How to Launch a Referral Program: Detailed Guide with Examples

Every business wants to have a constant flow of new customers to fuel its growth. In search for leads and prospects, companies go with paid advertisement, partner with other brands, populate social media platforms with content, and hire a team of sales reps to sell their products and services.

One more way of generating an inflow of customers that is sometimes overlooked is a customer referral program.

According to Demandsage, over 90% of consumers in the US either fully or partially trust recommendations they get from people they know or follow online. So, not surprisingly, according to the same source, referral marketing helps companies achieve 3 to 5 times higher conversion rates.

If you’ve been thinking or hearing about referral partnerships but never dived deeper into the topic, then our detailed guide is just what you need. We are sharing all the details, tricks, and nuances of launching a successful referral program that will create an additional stream of potential customers for your brand.

What is Referral Marketing?

Referral marketing is a marketing strategy where the business recruits their existing loyal customers to promote products and services to their social circles, such as family, friends, and colleagues.

This is, essentially, a structured word-of-mouth marketing where both parties get the reward. Current customers receive commission or other referral rewards for bringing in new business to the brand, and the company is reaching its desired target audience and converting them to paying customers with comparatively low effort and investment.

With referral marketing programs, also known as refer-a-friend programs, companies get to leverage the credibility and the trust of their customers, boosting their chances of making new sales with leads.

The key aspects of referral marketing include:

• Mutual benefit to companies and customers. It’s a two-way relationship as both make an extra effort and get rewarded for it.
• Reliance on authenticity and reputation. Referral marketing is not about aggressive selling and pushing the products down someone’s throat. Instead, it’s a gentle and genuine recommendation that two people who know each other discuss.
• High ROI with low acquisition costs. Marketing Scoop reports that referral revenue generation is up to 5 times higher than that of websites or paid ads.

Referral vs Affiliate Marketing

There is a big difference between referral and affiliate marketing, but the line gets blurry sometimes. Even the people working in marketing with partner programs use those terms interchangeably at times.

Basically:

• Referral program is for your existing customers.
• Affiliate program is for anyone with a following who is not your customer.

Naturally, sometimes referral partners become affiliates and vice versa.

However, the key difference is that a referral partner is your happy customer who wants to promote you in return for referral incentives. An affiliate partner is someone (possibly a company, not only an individual) who doesn’t have to have personal experience with your product or service, but who has a large audience that they can promote said products and services to.

Both partner programs focus on reaching new audiences, expanding the brand’s awareness, and boosting sales.

Affiliate programs can be more transactional, whereas referral programs are perceived as more personal.

Key Benefits of Referral Programs for Businesses

If you’re still on the fence about launching a formal referral program, let us assure you – it is worth your marketing efforts and time.

1. Higher conversion rates. As we’ve already mentioned above, referral marketing is great for boosting conversion rates. Think about the last few purchases you’ve made. Were any of them inspired by a friend’s or a colleague’s recommendation? How much time did it take you to complete the purchase compared to cases where you only saw online and offline ads for it? Referral marketing is not a magic pill, but it’s as close as it gets to it when it comes to increasing sales numbers.
2. Boost in customer loyalty. Running a customer referral program is good for the company not only because it generates extra profit but also because it boosts loyalty over a period of time. If you give your customers attractive incentives for talking about your products, they’ll stick with you for longer, as it will literally benefit them to do so. On top of continuing to promote your brand, they’ll also keep on buying your products. And the longer someone stays with you, the more likely they are to continue buying your products and contribute to your brand awareness.
3. Wider reach to new prospects and whole target groups. Regardless of your business model and industry, you’re in a constant hunt for new eyeballs. The more different formats and communication channels you implement, the higher the chances of you reaching those potential customers who don’t know you exist yet.
4. Social proof. Imagine your prospective customers. In situation A they see lots of ads and promotions of your brand. In situation B they hear people they trust rave about your products. What scenario do you think has a higher chance of leading them to the next stage of the sales cycle? That’s right; the option of referrals will influence them more heavily as it will act as social proof.
5. Cost efficiency. Organizing a referral campaign and maintaining it is far cheaper than investing in cold outreach and lots of paid advertisements. Once you design a structure, think of incentives and rewards, and pick a referral marketing software, the rest all about attracting new referral partners and making small improvements to keep them engaged and active. At some point, once your referral network expands, you’ll be making extra sales with virtually zero extra cost.

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Examples of Successful Referral Campaigns

Before we dive into details of launching a powerful referral program, let’s look at the existing market players who’ve mastered the art of B2C and B2B referral programs.

Dropbox

Dropbox is a classic example when it comes to referral programs. They run a double-sided referral program where both users (referrers) and the people they’ve attracted (referees) get extra storage space for free.

Their referral messaging is simple, straightforward, and generous. Paid customers get either 500MB or 1GB per every referral depending on their tier with Dropbox.

Revolut

Revolut, a digital bank in the UK and EU, starts working on customer loyalty early on, and is running a referral program for its younger audiences. Each referral of an active user results in £5 bonus with a cap of £50 a year.

Google Workspace

Even giants, such as Google Workspace, aren’t shy of introducing a referral program to promote their services.

Google offers rewards for up to 200 users attracted per year, and the reward that partners get is tied to the edition that referees purchase.

This is an excellent example of how you can use the referral program not only to acquire new clients, but also to promote more expensive tiers of your products. Higher reward for top editions will inspire partners to pitch those editions more often, resulting in higher commission for them, and more profits to you. A true win-win.

Launching a Referral Program: Step-by-step Guide

It’s not that difficult to roll out a referral program. However, if you skip certain steps at the beginning, you risk missing out on business and loyal partners. Here are the main steps you need to take to launch with a bang.

Step 1: Plan your goals, objectives, and targets

Even though the main goal of a referral program is pretty obvious, you shouldn’t ignore the planning stage. Before you do anything else, sit down and analyze your current business stage and where you want to go in the next couple of years.

For example, if you’re a startup that’s just received a new round of funding, your focus may be on brand awareness. Whereas an established company may need help with retaining their clients after they’ve made a purchase or two.

Here are the common business goals you can relate to in your goal-setting exercise:

• Brand awareness
• Client acquisition
• New market acquisition
• Client retention
• Client upsell or cross-sell
• Sales growth

Based on your core business goals, you’ll then be able to plan your objectives for the referral program and, therefore, think of the messaging, appropriate rewards, and program promotion strategies.

Just like you would with any other project – you need to understand your Why before moving on to How.

Tip: Avoid broad and unrealistic goal-setting at all costs

Phrasing your referral objectives as ‘Get partners to promote us to leads in Latin America’ or ‘Increasing Enterprise Plus edition sales with referral marketing’ won’t get you anywhere.

Think about it – how would you evaluate the progress or end results of such goals? Is getting two extra Enterprise Plus sales going to be considered a success? Probably not!

Make sure your goals are specific, measurable, and time-bound. You need to be able to track progress and compare the starting point with the finishing line.

For example, an eCommerce website can choose a product category that they want to promote with referral marketing and boost sales for that category by 20% in the next 12 months. This company can dig out their current sales number and compare it against the one they end up with a year later. It’s also easy to track process every month or even week or day.

This goal is time-bound, meaning there is a deadline. This increases the chances of it actually being completed, as targets without the time limit usually get pushed back.

Also, it’s important that this goal is realistic. Surely, your referral program can explode and generate an 80% increase of your total earnings in the next year, but it’s more of an exception than the norm. Setting an overly ambitious target will be demotivating to the team (and yourself), as they will have little chance of achieving it.

By no means do we discourage you from being ambitious, but know that the goals you set need to be at least somewhat realistic.

Step 2: Define incentives and rewards

Once you understand your goals and targets, it’s time to move on to the incentives.

You can have the best product out there, but unless your referral system is fair and generous, you’ll struggle to recruit partners apart from the few brand enthusiasts who are happy to do it for free.

The Types of Incentives

Word-of-mouth referrals are super powerful and effective, but you need to have attractive incentives in place if you want to motivate your customers to make an effort and promote your solutions.

Tip: Many referral programs use double-sided incentives where both the referrer and the person they bring in get the reward. It’s not mandatory to go ahead with two-sided incentives, but it will help your business and your partner secure those leads who might not be 100% sure they want to go ahead. Listen to your gut on this one, but also check what the competition is doing. If everyone else is offering double-sided rewards, you’ll make it that much harder for your partner network to pitch your products and services with a one-sided incentive.

Here are the most popular types of incentives you’ll find out there.

1. Free subscription months. If you are a SaaS brand or offer any type of subscription or membership, free months of use in exchange for new client referrals will work like a charm.
2. Discounts. Another classic in the world of referral rewards. Unlike affiliate programs, discounts work great with referrals because your existing customers are promoting your brand. They’re users already, so giving them a chance to purchase more products at reduced prices will motivate them well.
3. Commissions. These are cash amounts that you pay to partners who bring in new clients. At Tapfiliate, for example, we offer several types of flexible commissions to help brands mix and match them to maximize the incentive.
4. Loyalty points. Another option to thank your customers for referring new business to you is with loyalty points. Say someone refers three new clients to you, and each client spends $30 on your offerings. If you have a loyalty program, you can offer them points per client; for example, give them $10 in points for every $30 that their referees spend.
5. Gift cards. Your referral partners are your customers already, and they’ll most likely appreciate you giving them gift cards that they can redeem at your stores, website, or anywhere else you’re selling your goods.
6. Merch. Deep down, we all love merch. If you’ve ever been to a B2B expo, especially the ones that target enterprise companies, you’ve seen all the executives and visitors in general go crazy over merch at the booths. So you can offer merchandise to your partners. Only please make sure it’s of decent quality, as anything that looks obviously cheap and breaks instantly will only put partners away from you. Nobody likes to get stuff that’s falling apart after one use, right?

Additional Reward Structures

As you mix and match your reward incentives, think of the extra bonuses that you can allocate to your top partners or for special promotions and products.

If you want to scale and grow aggressively, it makes sense to experiment with extra commissions, free months, and whatever else is fitting for your business model.

For example, if you have top-20 referral partners out of 100 people who generate the majority of your referral revenue, why not give them a little extra for their hard work?

They’re already crushing it, so you can add a few more points, dollars, of freebies to them once they reach a specific threshold. This will encourage them to go even further with their efforts. Plus, if you advertise this additional bonus to your entire network, for example, in referral program emails, it will motivate the rest of your partners to take it up a notch.

How to calculate your incentives

Acquiring new customers via the referral program needs to make financial sense. Your business will only suffer if your acquisition costs put you in the negative.

Surely, you can estimate that spending a bit too much on the referral program will pay off moving forward, especially if you offer subscriptions and clients are likely to keep on using your products for a long time period.

However, try to be mindful of margins and budgets from the start. Calculate how much, on average, each new client costs you and how much money they generate for you. Think of how much you’re willing to share with referrals based on the numbers you get.

Focus on the value

Last but not least, when you’re working out the incentives, lead with value in your decision-making. And we’re talking about the value to your partners and end-users, and not to yourself.

Surely, as with any business, you want to be profitable and maximize your ROI. In the long run, though, it always makes sense to think about customers and partners before you think about yourself.

The referral program needs to benefit others in order to facilitate your business. If you’re not sure what type of reward will be most desirable, you can straight up ask your existing customer base. There’s nothing like direct feedback from the source!

Step 3: Outline T&Cs

The next step is to define clear rules and structure for your program. You need to have terms and conditions that are easy to understand and that outline all the key aspects, such as:

• Requirements to participate. Who can join the program? For example, you can open it to all existing clients or only those who made two or more purchases or who participates in your loyalty program.
• Must-have actions to get the reward. For example, the new client needs to go through a referral link for the sale to count towards the referral partner. By the way, your ‘conversion action’ might not be an actual sale but something else, for instance, singing up for a newsletter, downloading a trial, or registering for a webinar. Outline all those options in the T&Cs as well.
• What qualifies for a bonus or a reward. What are the types of products and editions that are eligible for the referral bonus, and what are the caps (if any)? You can simply include everything you sell or be more selective and strategic. Just make sure you don’t overcomplicate this part because customers will lose patience and will skip your program altogether. Nobody has the attention span and the time to dig deep and make mental gymnastics figuring out what they should promote to get a reward.
• Everything about the rewards. How much are the rewards? How does one claim them? What are the timeframes for the rewards to be issued? All those details are very important to your partners, and they will expect full transparency on that front. Make sure you outline all rules and processes to ensure complete transparency. Building trust will get you much further than any dollar bonus can.
• What’s qualified as fraud, and what consequences for the offender. Unfortunately, referral fraud happens quite often, and you need to have some measures in place, including clear rules, to protect yourself. List everything that qualifies as fraud, for example, duplicate accounts or self-referrals. Add even those points that you believe are self-explanatory because people tend to abuse them the most.

Step 4: Create a referral landing page

Your affiliate partners need to have access to all key information about the program, and they need to be able to sign up for your program without too much hassle.

A centralized landing page will do all that for you. Include the following information:

1. Key benefits to potential partners
2. Outline of the reward structure
3. Success stories (possibly later, when you get first results with partners)
4. Basic rules of the program
5. Sign-up form for registration

Tip: Your goal here is to inspire your customers to become your referrers and to promote you. As you’re working on copywriting for this landing page, emphasize what your partners will be getting from you and how their lives will get better once they sign up.

Your business profits and targets are good, but they won’t incentivize many people. Save all those corporate details for later. First, you need to secure great partners, and they won’t be lured by something that’s not directly beneficial to them.

Step 5: Create marketing materials to support partners

It’s not enough to simply recruit partners for them to start selling your products successfully.

They’ll need your assistance with that, especially at the beginning. Help them help you reach your goals. One way of doing that is through supplying promo materials and brand assets.

• Email templates
• Direct message templates
• Infographics (banners, b-rolls, images)

Not every partner will be using those, but a portion of your network will, and it will help them get you more sales. Also, even if someone doesn’t end up working with your templates and infographics, uploading them for everyone to use will signal that you’re a supportive company.

Step 6: Automate the process with referral software

Choosing the best referral software is a crucial step in securing your future program’s success.

Technology has made our lives so much easier across many areas, marketing is, undoubtedly, one of the fields that benefits from automation heavily.

Running a partner program involves a lot of admin work that referral program software can take care of with ease. For example, you’ll need to onboard referrers, send them notifications, keep track of conversions, allocate commissions, and arrange payouts.

This might not sound too bad if you only have ten partners, but what if that number grows to 50, 100, and more? Keeping track of everything will be a full job in itself. And the worst part is that this job is mostly tedious. Why would you want to waste your time on that and risk making a mistake with calculations?

How to Choose the Best Referral Marketing Software

Not every referral software is equally efficient. We want you to have the best experience with technology and automation, so we’ve put together a list of recommendations for you to choose the best referral tool out there for your needs.

Must-have features to have in your referral marketing software

Your full list of requirements to the solution will depend on your business type, size, the products you’re selling, and goals you have in mind. However, there is a set of core functionality that anyone looking to launch a referral program absolutely must have in their solution.

Dashboards and reports

You need an analytics dashboard to keep track of what’s going on with your referrals in real time. High-level overviews are super important as they provide a quick glimpse into the business flow and help you spot any positive or negative trends.

As you’re looking at dashboards in different solutions, pay attention to usability. Are they easy to grasp? Can you dive deeper if needed? Ideally, the dashboard should outline all key data so you don’t have to spend time on additional research and deciphering the data.

Reports, in turn, need to provide you with a super detailed view of your referral program. Watch out for the software’s filters and metrics. The more is not always the merrier, but overall, you need to have options to see if your program is growing or not, how your partners are performing, and what the dynamic is with conversions.

Automated onboarding

You can’t (and shouldn’t) automate 100% of your referral partner onboarding, but it’s totally fine to offload part of the workload to the software.

With Tapfiliate, for example, you can set up auto-invites to go out to all clients who’ve just made a purchase. This means one less task for you, and more potential referrals. Right after purchase is when the loyalty and positive attitude towards the brand are at their peak, and it’s the perfect moment to pitch your partner program to them.

Tracking and attributions

Reports and dashboards are all good and fun, but without proper tracking and attribution, those reports and info summaries will make little sense.

With referral programs, it’s paramount that you have accurate data on who bought what, when, and via who’s referral link.

Here’s what you need to watch out for when evaluating the solution’s tracking capabilities:

• Real-time performance (an absolute must)
• Variability of tracked items (one-off purchase, batch order, or every single item that was ever bought)
• Conversion goals (so you can track your progress and motivate partners)
• Coupon codes (a must for offline sales and influencer tracking)
• Customizable cookie time (from one day lifetime to eternity)

Flexible rewards

We’ve already talked about the importance of proper rewards for your partners. As you look at different solutions on the market, pay attention to what instruments they offer on that front. You don’t really want to be limited by technology when you want to thank your network for their hard work.

With Tapfiliate, you get to choose from several commission types that will keep your partners happy:

• Flat fee
• %-based
• Recurring
• Lifetime
• SKU-specific

Additionally, Tapfiliate clients can play with commission levels and introduce add-ons for their most hard-working partners.

Tip: Use extra bonuses for friendly competitions among referrers to generate more revenue and shake up your partner base.

In-platform communication with partners

There are so many ways marketers can reach their partners – emails, third-party messengers, social media DMs, mobile phone. So do you really need an in-platform messenger or is it an overkill?

It all depends on your approach to work, but having a way to reach your referrers directly and all at once is a powerful way to optimize your time.

Tapfiliate, for instance, has two types of messengers available to clients – one-way notifications and a proper two-way chat.

Imagine you work with 137 partners, and you need to update them on the promo or the new product you launched. If you talk to them all via different channels, communicating the news will be a nightmare. You’ll need to find all your chats with them across all those platforms and copy-paste messages there.

Not the most efficient way to spend your workday, right? With a centralized messenger, this won’t be an issue. You’d create a copy of the message once and send it over to every single partner you work with.

Integrations

Don’t trust anyone who says their solution covers all your marketing needs. This simply is impossible. Everyone uses a combination of tools to manage their tasks and achieve business goals. And that’s alright, but only if you have proper integrations in place.

The referral software that you end up with has to facilitate your growth and not slow it down. And if you’re stuck with a tool that doesn’t really work well with the rest of your environment – you’re in trouble.

Before you start looking at different options, make a list of all must-have integrations. Go with particular software products or categories. For example, you may absolutely have to have Shopify and WordPress integrations or simply think of them as eCommerce platform integrations. Other important categories are payment gateways with Stripe and PayPal, recurring billing tools, such as Recurly, workflow automation, etc.

Tip: It’s not necessarily the end of the world if your most preferred solution doesn’t have the ready integration you need. As long as they have REST API available, you’ll be able to build a custom integration and get the ball rolling.

What else to look at when choosing a referral tracker

Once you’ve looked through and evaluated all the features in the solutions, you might think your work is done. Not so fast!

Besides functionality, here is what you need to pay attention to:

1. Company reputation on the market. What are other clients, partners, and competitors saying about them?
2. Client base. Look at the types of businesses the vendor is working with. This would affect how well they understand your pains and needs.
3. Their technical support options. No software is perfect, unfortunately. Even Microsoft and other big players aren’t immune to downtime and buggy update releases, so none of us are truly safe. However, as long as your vendor has a proper support team that knows what they’re doing, you’ll be fine. Watch out for support working hours, the format of communication that’s available, and how fast they can respond to you.
4. How-to content. Simple tools can be confusing at first. You might also decide to learn more about the platform you have in place. Either way, having access to extensive user guides, FAQs, webinars, and other forms of helpful content will make a huge difference to your user experience.

Test, don’t rest

Our final piece of advice for your software evaluation process is to not skip the testing phase.

We know, we know, you don’t have time to test five different solutions, and you’ve already read so much about it, so you might as well just purchase it and start working.

We get that mindset, but it can lead you to trouble. It’s not that you shouldn’t trust what these companies are telling and showing you, but you can never guess how the solution will perform in your particular environment. Also, the same feature can be executed in different ways and work not as you want it to.

Are you ready to take the risk of investing in the unfitting solution and be potentially stuck with it for months and years?

Better dedicate a couple of hours to each product on your shortlist and have a first-hand customer experience with them. Trust us, you don’t need too much time to see if the software is a good fit or not.

Bonus tip: Don’t shy away from vendor representatives. Sure, they’re interested in selling you the product, but they’re also the most knowledgeable people about it. Tell them what your main goals and pains are, and they’ll save your time by showing you exactly how things work and the ways you can maximixe the benefits.

Referral Links vs Referral Codes: What’s Better?

As you start rolling out your partner program, you might come across the referral links and referral codes dilemma.

Is one better than the other? We think they can coexist! Here’s why.

• Referral links are unique links that your partners can embed into their social media or website posts, add to their email campaigns, or send via DMs to anyone interested in the product.
• Referral code is a unique combination of numbers and letters that partners can also share via the same channels as they do for referral links.

So why use both? Surely, a link would suffice?

It would in most cases, but sometimes sending a link is awkward or inconvenient. For instance, if you’re having a conversation or presenting to a group of people, it can be easier to say your code, which can be something like HINOKI25.

Codes can also be added straight to visuals of social media posts, email signatures, banners, or YouTube videos. Potential clients will see them on their screens and remember them for the future or use them right away.

Not everyone likes to dig out links in post descriptions. Plus, some people will see content on their phones and then go the website on their laptop. This means they’ll likely type the website address themselves, and not follow the link.

So, if you arm your partners with both options, they’ll have better chances of having the conversion attributed to them correctly, and won’t miss out on rightfully deserved rewards.

Where to Promote Your Referral Program

You can use a number of referrals promotion channels to maximize the output of your partner program by reaching a larger audience of both current customers and people who’ve not heard about you yet.

You can only estimate where your target audience is, and it won’t hurt to look for prospects in different places.

• Your website. Create a referral landing page that anyone can access and outline your core benefits and values there. Add keywords and structure the text in a way that Google and other search engines will be able to crawl and analyze your page and suggest it to relevant internet users.

• Social media channels. You have social media accounts for a reason – to promote yourself. There’s no need to limit this promotion strictly to prospective customers. Many of your loyal clients would love to know that you’re running a program. They already follow your accounts, so they’re more likely to want to become your referrers.
• Email marketing. If you’re running newsletters, product emails, or any other regular email communication, include information on referral programs for some of them. Keep it brief and don’t overdo it, but mention this option every once in a while. It will certainly bring you more referrers.
• Referral emails that you send to existing partners can also be a source of promotion. After all, onboarding referrers is not enough; you also need to keep them engaged and motivated, similar to how you’d handle current customers.

Why Your Referral Program May Not Be Working as Good as You Want

If you’re a business owner or a marketing specialist who invested a lot of time and effort into launching a referral partner program, the last thing you want to see is its failure.

Unfortunately, not all referral partnerships between satisfied customers and companies are successful.

Let’s go over the common reasons why your referral process is not as efficient as you’d hope it would be.

#1 Unattractive rewards for referrers

You may think you’re giving them a good deal, but they disagree. Run a quick questionnaire and ask your loyal customers what types of incentives they’re after and what tweaks to your program can make them more enticed.

#2 Little or no rewards to referees

Maybe you and the partner get good deals, but the incentive is too insignificant for the new customers you’re trying to attract. Markets are oversaturated across all boards, and people are more knowledgeable and pickier than ever. It will take more effort today to attract them than it would ten years ago.

#3 Wrong positioning

Your referral messaging needs to center around partner value. What does your program give them? How are they benefitting and profiting from partnering with you? A little twist in working can do wonders sometimes. Go back to your referral program promo content pack and see how you can highlight the value to the partners.

#4 Complicated rules

We talked about it in the T&Cs section, but we’ll say it again – nobody has the time to figure out complicated rules. People don’t even have the energy to learn board game rules at a party! There’s no hope they will be enthusiastic about studying your terms and conditions.

#5 Not enough right people know your program exists

You might be after wrong partners or look in the wrong place. Evaluate your referral sources and think of other ways of promoting yourself and the types of demographics to go after. Your referral program messaging may be perfect, but if your core audience uses Facebook and you advertize your program on Linkedin, you won’t get very far.

#6 No improvement to known issues

If your program has worked for a while already, and some referrers express valid concerns about elements of the workflow, this feedback needs to be taken into work. If you ignore their complaints, partners will grow indifferent or resentful, knowing full well that you’re not doing your best to optimize the program. It’s not always possible to fix something quickly (or at all), but if you communicate with them honestly and update them on the situation, you can mitigate part of the negativity.

Final tip

Those are the common issues that many referral programs have to deal with.

Your particular situation can be unique and completely different. Still, go through the list, see if there are any areas of improvement for you, and work on them. The fewer potential pain point you have, the more successful your program will be.

Don’t wait for something to snowball into a disaster, work it out while it’s still a small thing.

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