Referral programs are a great way to reach new customers and strengthen bonds with your existing ones too. Thanks to designing such a campaign you will be able to achieve your business goals at relatively low cost. Furthermore, this method of marketing is a great idea to lower customer cost acquisition, increase ROI, and improve customer retention.
Your customers must be willing to sign up for your referral program in order to keep it going. Otherwise, you won’t get many referrals and ultimately leads. To encourage your loyal customers to join your program, you need to provide the best incentives, and this is not an easy task. After all, people won’t do much for free, so incentives are necessary to motivate your clients. It’s worthwhile though, since referrals from friends are the most effective marketing strategy for small businesses in the US according to eMarketer. How to use this strategy effectively?
Why are rewards so important?
People love receiving rewards; it feels good to receive a gift or to be acknowledged for an accomplishment. That is why referral marketing is effective – people like to be appreciated and rewarded. Whether you offer gift cards, discount coupons, or free products – all of these will keep your customers motivated to share links and encourage new clients to join your business too.
Are you wondering whether you should reward referrers, new customers, or both? Below you will find the pros and cons of each of these systems.
Types of referral reward system
There are three types of reward systems: two-sided, one-sided, and no reward. We will discuss each of them to help you choose the best for you.
- Two-sided reward system. With this type, a gift goes to both your existing customers and potential ones. You can offer them the same incentives or different rewards. The terms to earn them are also very important. For example, you can award a referrer only after three successful referrals, while each of the three new clients will earn something. As you may suppose, this method of reward system is the most powerful one and useful for expanding your customer base. Double-sided incentives would be a good choice to hit the ground running for new businesses and for creating strong bonds with existing, happy customers as well.
- One-sided reward system. Here you reward only one side of referrals. It can be the referrer or the new client, it is your choice. In this way, you can reward the most active ambassadors of your brand and strengthen bonds with them even more. Needless to say that this method can be successful but also a little less motivating for the side without a referral reward.
- No reward. This is an option, too. You can safely assume that it won’t be the most effective way to gain new customers, but it may be a temporary solution. If your customer referral program performs well then you have great relationships with loyal customers, so such a no-reward period can be a relief for your pocket without a big harm to your traffic. However, it can be a great introduction to a more advanced referral incentive program too.
Types of rewards
Choosing the best reward can be a gamechanger for your program. It can be a “to be or not to be” for the success of your program. There is a wide range of referral rewards for you to choose from, and we have prepared a list of them below.
- Cashback or monetary rewards
A reward of this kind would probably be the preferred choice for most. This type of referral program incentive is a great way to generate some buzz about your brand. Cash is a great way to reach new customers in a competitive environment. If your company is new on the market and has some spare money, it would be a good way to support your business performance from the very beginning.
With cashback, it works as follows: an existing customer recommends your business, shares a referral link with a friend, and if the referral is successful then your existing client receives cashback to, e.g., your store wallet.
- Discounts coupons
This is one of the most popular ways to reward your customers. An existing customer shares a referral link with their friends and both sides (or one) receives a discount off the next service or product they purchase. It may be a cash discount like $10 or percentage such as 20% off their next purchase.
This type of referral reward is the most valued by 51% of consumers. A discount coupon can be a good reward both for your active referrers and potential customers.
- Store credit rewards
A mix of the two above approaches. With this method of rewarding, a client receives money to use during an upcoming transaction in your store. This money can be used to buy your products only, and it is also popular to define the minimum purchase price in order for them to use the credit. For example, a client may receive $10 credit but it can only be used to buy items worth at least $50.
Many providers use this type of incentive – Uber, Airbnb, and Glovo to name a few.
- Gift card rewards
Receiving a gift card can be a good incentive, but it depends on your target audience’s preferences. In the case of teens, for example, Starbucks gift cards are great incentives but ones that won’t suffice for older people. When choosing gift cards, you should take the time to analyze who you’re targeting and what would be most useful for them.
Let’s suppose you operate in the Hungarian market and you offer Amazon gift cards as rewards. It won’t do much good because there is no Hungarian Amazon site and that eCommerce platform isn’t popular in this country. In other words, you should offer your customers gift cards for places they most desire if you want such rewards to work out.
- Company swag rewards
Your referral program reward can be non-cash too. One type of such incentive is swag. What is that? Swag is an item outside your offer but connected with your brand like a T-shirt, mug, or tote bag with your logo on it. You can freely choose items and, moreover, you can change them up regularly. Both existing customers and new ones may receive a mug or you can differentiate the gift in this regard. Maybe a referrer should earn better swag after, e.g., five successful referrals.
The terms are up to you, but this reward method gives you a wide range of fun incentives to keep your customers motivated.
- Free subscription period
Nowadays, subscription is a very popular model that’s offered by various providers. If you take this approach, a free trial as a reward can be a big hit. Not only does it encourage people to get to know you but also it allows them to sample your full offer, which can lead to the start of long-term relationships with customers.
You have probably used many subscription services that provide free trials. Amazon Prime, Spotify, Netflix – didn’t it make you a regular customer of them?
How to choose the best ones?
There is no guide that will clearly define the best rewards for a given target group. You need to get to know your customers and select the most tempting incentives for them. What you should do first is to choose the best referral marketing software. This tool should support the entire process and not limit you in terms of rewards. Below you can find a few steps, thanks to which you will be able to choose encouraging rewards for your clients.
#1 Select the best referral software
Before you get to the details, you need to choose the best tools. This is the basis of a successful referral program. What are the most important aspects that you should pay attention to? First of all, as we mentioned above, the tool shouldn’t limit you. For example, with EarlyParrot, you can choose the types of referrals, name them, select your target, as well as add webhooks and descriptions. There is no difference whether your reward is a discount or a mug. Of course, a referral code can be sent out via email, while for a mug it’s quite a different story.
Once you choose a tool that gives you room to create a successful referral program, you can start thinking about the details.
#2 Who do you want to reward?
Choose a reward system from the list above. If you are a new player on the market, you should encourage as many people as possible and thus double-sided rewards may be the better option. If your business already has a solid position in customers’ minds and hearts then you may choose to go with a one-sided incentive. If you pick the first option, remember to establish if the rewards for both sides will be identical or if you prefer to differentiate them.
Additionally, thresholds should be set up. How many successful referrals does an existing customer need to make before they earn the reward? What does a potential customer have to do for a referral to be deemed successful – sign up, purchase, or subscribe to a newsletter? Before moving on, you should establish these terms.
#3 What do you want to give?
Now on to the creme de la creme – choosing rewards. First, you should choose between cash or non-monetary rewards. If your brand is recognizable and your community is strong then swag may be a good choice, but if you are new on the market will anyone be eager to receive a mug with your logo on it? When it comes to cash incentives, they are very popular because people love saving money. If you want to get off to a good start, you should go the extra mile with referral promotion and offer, say, 50% off during the first week for referrers and new customers. After this time the discount may decrease to 15%, for example.
If you have a bigger budget and you sell tech equipment, cars, or luxury goods, for instance, then decent discount coupons would be an excellent choice. The more expensive the item, the greater the discount. After all, a 10% discount looks better with a value of $3,000 than $30.
#4 Monitor the results and be ready to change
With a good tool, you will be able to monitor each of your referral campaigns. Follow the key metrics and the most active referrers then draw conclusions. If your rewards do not bring the desired results, change them. Before making drastic changes, you can send reminder emails to your customer base and encourage them to be more active. If this doesn’t have much effect, you need to rethink your referral campaign.
Thanks to tracking referrals, you will be able to reward the most dedicated referrers. This will strengthen your bonds and make them even more loyal.
Referral marketing programs are here to help you
The benefits of referrals are numerous, provided you create your referral campaign following some rules and guidelines. To bring your customer’s attention to your referral program, you should spread the word about it and send invitations to a potential base of referrers, i.e., your satisfied customers. Let them do their job and motivate them properly.
Having a better understanding of referral rewards enables you to make the right choices for your customers. Once you launch your referral campaign, you should closely monitor the key metrics and make adjustments accordingly. Fingers crossed for your campaign!