How to design a powerful referral program for your e-commerce store

Are you trying to figure out how to implement and maintain a referral program for your e-commerce store?

If you’re looking to boost your conversions and generate more sales, referral marketing is an excellent way to do this. 

Consumers who are gained through word-of-mouth marketing spend twice as much and bring in twice as many referrals too. 

The sooner you get your referral program started, the sooner people can spread the word about your business and you can start earning real profit. 

However, starting a referral program and maintaining it can be quite tricky. This guide taps into what referral programs are, why they work and a few fantastic tips on running a successful referral program. 

What is referral marketing? 

To achieve successful referral marketing, a great place to start is to gain an understanding of what it is. Referral marketing programs are when a company incentivizes its consumers for referring new consumers. 

The new consumers are commonly referred friends and family of the consumer. The consumer only gains the incentive once the referred customer makes a purchase or actions the required steps, e.g. signing up with a company.

Your current consumers need to be satisfied to make this work. Why would they suggest a brand they don’t like? 

92% of consumers trust referral programs from people they know. This statistic reveals how critical it is to make sure your current consumers are happy for a victorious referral program. 

Why does referral marketing work? 

Referral programs create social proof for your e-commerce store. Consumers will see that you are the brand most people are referring, not your competitor. 

Your brand will then appear more trustworthy, giving new consumers more confidence in purchasing from your brand. 

People often go with the crowd. If you create an appealing referral program, you can reach the majority. 

As they are earning an incentive, current and new consumers will feel more encouraged to support your brand. 

An outstanding 65% of new business opportunities stem from referrals. This proves that the sales conversion and lead generation of your brand will be optimized too.

Loyal customers are the most lucrative. Not only does referral marketing help build customer loyalty, it also stimulates brand engagement across the customer experience. 

Methods for running a referral process that works 

Outline your goals 

Before you launch your referral program, you need to have a clear understanding of your goals and objectives. 

Once you start tracking the performance of your program, you can compare it to your overall goals. This makes it much easier for you to identify where adjustments should be made. 

This is terrific for financial purposes, too. Ask yourself questions such as: How many referrals do I need to gain? How much revenue do I need to generate to break even? How many referrals are there in my existing sales funnel? 

Your referral program shouldn’t put your e-commerce store in bankruptcy. Outlining clear goals can ensure that both strategically and financially that doesn’t happen. 

Brainstorm your referral sources 

Begin creating a list of advocates to advertise your referral program. Your advocates can include previous consumers, existing consumers, open leads, influencers and so forth. You can do this part of the job easier if you have CRM software that can show you previous conversations with your customer base and segment them.

By creating a list, you will have a better understanding of who you need to market to and will be one step closer to filling your sales funnel with as many potential customers as possible. 

Offer compelling incentives

Your referral incentives are essential. You need to make sure your incentives are worth it for the consumer to act. Your incentives also need to suit your brand, product and consumer market.

A reasonable incentive would range anywhere from 10% upward of the product price. Having a two-part incentive program is also effective. 

In a two-part program, both the successful referrer and the referred receive incentives. We’ll dive into more detail on that in the next section.

Discounts

One powerful system is to offer a discount that rewards both the referred and the advocates. For example, if the referred makes a purchase they receive 10% off. After that purchase has been ordered, the advocate then receives 10% off their next purchase.

Their discounts depend on each other, so this encourages both parties to make a purchase quickly. Understanding how to optimize discounts can maximize your results.

Cash Rewards

Giving your advocates physical cash won’t motivate them to make a purchase. A smart way to use cash rewards is in the form of gift cards exclusive to your store. This way customers have a reason to make another purchase.

Freebies

Give your advocates gifts for referring people. These gifts don’t have to be grand and can be, for example, product samples. Not only will your consumers feel special but you’ll be introducing them to more of your products or services.

Image from Intimo.co.au

Points

The point system offers you several ways to reward customers. You can set up a system where every time an advocate gets a referral, they receive points.

They can then redeem these points in the form of cash rewards, gifts or even discounts. This is a very enjoyable referral system for consumers as they get to choose which rewards are better suited to them. 

However, because of the various ways consumers can claim rewards, you need to have a great handle on tracking each type of reward claimed.

Educational Products

While incentivizing your customers with extra income is always positive, don’t discard the fact that some of your customers may want educational products as well.  

For example, if an e-commerce brand sold dog products, they may want to consider choosing an online course platform to build a course about dog behavior that they can give to customers who refer others as a reward.

In addition to encouraging referrals, this allows the brand to further engage with the customer and, potentially, create a true brand advocate with a higher lifetime value. 

Invite people to your referral program 

If you’ve discovered the efficacy of email marketing, then you should already have a headstart on executing this part. The first step you'll need to take is to choose an email service provider that is suitable for your business and provides a good value - price proposition.

Create an email campaign and send newsletters to your email list promoting your referral program. This is an efficient and easy way to alert all of your consumers concurrently. It’s also cost-efficient. The average ROI for email marketing is 4,200%. That’s $42 for every $1 spent.

When you’re creating your newsletter, you want it to be as persuasive as possible while still managing your normal brand voice and tone. The receiver should read the email and feel an urgent need to make a purchase.  

Here are a few ways you can achieve this for your e-commerce store.

Insert an alluring subject line

The subject line will be the determining factor of whether your receiver will open your email. Use a powerful, alluring subject line to pique the interest of your receiver. Improving your email deliverability is vital to growing a referral program via email

Keep it clear and concise

Make sure the content of the newsletter is easy to understand. Using industry jargon or complicated sentences will only leave your receiver baffled and uninterested.  

Visually-stimulating content

People are often more attracted to visually appealing content. By using great photography and graphics, fun fonts and color in your newsletters, you can create content that your receiver is genuinely interested in reading. 

Highlight the reward and call-to-action

The receiver should instantly understand what the reward is and what they need to do. Concise content and rich call-to-action features make this possible. Directly inform the receiver about the reward, how it works and the terms.

Other ways to promote your referral program

Aside from email marketing, exhaust as many marketing channels as you can to increase your list of advocates. 

You can showcase your referral program on your blog posts, on every social media profile you have, on your landing pages and on your checkout page. 

To increase conversions, you need to make sure you catch the attention of your audience and that your call-to-action features are well-designed. 

Another effective way to increase conversion rates is to create hype around the referral program before the launch date. Social media is the ideal place to do this and gain the curiosity of consumers. 

You can also consider using chatbots or live chat saved replies that will inform your website’s visitors about your referral program automatically the moment they arrive.

Remind people of your program

Once you’ve created and launched your referral program, be sure to remind your consumers of it. Eighty-three percent of consumers are happy to refer a brand after a positive experience, but only 29% do. 

Although consumers have the intention to refer a brand, some simply forget to. Reminding your advocates of this program decreases those chances. Email is a great way to get your referral program in front of customers on a regular basis. Do pay attention, however, to how frequently you mention it as to not overwhelm other content.

The more mediums you use, the higher your chances are of gaining more participants for your referral funnel. Social media is a fantastic addition to email marketing to remind your audience about your referral program. 

For e-commerce stores in particular, Facebook is a great social media channel.

While Facebook doesn’t focus on creating a shopping experience within the platform itself, you can reach thousands of users through Facebook's paid Ads. These paid Ads can be formatted as posts, videos, carousel’s and much more. 

You can run your Ad for however long you’d like to keep your audience constantly informed about your program while inviting new consumers to participate too.

Instagram is also another fantastic social media channel. Unlike Facebook, Instagram offers refined social commerce features. Two of these features are Instagram shopping and Instagram checkout which both work well for e-commerce stores.

Additionally to Instagram's social commerce features, you can also keep your consumers reminded of your program while promoting it through paid Ads. These paid Ads like Facebook’s come in various formats such as stories, photo Ads, IGTV and the list continues. 

Don’t let the idea of paying for an Ad scare you. On both Instagram and Facebook, you have the flexibility of setting your budget for your paid ad. 

Fundamental metrics to track and analyze 

Once your referral program is up and running, it’s necessary to understand how well it’s doing. Consistently keeping updated with the most crucial metrics is a great way to assess if you’re progressing closer to your outlined goal. 

Your metrics will reveal where your referral program could use a few changes or if it’s running effectively. Here are a few commonly used metrics to track referral programs. Keep in mind, many of these metrics are a great starting point but you may want to add in other metrics specific to your business as you become more complex and agile with your data.

Number of participants

This is the number of purchasers who are taking part in your program over a specific period (30, 60 or 90 days). 

Click rate for participants

The number of consumers who open your newsletters or click on your referral program links. Increasing clicks increases your number of conversion opportunities, so it’s highly recommended to track.

Conversion rate

Once consumers have clicked on your link or opened your newsletters, how many join the program? 

Analyzing this rate can often tell you whether your customers are interested in your program. A low conversion would mean they aren’t, however you would then have the information to change this. 

Churn rate

This is the number of paying consumers who stop doing business with a brand. Your churn rate reveals whether your consumers are receiving what they expected in your products/services. This helps you nurture your customer lifetime value. You’ll want to pay equal attention to the overall churn rate and the rate for your referral program specifically.

Customer lifetime value

This refers to the value of a customer to a company over a period of time. In this case, if a customer is directing numerous referrals to your brand, they have a higher value than those who don’t. Your CLV then allows you to segment your customers based on their value. You can offer appealing incentives to those who generate you more profit and direct more referrals to your brand. 

Calculating your CLV also gives you an idea of how much acquisition for each customer costs and whether that consumer would be valuable down the line. 

How to create a referral program 

After all this information, I’m sure you’re wondering how exactly can you get started on creating a referral program. Using referral program software can make this a simple affair.

These software platforms include Referral Candy, Advocately, Friendbuy and Mention Me amongst many others. Each of these platforms offers excellent tools for seamlessly creating referral programs. 

Those who aren’t technological wizards don’t need to fret. These platforms offer ready-made solutions to customize and manage your program. Here are a few common features these platforms offer. 

And if you're looking to go a slightly different direction, consider building an affiliate marketing program.

Customer referral program management

Users can track and manage all the referrals on their program. This feature helps you stay ahead of your referral count. 

A/B testing

You can test the performance of different referral program offers simultaneously. A/B testing makes it possible to understand which offer your consumers respond to more. 

Reporting

Through this feature, you can track and manage the performance of your referral program. This feature is where the fundamental metrics we discussed earlier can be found. 

Templates for communication

Referral software offers many templates for your referral communications e.g. referral newsletters. These templates can be customized to suit your brand. You can use your brands logo, color palette and style to make these templates personalized. 

Consumer analysis

Most referral software inhibits this advanced feature of intricately analyzing your consumers. You can profile and analyze your consumers through their trends and transaction history. This includes their purchasing behaviour, what products do consumers search for in an e-commerce store and products customers buy repeatedly. 

This gives you a better insight to the preferences of your audience, allowing you to tailor your products and referral incentives accordingly. 

Fraud protection

You don’t want consumers to take advantage of your referral program. Referral software offers a fraud prevention feature to detect and prevent various kinds of fraudulent behavior. 

The sophistication and extent of each feature solely rely on the software you choose. 

Conclusion 

Referral programs are one of the best and most effective ways to introduce new consumers to your e-commerce store while strengthening your relationship with existing ones.

The more effort paired with innovative thinking you invest in your program, the better the results will be. An outstanding referral program is one that benefits each participant as well as the brand. 

If increasing your sales and lead generation has been a problem, a steller referral program could act as a promising solution. Rewards give your consumers a reason to return, support and bring people to your business. 

Referral programs give your consumers the impression they’re receiving more from your brand. By offering attractive rewards, you’re stimulating that perspective. 

Creating a referral program helps your brand become more successful, trustworthy and favored and is well worth your time.