The effectiveness of referral programs isn’t a matter of doubt. There are tons of statistics showing how much referral marketing (and word of mouth in general) helps acquire new customers in a cost-effective way.
Some of them refer (pun intended) to the better lifetime value of customers acquired through referral programs, while others point out to the re-engagement of the existing customers. And the best thing about referral programs is that all the statistics are correct!
We already know that there are some good reasons why referral marketing may work great for any business out there, but no harm in getting to know a little more about them. And maybe learn how to create a successful referral program for your business?
What Is a Referral Program?
Let’s start with the basics: what is a referral program? In short, it’s a kind of arrangement between a company and its customers. Referral program participants (referrers) are given a personal referral link, which they then share with their friends, family and coworkers. Each person who uses the referrer’s link to sign up, place an order or perform any other action that is a part of the referral program, becomes a referee.
Some referral programs reward only referrers for bringing new customers to the company – such programs are called single-sided referral programs. Though it’s obviously a cheaper option for the business to run a single-sided program, not many companies decide to do so.
The most popular and the most effective way to run a referral program is to provide rewards for both new and existing customers. Though it may cost a bit more (especially if the rewards are attractive), it will most likely do a better job of incentivizing referees to buy from you.
Referral programs grow in popularity year after year. The main reason why is because they offer low Customer Acquisition Cost (CAC) together with a higher Lifetime Value (LTV). Also, there are some outstanding examples of successful referral programs (Uber, Tesla, Dropbox, Amazon Prime, to name a few) that inspire businesses all over the world to try their luck with referral programs.
Questions to Ask Before Starting a Referral Program
Like each business decision, starting a referral program should be well thought out – you also need to prepare your company: employees and coworkers for a new campaign. To do so, ask yourself the following questions before making any big steps:
- What is the goal of your referral campaign? – You might want to increase brand awareness, find people to sign up for a free trial of your service, or acquire new paying customers. After all, a successful referral program should eventually lead to increasing your customer base, so make sure you have a plan for that.
- How do you want to pull off the referral program? – There are basically two ways to hold a referral program: by creating it in-house by your own developer team, or by using a third-party referral software. Both ways have their advantages, but if you decide to create it yourself, watch out for the time and resource consumption and note that scalability is not the strongest side of in-house solutions.
- Who’d be rewarded and for what? – Single-sided referral programs cost less, but they’re also less attractive for customers, so be sure to do the math before launching a program. Note, though, that most of the referral program software allows you to edit the program while it’s running – you’d be able to add new rewards or cancel those which turn out to be too expensive for your budget.
- Who would be responsible for the referral campaign? – Since running a referral program is a multi-step process that doesn’t end even after the launch, assigning at least one employee as a point of contact for anything referral program related sounds like a great idea. Note that there’s plenty of adjusting and editing to the program, as well as lots of questions from program participants that need to be answered as soon as possible.
How to Create a Successful Referral Program?
Knowing the answers for those four questions sets you up for a successful customer referral program creation. If you decided that the referral program should be held in-house, it’s time to proceed with the IT team.
But if you’re eager to find a solution dedicated to referral programs, you can start right away, since you’re already well-prepared. No time to waste then – let’s learn how to create a referral program and acquire some new customers for your company!
