What is a Referral Code and How Does it Work in Referral Marketing?

Referral programs are essential to attracting new customers.

This well-balanced strategy gets customers rewarded for referring people via word-of-mouth marketing, and the businesses thrive with new leads and sales.

But why does it work so well?

Simply put, people trust people. If you hear a friend, a colleague, or even a neighbor talk positively about a product, you are that much more likely to give it a try compared to if you saw an ad on the internet. If you trust a person, you’ll be tempted to get something they rave about. As a matter of fact, you don’t even need to like the person that is sharing their experiences. Frenemies and strangers, such as social media influencers, nudge us in the purchasing direction just as easily, whether we realize it or not.

Referral marketing is a powerful tool for organizations around the world. As many as 88% of people share that they had the highest level of trust in a brand with recommendations from friends and family. If that doesn’t convince you that word-of-mouth advertising should be a critical part of your marketing strategy, we don’t know what will.

And if you’re worried about adding another thing to your plate – don’t be!

You can track the progress of those who have signed up for your program using referral codes. And with referral marketing software in place, the entire process, including creation of referral codes for your existing customers and results tracking can be automated.

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What is a referral code?

Referral codes are unique sets of alphanumeric symbols or phrases, similar to coupons.

Referral codes identify exactly who has successfully attracted a referee who’s made the purchase.

These unique referral codes are the key that opens the door to tracking sales. To discover how this works in more detail, check out our support documentation.

Many businesses have found success through the use of referral codes, which:

• Allow companies to reward their successful referrers with cash or gift certificates.
• Help businesses organize and structure their referral marketing strategy.
• Show customers that brands appreciate their business and loyalty.

How does a referral code work?

Before we go any further, it’s vital to understand how a referral code functions.

Imagine you are an eCommerce website.

• Your website starts getting more visitors.
• You find out it’s because someone raved about you.
• You decide that you want to get more referrals.
• You start a referral program to reward anybody who brings a new client.
• You get the referral marketing software to automate the entire program.

Gary, a long-time customer, uses your website occasionally to order new clothes.

• Gary previously recommended your business to his coworkers.
• Coworkers are expressing interest in trying your products.
• Gary signs up, logs into his referral program account, and copies his referral link.
• He sends a message to his coworkers or friends, instructing them to utilize his referral link.

Gary’s colleagues visit the website using his referral link.

• As part of your referral program, they get a coupon code for a discount.
• They enter the code at checkout to redeem it. 
• Referral program software recognizes Gary’s referral ID.
• The bonus gets automatically allocated to Gary.

Who doesn’t like a discount? People refer others to your business, and they get rewarded. Your business gains the growth you desire, which results in a win-win situation for both parties.

How do you set up a referral program?

Here’s a quick look at how to set up a successful referral program.

Tip: Bear in mind that the rewards given by a referral program depend on the business. Some companies only offer discounts on the referrer’s next order. Others provide different types of bonuses, such as points.

1. Do the homework

Before you dive deep into the referral world, make sure that you have a great product, after-sale workflow, and excellent customer service.

People are eager to share the products they like with friends and family, but they wouldn’t want to embarrass themselves or damage their reputation in their inner circle. Imagine telling your friends about this great product, only for them to have the worst experience ever with the delivery. What a nightmare! That’s why if you have known issues, sort them out ASAP or you’ll miss out on great referrers.

2. Think through the rewards

Rewards are essential. When starting your referral program, you need to motivate referrers to tell family and friends. These can be things like dollar amounts off their next purchase, points, or discounts. Don’t wait until you get your first referrals to think about this.

3. Set up referral-tracking software

Instead of manually creating a referral program, we recommend setting up referral-tracking software. You can automate most steps to setting up a referral program with software. For example, assigning unique referral links to customers, allocating referral rewards to the right person, setting up flexible commissions, and auto-enrolling your customer base.

Starting a brand new referral program can be stressful if you stick to manual approach. There is a million things to do and keep on your mind, and the number of hours it will take to maintain, not even mentioning the scaling, is scary. So don’t make life harder for yourself, automate the program and sleep tight.

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4. Issue a unique code or referral link to a customer

Enrolling new customers into your referral program is simple with referral software. New customers will automatically receive an email with their referral link. You can add loyal customers to your referral program by uploading their information using a CSV file. You can also give your customer a unique referral code.

5. Keep sharing the code or link with your customers

Your work doesn’t stop once you send this initial email with the code or a link.

If you want to keep your referral partners engaged and active, you’ll need to remind them about your program. There’s no single way to do it, so we recommend trying out different communication channels and methods to see what your customers respond best to, for example:

• Display their code or link every time they log in to the website.
• Include referral codes and links to referral campaign emails.

6. Track your results

Your referral marketing software has built-in reporting, and we highly encourage you to use it!

• Log in to your dashboards and reports to see how your referral program is performing.
• See which customers are referring the most users to your website.
• Identify the lowest-performing referrals.
• Check which types of motivation perform better.
• Generate custom reports for your specific needs.
• Export data in CSV format.

Assess what is going well and what could be improved, and take action. Look at the data – what are the:

• Conversion rate
• Average order value
• Total revenue from your program

How could you increase those numbers?

Benefits of referral codes

Using a referral program with referral codes helps businesses save time, money, and energy.

• New customers at lower cost. Referrers are attracting new customers in a far less expensive way than running paid advertising campaigns do.
• Long-term relationship. Referral programs help businesses build closer relationships with their target audience. For online businesses, it is especially helpful if they struggle with boosting customer engagement.
• Brand visibility. And finally, referral programs can improve brand visibility. Given how saturated every niche in every market is nowadays, referrals are essential to building a group of brand advocates who love what you do and talk about it with people in their lives.

The way referral codes work to boost brand awareness and reputation is pretty straightforward. It only takes a few good referrers for the brand to be much more successful, given that your product is good quality and adds value, naturally.

It will also inevitably help drive user-generated content for your business. We live in the era of social media, and millions of people share their experiences online just because they want to. Having referral codes will only further incentivize them to talk about your product and how they feel about using it.

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Spread the word: How to promote your referral program

The types of channels you’ll use to promote your referral program, as well as the frequency of these promotions and your tone of voice, will depend largely on the type of business you’re running.

Here is an overview of the main communication channels that you can consider.

1. Social media

This first one is a no-brainer. With over 5 billion global users, social media is one of the most powerful channels to leverage for any type of communication, including your referral program promotion.

You probably already run several accounts across multiple social media platforms. Test all of them, and see which ones have the audiences that respond the best to referral-related information.

Tip: As you go on with referral program promotion, don’t solely target your existing customers, but use it as a selling point to potential leads as well. Social media gives you an impressive reach to all kinds of target audiences from all over the world, so don’t limit yourself and your growth.

2. Email

Despite the social media boom, emails remain one of the best ways to keep in touch with your customers. They’re direct, personal, and easily customized to send any message, including information on your referral program.

Get started by sending an email to introduce your new referral program or remind customers of an existing one. Keep these emails brief, but make sure to include links to additional materials in case someone wants to learn more. Also, if you have videos or infographics about your referral program, include them to make your emails more visually appealing.

You can also segment your emails, such as by inactive and active customers, for more targeted reach.

3. Landing page

Every referral program should have a dedicated landing page. Aside from promoting the referral code or the link itself, the page also organizes all the essential program information in one place.

You can create a simple landing page exclusively for your referral program to make it a one-stop shop for all new customers and existing referees. It should explain the program rewards and benefits, referral mechanics, and other details.

A landing page’s efficacy is also influenced by:

• High-quality content
• Clear structure
• Pleasant design

Make sure you consider these factors when developing your landing page.

4. Popup when a customer is logged in to their account

Having a popup that appears when your customer is logged in to their account is a great way to notify them about your referral program and encourage them to promote you to their friends.

Tip: Popups interrupt users’ experience on the website, but you can minimize potential negativity by setting up the popup right. For instance, limit how many times a user can see it per session. Make sure the popup doesn’t cancel out any activity the user was doing on the website, such as filling in a form or selecting the filters while browsing your product categories.

5. Thank You page

Often, we put so much effort into getting the customer to the point of sale that we don’t think about the aftersale as much. One such oversight is a Thank You page that’s often reserved purely for order confirmation and nothing else. In reality, this is a powerful tool and a moment in customer-brand relationships that we can use to our advantage.

With the example above, we see a booking confirmation where the customer is immediately positioned with mutual value for them and their friend, should this customer partake in the referral program.

The time immediately after the purchase is when the customer trusts the brand and is excited about it the most, making it a perfect moment to ask them to be your ambassador.

6. Paid ads

If you’re focusing on scaling and growing more aggressively, paid advertisements on search engines could be a shortcut to your goal. New leads will test out your product and, if they like it, they’ll start referring their social group to you. Paid ads are more cost-heavy than the alternative routes described above, but you can try to see it it generates more reward than other methods.

Referral code vs referral link: How are they different?

If you’ve ever wondered what the difference between a referral code and a referral link is, you’re not alone. Both serve the same purpose but work in different ways.

Every ecommerce marketer knows that the fewer steps a customer needs to take, the more likely they are to come through with the purchase. That’s why using referral links is preferable to referral codes in most cases.

Each referral link has a unique referral code built into it for tracking. When users click through those links, download something, fill in a form, or make a purchase, the system automatically attributes those actions to the affiliate that made a referral.

Referral links sound awesome, so why use referral codes at all? Well, there are situations where a code is a much better alternative to links. For example, you have a social media following, and you’re telling your subscribers about a product on TikTok or Instagram Reels. Surely, you can include the link in the description of your post, but how many people would bother looking for it? Probably not a lot.

If you, however, add a referral code to your video, people will see and remember it. When they later go to the company’s website, they’ll be able to enter the code. Also, if you’re talking to someone in person and you barely know them, sharing a referral code is more straightforward than sending them a message or an email with a link.

How to generate referral codes

Referral codes get created by the businesses and then shared among referrers.

Some companies manage this process manually, but there is a better way. Automated referral partner recruitment software is a great helper with referral links here for two main reasons:

• Auto-invites to the referral program for all new customers save you invaluable time.
• You don’t risk forgetting something. The system has already done everything.

Building a trusted relationship with potential and current referees is paramount to your referral program’s success. Naturally, you wouldn’t want to keep them waiting, misattribute sales coming from them, or forget about them altogether.

When links and codes get automatically generated when someone joins (or is added) to your referral program, all you are left to do is make sure more people know about your referral program and keep on improving your product or service.

Referral code best practices

Creating a referral code is not rocket science, but there are basic things that you shouldn’t neglect if you want to make good referral codes.

Here’s a quick look at the referral codes’ best practices.

• Make it easy. Use symbols, numbers, or phrases that are easy to memorize.
• Avoid case sensitivity whenever possible. Typos and confusion will be the death of your referral program.
• Avoid zeros and O’s. Just like lowercase and capital L are confusing, so are zeros and O’s.
• Keep it short. There is really no need to make your referral codes long. People will simply forget them.
• Personalization is king. Try to personalize your referral codes to make them more memorable for every partner.

Follow these referral strategy tips to help your business grow faster. You got this!

Wrapping up

Anyone with an online business can benefit from having a referral program.

To make sure your referral program is a success, use both referral codes and links to encourage your partners, track their progress, and ensure that every deserving customer gets their reward.

Remember to give referral marketing software a try, and see how it cuts down on your referral management with automated referral tracking, while also supporting your expansion with relatively low budget.

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