Before visiting a new city, you may ask your family members or friends who’ve been there for recommendations on things to do before researching options yourself. While trying your uncle’s favorite pizza spot or checking out your best friend’s go-to park might not be an example of a formalized customer referral program, they share a common truth: If someone you know tells you to try a particular product or service, chances are you’ll at least consider it.
Businesses know word-of-mouth marketing works, so many ask their best customers to share the truth behind their customer experience (CX) and throw incentives in. Customer referral programs can widen your customer base and generate ongoing revenue for your business. But before you build one using a template, set yourself up for success by learning the basics with our guide.
More in this guide:
- What is a referral program?
- How does a referral program work?
- How to build a customer referral program in 5 steps
- Benefits of customer referral programs
- Customer referral program ideas
- 6 great customer referral program examples
- Frequently asked questions
- Supercharge your growth with a customer referral program
What is a referral program?
A referral program is a marketing tactic that uses word-of-mouth techniques to encourage brand advocacy. Businesses often use incentives—such as gift cards, e-commerce “cash-in” points, or branded swag—and loyalty programs to motivate customers to tell their friends, family, and colleagues about their brand, products, or services. Customers who participate in a referral program can spread the word by sharing referral links or discount codes with people in their network.
How does a referral program work?
As a customer retention strategy, a customer referral program combines the right technology, products, messaging, and referral incentives to encourage brand loyalty and advocacy.
To create a successful referral program, most businesses will use marketing software and tools—like lead generation software—to track a customer’s shared referral code or link. When a prospect uses that code or link to complete a purchase, the existing customer earns a reward. The new customer can then repeat the referral process with someone from their network, creating a sustainable flow of business.
When your company provides value to customers and prioritizes systems and solutions to improve customer experience, it gains invaluable influence and credibility. People are generally willing to share something if it makes them look or feel good, including their experiences with a brand’s products or services. According to BrightLocal’s Local Consumer Review Survey 2024, 50 percent of customers trust online reviews as much as personal recommendations, so they’re more likely to interact with or purchase from a highly recommended brand.
How to build a customer referral program in 5 steps
When developing your customer experience strategy, prioritize creating and implementing a customer referral program. Preparation is essential to any successful referral campaign, so follow these steps to build and maintain one.
1. Leverage customer referral templates
You can simplify the process of building a customer referral program with the help of customer referral templates. These pre-written messages enable businesses to request and respond to referrals quickly, streamlining customer interactions.
Get 25 customer referral templates
Ask customers for and respond to referrals with these 25 customizable customer referral templates.
2. Set KPIs and goals
Before you launch a customer referral program, you need to identify the customer experience KPIs you want to track and identify short- and long-term program goals.
A few examples of business goals include:
Reaching a set number of leads (impressions)
Gaining a specific number of new social media followers or newsletter sign-ups
Growing revenue or increasing conversion rate by a certain percentage
Solidify your goals and metrics before publicizing your referral program so you can assess whether or not you’re hitting your targets.
3. Choose incentives and rewards
Do your research and get to know your customers so you can tap into their interests when selecting referral program rewards. Stay within your budget—you don’t want your referral program to cause you to lose money—but provide a variety of incentives to entice different types of customers.
Some popular referral program rewards include:
Discounts or coupons
Store credits or points
Product or service upgrades
Free products (giveaways) or subscriptions
Branded swag items
If you’re working with a limited budget and still want to launch a referral program, see if there are any surplus items in your inventory that you can use as rewards.
4. Determine the right channels to promote your program
To attract customers and successful referrals, you should meet your customers where they are. Use customer journey maps to design different avenues or promotion strategies to reach your audiences on their favorite channels.
Every customer is unique, but here are the most common channels consumers use or visit:
- Social media: Share links that lead to your referral program page or a specific sign-up page.
- Live chat: Encourage your agents to share your referral programs with customers during support interactions.
- Email: Create clickable links and shareable messages about your referral program and its rewards.
- Website: Direct current customers to your referral page to set them up with a unique code or link. Write a blog post about your program and share it across your network.
- Phone and customer service: Update your contact center’s IVR software, call center scripts, and training and onboarding materials to include details about your customer referral program. Incorporate program information into support tickets, invoices, and receipts.
Giving your customers multiple channels to share and sign up for your program can boost promotion and reach.
5. Review and improve
Some of the best customer experience management advice is this: Leverage customer data to keep up with emerging communication channels, tools, and software. Regularly measure customer experience and other key metrics to identify areas of improvement. By investing in solutions with reporting and analytics, you can continually refine processes and exceed (current and future) customer expectations.
Benefits of customer referral programs
A well-crafted customer referral program significantly impacts a business’s bottom line. Follow along to learn the three ways a customer referral program can benefit your business.
Builds trust
With customer retention on the line and online reviews losing 30 percent of their influence on customers between 2020 and 2024 (presumably due to fake reviews), personal referrals and recommendations are more important than ever. Customers may not trust random reviewers but likely trust their friends, family, and colleagues to recommend products or services from favored brands. Plus, customer loyalty is typically stronger for shoppers who buy from a business after a personal recommendation or referral.
Attracts new customers at a low cost
A referral marketing strategy allows companies to reach new users simply through word-of-mouth recommendations from happy customers. The only expenses come from any initial paid promotional efforts to kick off your program and the rewards for your customer advocates and prospects. So, referral programs have a lower customer acquisition cost (CAC) than most other digital marketing tactics.
Increases revenue
Customer referral programs are twofold—they focus on both current and future buyers. By encouraging existing and potential customers to buy from them, businesses can improve their bottom line while spending less on paid advertising.
Customer referral program ideas
Customer referral programs can be a lead generation goldmine, but the success of your referral program depends on its structure. Review these customer referral program ideas to find the best program structure for your brand, products, and audience.
Referral recipient models
Customer referral recipient models can be one-sided or two-sided, depending on who benefits from the reward. This program model can encourage the referrer, prospect, or both parties to purchase from or interact with the brand.
One-sided rewards
One-sided customer referral reward programs provide incentives to either your existing customer or the person they referred, but not both. Because of this, you’ll want to carefully decide which group to reward.
For example, rewarding your current customer could increase referrals, but the person they refer might be less likely to buy from you if there’s no incentive for them. On the other hand, rewarding only the referral recipient may make your existing customer feel unmotivated to share. So, if you choose the latter option, your referral program participants must be very loyal to your brand.
Two-sided rewards
Two-sided customer referral reward programs incentivize both the current customer and the person they referred—this is a “win-win” situation. According to SaaSquatch, more than 90 percent of referral programs are double-sided. Because each person receives a reward, this type of program typically has the highest engagement.
You can offer existing and potential customers the same reward or different rewards, but make sure your incentives fit within your budget so your program improves your bottom line rather than hurting it.
Referral reward models
Customer referral reward models focus on how recipients receive incentives, not who receives them. These reward structures can pair with either one- or two-sided campaigns.
Standard reward program
Standard rewards programs provide the same incentive for every referral, no matter who makes the referral. Your customers receive their referral reward once the referred person completes a purchase with your company. For two-sided rewards programs, the incentives can be the same or different for the sender and the receiver.
If you use this type of program, you won’t need to track the number of referrals you receive. However, because of its standardization, the program may lose some effectiveness over time.
Tiered reward program
A tiered program structure offers different incentive levels, which businesses will typically base on the number of referrals a customer shares. This type of program can also give customers unique referral links or codes that businesses can track to identify how often they use them successfully.
For example, your customer may use a link or code to refer friends to your business. For their first five successful referrals, they earn a $10 reward. Afterward, they may receive $25 for each subsequent referral. If you want to adopt a two-sided rewards campaign, you should decide how to structure the tiers for each side.
Multi-step reward program
A multi-step reward program rewards customers once their referral successfully makes a purchase, accomplishes a step, or reaches another brand milestone.
A multi-step program may look something like this:
The referrer earns $10 when one of their referrals schedules a demo.
The referrer earns another $10 when a referral books a product training session.
The referrer earns $25 when the referral submits payment for the product.
A multi-step program structure is similar to a tiered program structure in that it offers different rewards at specific points along the referral timeline. However, multi-step programs focus heavily on the sales funnel stage a customer’s referral reaches.
Gamified reward program
A gamified program structure turns referral marketing into a fun (and competitive) game by offering a high-value reward to the customer who refers the most people within a set time frame. You can structure this type of reward program as a contest, which can be especially exciting for customers during special seasons and times of the year, like the holidays).
A gamified referral program is engaging, but it’s one of the more complex structures. Before developing one, ensure you have the resources to offer a valuable prize and the tools to track referrals from each customer.
6 great customer referral program examples
Referral programs have great customer benefits, and there are equally great benefits for businesses with referral programs. Discover how some of today’s top brands use referral programs to attract new customers while delighting their existing ones.
1. Harry’s
Harry’s is a hip hair and body care brand that sells grooming and shaving supplies for men. The powerful, two-sided customer referral program is rooted in some of the brand’s core values: transparency, quality, and social responsibility.
- Program type: Two-sided and tiered
- Current customer (referrer) reward: Referrers receive $5 off their next order for every new customer they refer.
- New customer (referral) reward: Referrals receive $5 off their first order.
- How to earn a reward: Subscription customers receive a unique referral link on their profile. They then share this link with potential customers. When a referral recipient uses that unique link to purchase the starter set and sign up for a subscription, both parties receive their reward.
2. Stitch Fix
Stitch Fix is a curated personal styling subscription that uses stylists to hand-select clothes and accessories based on a customer’s distinct style preferences. This direct-to-customer service offers a two-sided customer referral program.
- Program type: Two-sided and standard
- Current customer (referrer) reward: The referrer receives a Stitch Fix credit for every referral sign-up—the amount is specified on each customer’s referral page.
- New customer (referral) reward: They get a Stitch Fix referral credit that automatically applies to future styling fees and purchases.
- How to earn a reward: Current customers must activate their referral code on their profile. They can then share this code with friends, family, and others. Stitch Fix automatically applies the credit to future transactions.
3. Dropbox
Dropbox is a cloud-based storage system designed to help users stay organized and work efficiently. It gives you a secure location to store, access, and share files.
- Program type: Two-sided and tiered
- Current customer (referrer) reward: For Dropbox Basic accounts, customers receive 500 MB of storage per referral (up to 16 GB). For Dropbox Plus accounts, customers receive 1 GB of storage per referral (up to 32 GB).
- New customer (referral) reward: Referred customers receive the same rewards as current customers.
- How to earn a reward: Log in to your Dropbox account and access the “Refer a friend” tab. Send a referral email or use your customer referral link to encourage new sign-ups. Both parties will receive a reward once a new account is created and validated.
4. Quip®
Quip® is a subscription company selling electric toothbrushes, toothpaste, refillable floss, and other dental care products. Dentists and designers created it to improve dental care and regularly reward users for establishing good habits.
- Program type: Two-sided and standard
- Current customer (referrer) reward: The referrer gets a $5 credit for every referral sign-up—additional referrals can also help referrers gain free toothbrushes, toothbrush heads, floss, and toothpaste.
- New customer (referral) reward: New customers receive a one-time $5 credit.
- How to earn a reward: Customers must sign up for an account to get their custom referral code and link. They can share the code and link directly with their referrals, but they cannot post either publicly. If the referral recipient uses the sender’s code or link, both get a $5 credit toward their next purchase.
5. Google Workspace
Google Workspace includes Gmail, Google Meet, Google Docs, Google Slides, Google Sheets, and other Google-based programs and software. Referrers can be members of Google Workspace’s referral or affiliate program, depending on the number of referrals they bring in each year.
- Program type: Two-sided and tiered
- Current customer (referrer) reward: Referrers receive a cash reward.
Business Starter accounts can earn $8/user (up to $800).
Business Standard accounts can earn $15/user (up to $1,500).
Business Plus accounts can earn $23/user (up to $2,300).
- New customer (referral) reward: New users receive a 10 percent discount on their first year using a Google Business plan.
- How to earn a reward: Google Workspace has a sign-up form for paying customers who want to participate in the referral program. After joining, Google Workspace customers can share their personal referral links and promo codes with their network.
6. T-Mobile
T-Mobile is a well-known wireless carrier with the (self-proclaimed) first and largest nationwide 5G network. T-Mobile’s customer referral program is called the Refer-a-Friend program.
- Program type: One-sided and tiered
- Current customer (referrer) reward: Referrers receive one $50 Virtual Express Prepaid Mastercard card per referral, with a limit of $500 per calendar year.
- How to earn a reward: After a customer joins T-Mobile’s Refer-a-Friend program, they receive a unique link to share with their network. Referred customers use this link to activate a new account within 15 days of accepting the referral. The referrer will receive the reward once the referred customer has been active for 30 days.
Frequently asked questions
There are a few different ways to generate customer referrals effectively, including:
Creating and promoting a customer referral program
Offering gift cards, discounts, or other incentives to current customers
Exceeding client expectations and providing excellent customer service
Engaging with existing customers online
- Providing valuable services or products that meet customer needs
The most successful customer referral programs provide incentives and rewards for current and prospective customers. They also focus on building relationships and fostering loyalty. Here are some brands with effective programs:
Harry’s
Stitch Fix
Dropbox
Quip®
Google Workspace
T-Mobile
Not every business needs a customer referral program, but there are various benefits for companies that create them. These programs help lower customer acquisition costs, strengthen loyalty, and decrease customer churn rate, significantly improving a business’s bottom line. Referrals are also more likely to convert to paying customers than leads brought in through other sources.
When choosing a customer referral program, consider:
Your budget and goals
What your customers want and need
The channels your target audience uses
What type of program you want to create
What type of rewards or incentives to offer
When to ask for referrals
The software and tools to invest in to help implement and streamline your customer referral program
Supercharge your growth with a customer referral program
While positive customer reviews can motivate people to buy a product or service without incentives, customer referral programs provide powerful growth channels for today’s brands, benefiting both referrers and referrals. By offering rewards and incentives, these programs help turn one-time buyers into loyal customers, increasing customer retention. Leverage our customizable customer referral templates to start growing your referrals today.
