to the company thanks to normal retail markup. Another way to spin this is to offer exclusive products that cannot be bought on your site and only be earned through referral. Limited edition versions of popular products are an incentive used often.

  • Free Subscription- If you offer a subscription product, allowing referrers to earn free months by getting friends to sign up for a paid subscription means that referrer will continually refer your product out on a regular basis rather than a one and done scenario. Further, offering referees 1 month free when they sign up for a multi-month subscription means that you aren’t just giving away a product without financial return up front.

  • Credit to Other Stores/ Gift Cards - Partnering with a company like Tango Card, you can reward the referrer or referee with a gift card to a well known store they know and love. Tango Card allows them to decide which store they would want a gift card for, you just choose the denomination. This works especially well for companies that only sell one type of product (likelihood of repeat customers are low) or a service (like a website for submitting app reviews).

  • Points- Points are a great way to incentivize micro-activities in relation to referrals, meaning you have brand ambassadors who execute specific tasks and earn points. This is great for brand building as you don’t always have to ask your customers to procure a sale for you, and instead can ask them to make a post on social media, use a hashtag, share a post, post a product review, and more. There are many types of apps that you can use to track points, we’ll discuss this more below. Points can be redeemed for many of the items above, or even special experiences. If you were selling tickets to a concert, your top 10 points earners could earn a meet and greet with the artist or special sound check, just for performing the most tasks on your list.

These are just some of the reward options possible. If you’re not sure which is the right one for you, talk to your best customers - the repeat buyers and the ones who post about you on social media without incentive. Ask them what they would like to see in a referral program.


5. Choose Your Incentive Structure


This is mentioned a bit above but we will explore the different ways you can set up your referral program. If you plan on using an app to help you run and manage your program, what you decide here will limit the apps that can help you as many are set up for just one or two types of structures. The type of products you offer and your campaign goals will also inform your structure so be sure to keep those top of mind when reading through the below information and deciding on an option.


  • Simple + Straightforward - This is the one for one reward offer- for every action (referral, sign up, etc) the reward is standard and delivered right away. This is a service that is offered by many free apps on the Shopify App Store and does not require too much tracking except a simple dashboard. These types of programs are great for small teams as they are easy to implement, however with such a simple exchange, it may be forgotten about or utilized less over time. Another version of this is commissioned sales - because you’re paying cash, there can be tax implications with higher performing referrers and may attract more fraudsters. For something that involves commissions, we always like to use a program like GRIN which allows you to use unique trackable links and promo codes and has safeguards against fraudulent transactions and returns so you’re not paying out more than you should. As a bonus, GRIN integrates with Shopify so you can also easily send products too.

  • Tiered- Introducing the idea of gamification is the tiered reward structure, meaning that for each action (referral, sign up, etc) the reward can increase or decrease. An increase might be where you get 10% of sales for the first 5 referrals and 15% for all the ones after that. In a decreased scenario, you may earn $100 with your first referral and $50 for all referrals after that.

  • Gamified - Remember the points we mentioned earlier? This is where points come in and they can be used in two ways here. The First - your referrers are earning points with each action (social post, referral, sign up, survey taken, even purchases, etc) that you decide is valuable to your and your current campaigns. Points may vary depending on the weight of the task being asked and when each is complete, they bank the points. Points can then be redeemed for rewards, maybe 100 points for a $10 store credit or if you save up, 1500 points for an exclusive experience. Think ticket redemption at an arcade. The Second - and this can be used in conjunction with the first or with any of the other types of reward programs is that all activity is tracked and you have a leader board. Customers can unlock levels (Silver, Gold, Platinum, Diamond for instance) and earn better rewards and privileges with each higher tier. This is akin to many hotel loyalty programs. Because the rewards are best at the top (exclusive merch, experiences, top-tier discounts, whatever your customers value most), there is incentive to not only get to the top but stay there year after year.


Program Logistics


This is where many different referral apps come in and we’ll do a review of our favorites for each reward structure in an upcoming blog, but for now, let’s go over the basics that you’ll need to decide on, regardless of whether or not you use an app.


  • Getting People to Sign Up- How will you get customers to sign up? A good referral program is as frictionless as possible. Adding a post-purchase pop up that has social sharing or creating a post -purchase email flow are just two ways that you can grab attention at the right time. An important consideration on how to get customers to sign up is also deciding who you want to sign up. You may wish to start small and reach out to your most active customers first before offering it to just anyone who makes a purchase, or offer it only to those who make a repeat purchase. Some companies offer a referral program to those just shopping on the page and have not yet made a purchase from your shop.

  • What to Include?- Potential participants in the program will want to know four main things:

  • What the incentive is to participate

  • What must be done to earn the incentive

  • How to do what must be done to earn the incentive

  • How to sign up

Make sure all of this information is straightforward, easy to understand, and easy to do. Remove any points of friction - they should be able to sign up right then and there with a big Sign Up Now button and be able to start referring (or executing the other requested actions) immediately. This means one-click referral links that can be shared in the ways that work best for your referrers, and even a referral widget where email addresses can be entered and the rest is automated. While there are undoubtedly many other things you may with to share with your program participants, you can do so on a FAQ page, or if you’re using an app, the home page for the referral program. Likewise, potential referees want to know what their benefit is for accepting the referral - both the product benefit and the referral reward. Be sure to template both in any standard referral message you give your referrers to use.

  • Executing Rewards- Depending on the type of rewards you are offering and the incentive structure you chose, you will need to decide when and how your program participants will receive their rewards. If the incentive is straightforward and automatic, there is less to worry about, unless you’re offering cash/commissions in which case you will need to decide how and when to pay. If you are planning on a points system or tiered reward system, then you will need to either choose an app that can track performance and disseminate rewards at the right time, or create a plan to do so in-house.

  • Data + Analytics- The metrics you choose to track should directly align to the campaign goals you set out earlier. If you’re after brand awareness, make sure you can track reach metrics and if you’re after conversions, make sure you’re tracking unique clicks and sales. With data, you can not only see if you’re reaching your overall goals but get insights into your program as well so you know how to reach max performance. You can A/B test rewards, you can test different messaging, you can even see which referrers are performing best and why so that you can find more program participants who are lookalikes to your top performers. The data and metrics are the only way you can understand how your program is working and why. It is also the only way to show an ROI (return on investment) for the program and justify any related spend. For these reasons, we highly suggest using a referral app with robust tracking and analytic capabilities, or using a company like Baotris, who can ingest the data for you and give you and your team actionable insights.


If you need inspiration for your own ecommerce referral program, check out this list of 50 different examples. We’ll be back next week for the final blog on this subject where we’ll be covering all of our favorite referral apps and the pros and cons of each.


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