How To Increase Sales Through Customer Referrals

Create a customer referral program

Think back to the last time you bought something you really loved. What did you do when you got it? You told your friends and family about it. “Hey, check out this cool new thing I bought. I found it at xyz.com. You should buy one too!”

Wouldn’t it be amazing if your customers did that for your products. People pay two times more attention to product recommendations they get from friends, making them more likely to buy your products if one of their friends has recommended it. In fact, people who reach you via a customer referral are less likely to leave and more likely to spend more on your site. That’s how powerful referrals and word of mouth can be.

Dropbox, while not technically an e-commerce site, is one of the best example of how referral marketing can fuel growth. Initially, Dropbox used traditional advertising methods and affiliate marketing to acquire customers, and they were paying $288-$388 per acquisition. That wasn’t a great business model since they were only making $99/year from every customer. They’d need to wait 3 years to make back the money on each customer.

That’s when they decided to set up a customer referral program, and it immediately bore results. They permanently increased sign-ups by 60% with users sending 2.8 million referral invites to their social networks in April 2010 alone. The best part is, they had no advertising spend on this campaign, so they got new users almost for free.

It’s obvious that referral marketing works, so if traditional advertising is killing your e-commerce profits, it’s time to consider setting up your own customer referral campaigns. You see, 83% of your customers are actually willing to refer your products to other people, but only 29% actually do. That means there’s a gap you need to fix.

Here’s how you do it –

Step 1: Make your product exciting

Getting customers to refer your products won’t work if they aren’t excited about them. They might be happy with the product but they won’t go out of their way to tell people about it. You’ve got to make it unique in some way that they can’t wait to tell friends.

Design

Amazing designs are always talked about. Take Apple products for example. Sleek, minimal designs make them look so good, in turn making the owner look good. People love showing off their new tech, especially back when not everyone had a smartphone.

Performance

Products that don’t work get talked about all right, but that’s the kind of publicity you don’t want. What you want is exceptional performance, which will make customers swear by your products. Again, take Apple computers and laptops. Back when I had a Windows machine which would crash on me every day, my friends would urge me to buy a Macbook.

Service

If you’re selling other brands you can’t change the design or performance, but you can change customer service. Great customer service makes customers feel great, and they’ll want to share their experiences with their friends. Zappos is the posterboy for customer service. The internet is rife with stories of them sending free shoes, delivering on the same day and exceeding customer expectations.

Step 2: Set some goals

It’s not enough to just introduce a referral program and forget about it. You need a clear idea of what you’re trying to achieve with the campaign. Set up targets that you want to hit for each month, like a 10% increase in sales, or $500 of revenue from customer referrals.

Start small, and if you blow through your targets, set higher goals for the next month. If you don’t reach your targets, then it’s time to look at your campaign and see what went wrong.

Step 3: Create incentives

To get customers to refer you, you need to ask them and give them a reason to spread the word. If they get something in return, they’re more likely to talk about your products.

Single-side incentives

A single-side incentive means only the customer gets something for referring you. This can be in the form of plain cash for each referral, loyalty points, discounts, or a percentage of referred revenue.

Double-side incentives

In this case you’re incentivising both sides, the original customer and the referred customers. So the original customer gets rewarded, but the people he refers you to are also further incentivized to buy something on your site.

Obviously, incentivizing only one side makes it cheaper because you only have one party to reward. On the other hand, incentivizing both sides might be more effective in generating sales.

Step 4: Tell customers to refer you

Letting customers know that there’s a referral program they can participate in is important. You already know they’re willing to refer you, now you need to give them a little nudge so that they actually do it. The incentives only make it more likely that they’ll tell others about you.

How you tell them is also important. You don’t want to hit them with a call to action before they’ve even bought anything, and you don’t want to remind them a year later.

One way to do it is to redirect customers to your referal program page right after they’ve purchased something. You can also have a popup immediately after they check out with their personal referral URL and social sharing options pre-filled with information about the product. This works because they just spent money and offering them rebates for referring your products means they’ll get back some of that money.

Another option is to send automated follow-up e-mail a few days after they purchased, ideally when the product has reached their house. That way they have already used the product and they’re excited about it. A nudge at this point will make them tell their friends.

Step 5: Use a customer referral software

To actually implement your referral marketing campaign, and track results, you’ll need to use a software. You can create your own custom software but that requires a fair amount of time and money for development work. Instead, there are many software-as-a-service apps out there built specifically for this.

Referral Candy – Referral Candy has integrations with all the major e-commerce platforms making set-up extremely easy. Just pick your platform from their page and connect the app to your store. You have a whole lot of options to choose from when creating incentives and telling customers about your program. They also provide data on an individual level so you can go pretty deep when analyzing your campaigns. Their pricing is commission based, which means they take a cut of referral sales.

Ambassador – Ambassador is a powerful system that allows you to create refer-a-friend campaigns alongside affiliate campaigns. They have integrations with various e-commerce platforms, e-mail services, payment processors and marketing softwares. Everything is automated, from sending e-mails to paying out referrers. Their pricing is a combination of monthly subscriptions and percentage of rewards earned.

FriendBuy – FriendBuy is used by e-commerce companies like DollarShaveClub and BirchBox. What makes FriendBuy cool is their A/B testing features, allowing you to split test your referral programs. You can also track your performance and footprint across social channels where your customers share their referral links. Pricing is a flat rate per month without any commissions.

S-Loyalty – S-Loyalty is a loyalty program with a refer-a-friend component. The app has direct integrations with the top e-commerce platforms. Because it’s also a loyalty program app, you can reward customers with loyalty points for referring your store. For double-side incentives, you have the option of asking referred customers to sign up to your newsletter before they can access their reward. Pricing is pretty low, starting at a flat $9.99 a month.

Curebit – Curebit is an enterprise referral app that integrates directly with your e-commerce platform. Bonobos reported that 25% of their new customers in 2012 came from their referral program using Curebit.

Referral Saasquatch – This one is specifically for subscription businesses, so if you have an e-commere subscription store you might want to check this out. They have direct integrations with payment platforms and subscription management systems making it easy to track and pay referrals. Each time you acquire a customer with their system, they take one month’s revenue for that customer as payment.

AddShoppers – AddShoppers has a whole suite of social marketing apps and plugins for e-commerce sites on every platform. This includes their customer referral app with all the standard reward creation and tracking tools. You can use this in tandem with their other apps to boost your referral campaigns. Pricing is based on traffic to your site.

Invitebox – Invitebox doesn’t have a direct integration with e-commerce platforms. Instead you place a code for their widget box on your site. What’s interesting is the various reward programs you can set up. You have instant rewards or goal-based rewards, as well as options for contests, sweepstakes and giveaways.

InviteReferrals – InviteReferrals also has multiple campaign types. You can set up instant rewards, goal-based rewards or referral contests. The app can be integrated with your site by embedding a code or set up in your Facebook timeline. Pricing is based on the number of customers actually participating in your referral program and starts from $0/month.

RewardStream – RewardStream has been around for a while and they have a robust refer-a-friend app called Spark. Their automated remarketing tools allow you to keep reminding customers to refer your products. This makes sure that your referral program is on top of their minds and improves engagement in your program. They also have a variety of reward options including third-party girft cards and Visa reward cards.

Campaigned – Campaigned is a pretty simple and easy referral app. It allows you to create a landing page for your program and share the URL to customers. Customers can then come to the page and enroll in the referral program. You set rewards as a fixed amount or percentage of sales, and referrers can give out discount coupons to friends. Pricing is a flat $25/month.

SocialTwist – SocialTwist is an enterprise platform with a suite of social marketing tools including various referral marketing solutions. Apart from the standard refer-a-friend solution, and the equivalent member-get-member solution for subscription businesses, SocialTwist also allows employee-based referrals, promotions and product launches, and other custom programs like seeking referrals to publicize causes you support.

Forewards – Forewards will be releasing soon for Shopify and you can get in on their list to get notified when it’s out. They allow you to create multiple referral programs and help you target the right customers with the right offers. This lets you determine what works and what doesn’t so that you can optimize your campaigns.

Step 6: Track and tweak

With your program and targets set up, it’s time to start tracking performance. Many of the aforementioned softwares allow you to test multiple programs and track data on each one.

You want to determine if your referral program is actually driving new customers and new sales, and whether the cost per acquisition is lower than traditional marketing methods.

If customers aren’t referring then maybe the incentives aren’t strong enough. Increase them but make sure you don’t increase them too much or you’ll cut into margins.

If customer referrals are high but you’re not making sales, then maybe you need to provide more incentives for referred customers to purchase something. Again, you don’t want to discount your products too much for referred customers or you’ll shrink your margins.

Finally, try different reward levels for different customers. Some will be more active in your program and giving them better incentives will drive them to refer more. These influencers can become brand ambassadors, advocating your company to more than just friends and family.

So go ahead and set up your referral program. In a later post we’ll discuss how to optimize your campaigns and get the most out of them, so subscribe for updates. If you’ve already got a referral program in place, please share it with us in the comments and tell us which software you’re using.

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2 Comments

  • Wow, masterfully put together! I’m going to be sharing this with a lot of people for sure. Thanks for writing this!

  • Jason Dea

    Reply Reply June 19, 2014

    Thanks for the Forewards mention. We’re amped for our upcoming release, and so far the initial beta feedback has been great. Stay tuned!

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