How to Build the Best Referral Marketing Program (With Examples)

Traditional advertising is getting more expensive and less effective by the day. You're probably tired of throwing money at paid ads only to see diminishing returns. That's where referral marketing comes in as an alternative that leverages your most valuable asset - your happy customers.

Referred customers have a 16% higher lifetime value and are 25% more likely to make repeat purchases. Why? Because they come to your store through a trusted source—they're friends of your existing customers, not just random shoppers.

Think about it. When was the last time you tried a new product because you saw an ad? Now, think about the last time you bought something based on a friend's recommendation. We’re assuming the latter happens a lot more.

Referral marketing uses this power of trust and personal connections to increase your sales. And the best part? Instead of a fixed fee, you're offering rewards or discounts.

What is referral marketing? 

Referral marketing, also known as word of mouth marketing, is a strategy where businesses encourage their existing customers to spread the word about their products to friends, family, and colleagues. But here's the catch – it's not just about hoping customers will talk about you.

It's a deliberate approach where you offer incentives for customer referrals and make it worth their while.

Instead of waiting for spontaneous recommendations, businesses actively encourage and reward customers for their referrals. Here's how it typically works:

1. A customer loves your product or service.
2. You offer them an incentive to refer new users.
3. They share their positive experience and your offer with their network.
4. New customers come on board, often with a special discount or offer.
5. The referring customer gets referral reward for all successful sales through their referral link/code.

Let’s understand this better with an example! Harry’s—a company selling men’s personal care products—kickstarted its success with a pre-launch referral program that incentivized people to join their email list and refer friends. The program offered tiered rewards: free shaving cream for 5 friends, a free razor for 10 friends, a premium razor for 25 friends, and a year of free shaving for 50 friends. 

Here's what made Harry’s referral marketing efforts so impactful:

• By offering rewards at different milestones, Harry’s encouraged their existing user base to keep referring more friends. The tiered rewards created a sense of progression and achievement, motivating participants to reach the next level.
• The referral program tapped into the power of social sharing and social proof. When people saw their friends talking about Harry's, they were more likely to buy themselves.
• Harry’s smartly used Facebook ads and email campaigns to get the initial momentum. 

Now, you might be thinking, "Wait a minute, isn't this just like a loyalty program?" While both strategies aim to boost sales, there's a few key differences.

Difference between referral program and loyalty program

Referral Program

Loyalty Program

Purpose

Increasing customer acquisition

Increasing customer lifetime value

Target audience

The end user is friends and family of your existing users

The end user is your existing customers

Primary action

Recommending the business to others

Making repeat purchases

Rewards earned by

Referring new customers

Repeat purchasing or engaging with the brand

End result

Expanding customer base

Enhancing customer retention and repeat sales

Basically, loyalty programs are all about rewarding repeat customers. You know those gift cards that get you a free coffee after buying ten? That's a simple loyalty program.

Referral programs, on the other hand, focus on bringing in new customers. They reward existing customers not for their own purchases, but for bringing in new leads.

Why are referral marketing programs important for ecommerce stores? 

Building a successful business is more than just having a great product or service. It’s about nurturing lasting relationships with your customers, both existing and potential customers.

Referral programs can help you achieve this a lot more easily compared to other acquisition strategies. Let's take a look at some remarkable benefits this marketing tactic offers for businesses of all sizes. 

Trust and credibility

You're scrolling through social media and see an ad for a cool new product. Interesting, but you're not quite sold. Now imagine your best friend raving about the same product. Now it's going to be at the top of your wish list. That's the power of trust in action.

Essentially, trusting the experiences of those close to us is human nature. And by implementing a referral marketing program, you're essentially using this trust to build credibility that no amount of traditional advertising can match.

Cost effective customer acquisition

Think of referral marketing as a shortcut to reach your target audience. Instead of spending heavily on paid advertising, you can rely on your satisfied customers to spread the word about your products at a minimal cost through personal recommendations.

Typically, you’ll only need to spend on rewards, and the referral software you choose to use. And, one of the best parts is that you only issue rewards when you gain a new customer, so your costs are directly linked to results, helping you avoid unnecessary expenses.

For instance, UK based premium menswear brand, Tailored Athlete increased referral revenue by over 440%. How? With the help of Social Snowball, the right incentives and touchpoints, they were able to drive new business without having to pour in a lot of money upfront.

Better customer retention

Referred customers have a higher lifetime value and are more likely to make repeat purchases. Why? Because they're entering your store through a trusted source. They're not just random shoppers; they're friends of your existing customers.

This initial trust translates into loyalty. When you reward both the referrer and the new customer, you're creating a positive experience for both parties. This sense of belonging encourages repeat purchases and turns customers into long-term fans of your brand.

Organic growth

Referral marketing is organic growth at its finest, allowing you to penetrate new markets without the hefty price tag of traditional marketing campaigns. What do we mean? Well, think of it as having a ripple effect - one happy customer tells two friends, who each tell two more. 

Before you know it, your brand awareness has spread far beyond your initial reach. And, these new customers might come from backgrounds or social circles you hadn't even considered targeting.

Data insights for better decision making

A well-structured referral program isn't just about getting more customers; it's a goldmine of insights. You can track which products are most often recommended, which incentives work best, and even identify your most influential customers.

Plus, tools such as Social Snowball lets you gather intelligence that can inform every aspect of your business. From product development to customer service, these insights can help you make data-driven decisions that grow your e-commerce store forward.

How to create an effective referral marketing program strategy 

Now that you’ve understood the benefits of a referral program, it’s time to learn some tips for making yours successful. Setting up a program is easy, but ensuring it thrives requires more than just offering attractive rewards.

Here are the most crucial tactics to consider. Let’s see what they are!

Step 1: Define your business goals & set your KPIs

A successful referral program, like any marketing strategy, hinges on establishing clear goals and KPIs to track progress and measure success.

First, identify your objectives. Are you aiming to boost sales, expand brand awareness, or increase customer retention?

Once your goals are defined, select the relevant KPIs that will indicate your progress. For example, if your goal is to “increase sales,” set a specific target such as “acquire 50 new customers through successful referrals in the first month.”

Common KPIs for referral programs include:

• Number of referrals generated
• Conversion rate
• Revenue generated from referrals
• Customer acquisition cost
• Return on investment (ROI) from the referral program
• Customer lifetime value of referred customers

Tracking these KPIs allow you to measure performance accurately and optimize for maximum results. And to streamline this tracking, you can use platforms such as Social Snowball that offer a high-level overview of how your referral programs are performing.

Step 2: Understand your target audience

A successful referral program begins with a deep understanding of your target audience. So, who are you trying to reach with your referral program? By analyzing your target customers, understanding what motivates them and examining which existing programs are successful, you can refine your approach to achieve the desired outcomes. 

Also, conducting market research allows you to tap into the needs and habits of your audience. Once you understand what motivates them, you can tailor your program to drive maximum participation. For instance, if your audience values exclusive experiences, consider offering VIP access or unique rewards.

Step 3: Understand your current customers and set their commission

Happy and satisfied customers are usually eager to share their positive experiences with friends, family, and colleagues, making them powerful advocates for your brand. So, here’s how you can ensure this satisfaction:

• Analyze your current customer base to determine what types of incentives will be most effective.
• Look at your customer data to see which products or services are most popular and which types of incentives have previously driven engagement.
• Consider offering discounts, free products, or even cash rewards as incentives.

Remember that the key is to align the incentive with what your customers value most.

Step 4: Leverage tools to simplify your process and increase conversions 

Now, you need an amazing referral process to boost customer acquisition. That's where tools come into play. These can help you create and manage referral programs, monitor activity, personalize communication, and automate processes like enrollment and reward disbursement.

For instance, Social Snowball's automated payout management system offers seamless integration with providers like Tremendous and Trolley. This makes payout options more flexible, catering to referrer’s preferences and earnings.

Step 5: Monitor and analyze their performance 

Launching a referral program is just the beginning. To ensure its long-term success, it's crucial to track performance and continuously optimize your program.

With your goals and KPIs in place, start analyzing the data to measure your referral program’s effectiveness.

Here’s what you need to do:

• Look for trends and patterns in your metrics to see what’s working and what isn’t.
• Compare results across different segments, channels, and time periods.

And how can you efficiently do this? Social Snowball’s dashboard allows you to track metrics such as the total revenue, the number of referrers you have, and the number of referrals they’ve given you.

Also, don't forget A/B testing – try different variations of rewards and messaging to see what works best. This helps you refine your approach and improve your program's performance continuously.

Step 6: Take measures to prevent coupon code leaks 

When setting up a referral program, one often overlooked aspect is the potential for coupon code leaks, which can lead to significant losses and headaches for your business. To ensure this doesn't happen with your program, use Safelinks – a solution that generates unique, single-use discount codes for each shopper who clicks on an affiliate's link.

Here are just some of the benefits this solution offers:

• Since each code is unique and single-use, there's no universal code to spread around coupon sites.
• You can easily trace each sale back to the specific affiliate who generated it.
• Customers don't need to manually enter a code at checkout - it's automatically applied.
• The links look and function like normal affiliate links, so they can be shared across various platforms.

By implementing such safety measures, you're not just protecting your bottom line - you're also giving your affiliates peace of mind. They can confidently share their links without worrying about their efforts being undermined by code leaks.

3 Examples of ecommerce brands with the best referral marketing programs 

We've shared the most important tactics to help you dive into the world of referral marketing. Here’s one last tip: check out what other brands are doing. To make this easier for you, we've picked three outstanding referral program examples from the many available online. Let’s see how they work!

1. DadGang

DadGang, a brand redefining fatherhood fashion, sold their first 100 hats in under two days. When they ordered 300 more, the same thing repeated. It was clear - people weren't just buying hats; they were spreading the word.

But the question was – How do you capture and amplify this organic growth? DadGang needed a way to turn their satisfied customers into active brand ambassadors. This is where Social Snowball stepped in, offering a solution that would transform DadGang's approach to affiliate marketing.

• Social Snowball automated the entire affiliate process, freeing up DadGang's lean team to focus on what they do best - creating awesome products for dads.
• Both the brand and affiliates found the platform intuitive and easy to use. As Bart Szaniewski, Co-Founder of DadGang, puts it, "Social Snowball is extremely easy to use, especially for a small team. We're just three co-founders and a customer service person."
• The platform integrated perfectly with DadGang's existing systems, including their Klaviyo flows and Facebook community.

Now, let's talk numbers, because they're pretty impressive:

• $190,000+ generated from affiliates at a 10x ROI
• 61.5% lower CPA than paid ads
• A community of 4,000+ affiliates built
• 24% higher AOV than traffic from other channels

2. The Pod Company

​​The Pod Company, a company selling ice therapy products, knows their customers love their product. In fact, their post-purchase surveys showed that a whopping 20% of new customers were referred by friends or family. But, they had no way to incentivize these referrals or track them properly.

This is when they decided to leverage Social Snowball to set up a referral program that was as cool as their ice baths. Here's what they did together:

• They turned customers into affiliates automatically after purchase. This seamless transition meant every satisfied customer became a potential brand ambassador without any extra effort.
• The Pod Company offered a juicy $20 commission per referral, motivating customers to spread the word.
• They made redeeming payouts a breeze with multiple options. Social Snowball’s user-friendly approach ensured that affiliates could easily access their rewards, maintaining their motivation to continue referring.
• The Pod Company used Social Snowball's Safelinks feature to prevent affiliate code leaks. This added layer of security protected the integrity of the program and ensured fair attribution of referrals.

The results?

• Within months of launching the program, The Pod Company was raking in $150,000 per month from referrals alone. 
• In their first four months, they generated $320,000 in affiliate revenue while paying out only $27,000 in commissions. That's a 12x ROI!

3. Sweet Dreams

Sweet Dreams, an ecommerce brand selling sleep supplements, faced a common problem many growing businesses encounter. They needed to scale their customer acquisition beyond just paid ads, which were becoming increasingly expensive.

So, Sweet Dreams decided to leverage TikTok creators to grow their business. Here's how they did it, with the help of Social Snowball:

• They reached out to creators experienced in eCommerce content, onboarding them to their affiliate program through Social Snowball.
• Social Snowball's platform made it easy to handle day-to-day operations, freeing up time for strategy.
• They set up top-performing creators on retainer, ensuring consistent, high-quality content.
• Social Snowball's analytics helped them track performance and optimize their strategy.

The founder, Faiz Warsani, put it perfectly: "Social Snowball was just very simple and easy to use. I love visuals and things that are very intuitive to use." And the results proved this – Within just five months, Sweet Dreams saw:

• 25% of their total revenue generated by creators
• 40% lower CPA compared to Facebook ads
• A whopping 9x ROI on their creator program

That's right - they added $300,000 in incremental revenue, all while paying less for customer acquisition. 

Conclusion

There’s no doubt that referral marketing is a great way for businesses to increase revenue without a large budget. It also helps create a loyal customer base.

We've provided a detailed guide on how to set up a referral program. Though it might seem simple, it demands careful planning and alignment with your goals and resources.

With this knowledge, you're ready to launch an effective referral program for your business.

And the best part? Social Snowball's built-in referral tool makes running your ideal referral program easy.