Referral Program Definition

A referral program is a system of incentives that targets company's existing customers. It encourages them to recommend the brand, its products, or services to their friends, family, associates, or business contacts. The primary purpose of a referral program is to acquire new clients by rewarding previous customers for each referral they bring.

The retail and ecommerce industries benefit from referral programs the most. Still, referral programs can be successful in any business area, as it concentrates on bringing pre-engaged customers (incentivized by their friends or relatives).

What are the benefits of referral programs?

Studies show that even if your customers are happy with your company's service, they aren't very eager to recommend them – only 29% spread the word about products and services without incentives! Giving them additional reasons for referring changes the situation drastically – more than 50% of people are likely to recommend a brand if they get something in return. It's a colossal improvement, which makes referral programs worth the effort. But it's not the end of it.

No less than 92% of customers trust their relatives and friends when they recommend a product, service, or brand. Thus, referred customers statistically have a greater value than customers acquired in a traditional way. Studies show they are 18% more loyal, have a 16% higher LTV, and spend 13% more!

How do referral programs work?

Launching a referral program in a company encourages people to share their experiences with your brand or products. Of course, if you already have brand ambassadors (that you may not know about!), they will be even more engaged to spread the good word. On the other hand, if some of your customers were on the fence (for example, they've had positive feelings about your brand but didn't feel like sharing them), a referral program should make their decision easier.

Referral programs are much more effective than paid advertising or cold mailing because they involve word of mouth marketing, which is proven to be one of the most effective marketing techniques nowadays. Customers say that it is 2 to 10 times more reliable than any paid ads.

There are two types of referral programs:

• In a single-sided referral program, a company offers incentives just for referrers – it's up to them to convince people to shop for your company's products.
• A double-sided referral program rewards both referrers and referees. Each party wins, as the referrer gets something for each referral they bring, and the referee is rewarded for signing up or placing their first order.

What incentives could a company offer?

Incentives are a vital part of a referral program – they need to be attractive enough if you count on your customers to bring you a lot of new ones. Voucherify offers various incentives, such as:

• Gift cards
• Loyalty points
• Discount coupons – amount type, percentage type, fixed amount, free shipping, unit type
• Physical rewards – free items or services

If you want to know more about referral programs, read our guide.