Ultimate Guide to Marketing a Store - Chapter 3 Referral Marketing

How to Make a Referral Program Work for You

Having a referral program has many benefits. Not only is it the fastest way to get more people into your sales funnel. But it is also a great way to promote your brand and let your business spread through word-of-mouth.

A referral program gives your business a tool to help your customers refer your business to other people. With it, you give your customers another reason to talk about your business aside from just good service. You give them an incentive that can come in the form of cash, a single-use coupon, a multi-use coupon or other forms of benefit.

Why does a Referral Program Work?

A referral program works because of

Referral marketing works because of two reasons:

It Works Because its Goal is Not Sales

People know a salesperson from a thousand miles away. They know if you are in it for the money or you are willing to lose money to get exposure. And if they see that you don’t care about the sales. That’s when your customer eyes light up. Suddenly, they are paying attention. Suddenly, they want to know what you have to offer.

This is how referral marketing works. You give them an incentive that they cannot refuse. For Uber, it is a free ride. For PayPal, it is plain cash. For eCommerce websites, it can be a discount coupon. And then you give this incentive to them without asking them to spend money. This makes the offer very attractive.

It Works Because It is Based on Trust

Real marketing is based on trust. People buy not only because they think that you have an amazing product or service. They buy because they trust you.

This is the same concept that works in referral marketing. When you have a referral program, you ask people to refer their family and friends to sign up in exchange for a reward.

This works because the person promoting the program is a person that they trust. It is a friend or family member. It is not just anyone. This trust factor encourages them to sign up and their engagement is far better than ice cold leads.

Now that the importance of a referral program is emphasized, let’s dive into the setup process.

Most marketers dismiss the idea of having a referral program in their website or business because the process can be quite complicated. Not only are you required to configure plugins, widgets or tools for it to work. But you also need to know how to promote it to really see its benefits. For a business owner who already have too much to do, this can get overwhelming.

Today, you’ll learn the step-by-step process on how to set up a referral program for your website or business.

How to Reward People in Your Referral Program

Referral rewards can take on different forms. You have to decide on two factors: what type of reward to give away and who to give it to.

Let me break down these decision points for you.

First, you have to decide on the type of reward to give away.

You see, rewards can come in different forms. It can come in the form of cash, single-use coupons or licenses, multi-use coupons or licenses and other forms of product or service. The key is to choose a reward that suits the product or service that you are giving away.

Choosing will require you to examine different facets of your product or service.

First, you should know if the product is designed for one-time purchase or multiple and continuous purchases.

For one-time purchases such as a car, cash may be the best incentive. It would be irritating to receive a 50% discount coupon for your next purchase if you buy a car. It is like giving away something that your customers will not be able to use.

Mattress company Leesa knows this and they give away $50 for every friend referred to the company. The usual price for a mattress is $890. As for me, I apply the 100-rule. This is where we give cash discounts for products more than $100 and percentage discounts for products that are priced below $100. Simple, right? Since mattresses costs $890, it is more than $100. Cash is the best type of incentive for this type of product.

For multiple and continuous purchases such as groceries, single-use and multi-use coupons are the best incentives. Since the product is something that your customer will surely buy again, the coupons will encourage them to continue doing business with you.

Powder City, a supplements company, gives a 6% coupons for every referral. The nature of their product makes percentage discounts more attractive.

You can also give one-time coupons or percentage off for subscriptions for services. This allows the users to try your services before using it on a regular basis.

This is what Uber did. They gave away free rides to new users. This works because it takes away the apprehension or fear or using the service in the beginning. Since it is free, the customer has nothing to lose.

Videoblocks also did the same when they give 90% off their annual subscription (getting the price down to only $99) along with $20 for every referral.

For coupons, you can choose to give fixed cash discounts ($25 off) or a percentage discount (50% off). Again, this will depend on the price of your product or service.

Second, you need to decide on who to give your reward to.

When implementing a referral program, you’ll find that there are two types of people involved: the referrer and the friend. You have the option to give your reward to the referrer or you can give it to a friend. You can also give rewards to both. It is all up to you.

Some businesses even choose to split the reward instead. Let’s say that you are planning to give away $50. You can then choose to split the reward between the referrer and the friend. You can give $25 to the referrer and $25 to the friend. Or you can give more to one party. You can give $30 to the referrer and $20 to the friend. The amount depends on your personal preference and the demand of your customers.

How do you know if you have chosen the right reward and right person? Well, that will really depend on your customers. It is better to ask them about it by having a survey on your website or just ask them to fill up a simple feedback form.

How to Set up a Referral Program

In the first step, you took a closer look at the incentive. In the second step, you’ll look at the people that you would like to attract to your program.

First, you need to determine the type of referrals that you need. This is quite similar to defining your target market or coming up with a target persona.

Think about the type of person that you like to attract to your program. Is it a man or a woman? What is his greatest desires that you can satisfy? What is his hobbies? What type of work does he do? What topics is he interested in? What are his expectations for your product or service?

List these down. Put a picture with the persona if you need to. This will encourage you to see your target market as a real person with needs and desires.

Why do you need to do this? For proper targeting. You can only choose an incentive and type of referral program based on your target market.

Once you found your target persona, it is time to start looking for them. You need to do this before you set up your program because you need to get to know their behavior and culture to determine the type of referral program that will appeal to them. Social networks may be the best location to find them.

Next, you need to ask them about what they want. Conduct an online survey or interview. Message them about the type of products and services that they like. This will give you an idea on the type of incentive that you should give.

Once all of that is sorted out, it is time to create your referral program. For that, you will need some tools.

1. Referral Program Software

referral program software can aid you if you know nothing about coding a website. What this tool does is that it can be installed as a plugin or embedded into your website and it will instantly generate a customizable referral form in your website. The great thing about these tools is that you no longer have to worry about coding. Just install it, customize and you’re ready to go.

2. Analytics Software

Analytics is very important in referral marketing. It allows you to track how much traffic is coming in and how many people are referring friends into the system. You need this in order to track the conversions of your referral program.

3. BONUS: Email Marketing Tools

You may also want to connect with your followers through email. For this, you can use tools such as Mailchimp, Aweber and other email marketing tools.

Top Ways to Promote Your Referral Program

A referral program without promotion is useless.

This is what happened to AirBnb when they first launched a referral program. The program is called Referral 1.0. It was perfect. Everything was in place and the tool is working. You can easily refer friends when you visit it and you get free money for every action they take. Imagine, just from referring a friend, you can get as much as $75 when they book a place.

Amazing, right?


What they did wrong is that they did not promote the referral program.

The result?

It failed. AirBnb hardly got any new sign-ups.

But Airbnb did not give up. In fact, they decided to try again. They did with Referral 2.0. And it was a success.

What made it a success is the contact importer that they built into the program. When someone installs the app, they have this option to import all of their contacts and invite them to the app in a single click.

The result?

A massive 900% annual increase for their business.

This is an example of referral marketing done right.

While you may not have the programmer to give you a contact importer, this shows how important it is to show your product or service to as many eyes as you can. Promotion, after all, is not just about advertising on Facebook or doing classic forms of promotion. Be creative. The key is to get the word out there and funnel them into your referral system.

Also, make sure to test the conversions of your referral system. There are so many marketers who just choose a tool or plugin, launch a referral form and think that it is a successful referral program. It doesn’t work that way. You have to see how much traffic is coming to your website and how many people are converting and referring their friends. You don’t have to get fancy here. A simple analytics tool will do.


There is a risk to try to be perfect when creating a referral program. Don’t do that. It will only stop you from launching it. Instead, talk to your customers about what they want or test some referral programs and track its conversions.

For some people, a referral program may seem like an optional form of marketing. But it is the magic behind big companies like AirBnb, PayPal and Uber. It is the secret behind how apps are able to gather a significant number of people and became the primary solution for users.

So if you run an eCommerce website or just have a product or service that is worth promoting, be sure to do referral marketing. It may be the missing piece that you’re looking for. Companies like PayPal is able get millions of users because of it. It is about time that you also do that for your business.


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