Your Guide To E-commerce
Referral Programs

When a happy customer refers a friend, colleague or family member, they’ll come to you already believing in your brand. Someone they know and trust has recommended you, so, in their eyes, you must be good. As a business, you don’t have to do much at all to convince them to buy from you. A dream scenario, right?

But the thing is, a lot of entrepreneurs and marketers think referrals will just happen on their own. Sure, a few might trickle in. But ideally, you want a flood.

By running a referral programme, you’ll give your happy customers a nudge, encouraging them to promote you to their networks. If it goes well, you’ll be inundated with quality leads you didn’t need to work very hard for.

What Is A Referral Programme?

A referral programme is a system to incentivise existing customers to refer friends, colleagues and family members to you.

Usually, customers who make referrals get rewarded for their efforts, in the form of freebies, discounts, credits or other bonuses.

Because it’s such a low cost acquisition strategy, it’s the bedrock of many ecommerce business models. Veg boxes, for example, almost always promote referral offers.

If each customer refers 3 people and then those 3 go on to refer more people, the referral network can quickly multiply with very little effort from the business.

The Benefits Of Referral Programmes

Referral programmes are great profit boosters because:

People trust recommendations from people they know. Word-of-mouth carries much more weight than standard advertising.

They’re easy to set up and run. They don’t need to be complicated. A simple reward, such as a discount code, is enough.

They are inexpensive and typically deliver great value for money. Beyond the infrastructure and the cost of redeeming the rewards, there isn’t much to spend money on.

You’re much more likely to get good results than other types of advertising. Social media ads can be hit or miss, and other types of advertising, such as print, are hard to measure and quantify.

They’re scalable. Once you have it set up, there’s little difference in cost between a programme that generates 10 or 10,000 referrals per month — aside from the incentive.

Referral marketing helps build customer loyalty. When you reward customers who refer, you’re strengthening the bond with your brand.

They help build brand awareness. Your programme encourages customers to talk about your product or service to people they know. Even if those people don’t end up buying from you, they’ll hear your brand name from somebody they know and trust. The ripple effect can go way beyond the actual conversions your programme achieves.

What Makes A Good Referral  Programme?

Here are some things to consider when setting up a referral programme.

Make your reward appealing: Make sure the reward you offer is enticing to customers. You have to provide them with value to encourage them to take part. Balance the value of the reward with what you expect to earn in new custom. Take a business offering a subscription service. A reward of a free month’s subscription is peanuts if it gets you 5 new customers signing up for a 12-month deal.

There is a balance to be had though. If you pitch your reward too high, people might refer disingenuously, which could harm your brand.

Do your research: Research your market so that you know what your competitors are doing. If they’re offering a better reward than you, then you might need to rethink your strategy.

Research will also give you insight into where your competitors are promoting their referral programmes, and how successful they are.

Work out your net promoter score: Survey your customers to find out what they think of your brand and your products. In the survey, ask them how likely they would be to recommend you to others, on a scale of one to 10. The average score is your net promoter score, and it’s a great indication of how likely a referral programme is to succeed.

If you’ve got a low net promoter score, you know you’ve got some work to do in other areas of your business before you embark on a referral programme.

Put in place a system to measure KPIs: As with any marketing tactic, you need to be able to measure how well it’s working.

Metrics to measure include conversion rate, number of orders and the average order value.

A referral code is a useful tool to help measure the performance of your programme. If each new customer who comes in via a referral enters a specific code at the checkout, you can track the number of orders and how much they’re spending.

If you don’t track these KPIs, you’ll have no idea if it’s working or not, which will make it impossible to make informed decisions.

Set some goals: At the beginning, work out what you want to achieve. Having clear and specific goals will help you plan the programme, work out how big you need it to be and understand how to promote it.

Say, for example, you want 100 new customers with a higher than average order value. You could focus your programme on the big spenders in your existing customer database and offer a generous reward that’s tied to the order value of any referral.

Referral programmes sit in the marketing sweet spot: they don’t cost much but they convert well. If you’ve got a decent net promoter score and you can make a programme work with your business model, there’s no reason not to get on it.